The (geo)politics of land and foreign real estate investment in China: the case of Hong Kong FDI

Abstract

Market reforms and the relaxation of rules governing inbound investment have contributed to the growth of foreign investment in Chinese real estate. Although the property sector remains one of the most tightly regulated, property developers from Greater China have enjoyed relative success in the mainland market. Conventional explanations of such investment outcomes have often drawn attention to economic complementaries and cultural proximities. By tracing the development of Hong Kong investment in China's real estate from the late 1970s to the present, this paper demonstrates the importance of considering (geo)politics at both the national and ground levels in analysing bilateral economic relations. The geopolitical prerogatives of national sovereignty structure economic interactions between the Chinese state and the Special Administrative Region, while popular politics from the ground level up interacts with state-level geopolitics to affect and change policy outcomes. The shifting dynamics demonstrate that the cultural meaning and value of foreign capital are not static or fixed but rather open to continuous re-negotiation and contestation.

Keywords:

• real estate
• foreign investment
• China
• Hong Kong
• urbanisation

Acknowledgements

The author would like to thank Sin Yee Koh, Dallas Rogers and the reviewers for their comments on earlier drafts of this paper. The research assistance of Oriana Cheung, Peggy Ip and Ian Ho is greatly appreciated.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. See the Global Family Business Index compiled by the Center for Family Business at the University of St. Gallen, Switzerland, at http://familybusinessindex.com/#table-info

2. There are three categories of government budget in China, namely budgetary, extra-budget, and off-budget revenues. Prior to the 1994 tax reform, a fiscal revenue-sharing system was enforced where local governments were allowed to retain extra-budgetary revenues upon remitting the requisite amount of ‘central fixed revenue’ to the centre. This arrangement greatly strengthened the financial power of local governments, which prompted the central leadership to push forward a series of fiscal policies to re-establish its position in 1994. The reform readjusted central-local apportionments of tax revenues with the outcome of radically downsizing local revenues. The paucity of municipal finances led to the rapid growth of off-budget financing. Since off-budget revenues can be wholly retained, local governments had high incentive in raising and collecting off-budget funds (Wong, 1998).

3. In 1999, the Ministry of Land and Resources introduced Rules on the Disposal of Idle Land to prohibit developers from stockpiling land without commencing development. Measures introduced in 2005 gave local governments the power to take action on land parcels left idle for two years, and a State Council notice issued in 2008 further granted local governments the authority to impose tax, of 20 per cent of land grant premium, on sites left idle for a year, as well as the power to seize lots left idle for two years without compensating the developer.

4. See the corporate profile of New World China Land, updated as of 31 December 2014, at http://www.nwcl.com.hk/html/eng/corporate/nwcl_intro.aspx.

5. See the interactive news webpage at http://gz.house.163.com/special/gz_gztd/.

6. Closely following the incident, the central government produced an action plan that tightened rules on idle land and increased the responsibility of local governments in supervising all development projects. The action plan obligates land and resources bureaus at all levels to closely monitor the development progress of land parcels under its jurisdiction. Provincial-level departments are made responsible for reporting cases of idle land to financial regulators at the same level. The policy tightening of 2010 culminated in the release of a revised Rules on the Disposal of Idle Land, which came into effect in 2012. The new amendments formally incorporated the aforementioned measures and corrected loopholes in the 1999 version by refining the definition of idle land, specifying the procedures by which idle land should be determined and disposed of, and clarifying the responsibilities of the local government in enforcing the provisions.

Additional information

Funding

This research was supported in part by a research grant at Centennial College, Hong Kong [grant number CRG/14/01].