Zhao Yanjing

Zhao Yanjing is an urban planning scholar and a professor-level senior planner. He formerly served as deputy chief planner of the China Academy of Urban Planning and Design and director of the Xiamen Municipal Planning Bureau, and has long focused on land finance, the housing system and urban development. He graduated in urban planning from the Chongqing Institute of Architecture and Engineering and worked at the China Academy of Urban Planning and Design for nearly 20 years; from September 2004 he served for 11 years as director of the Xiamen Municipal Planning Bureau, and by his own account he truly turned to research on institutions and growth theory from 2004. From 2015 he has been a jointly appointed professor at the School of Architecture and Civil Engineering and the School of Economics of Xiamen University; in 2024 he was vice president of the Urban Planning Society of China. He describes his academic career as falling into three stages: the planning academy, the planning bureau and the planning department.

Zhao Yanjing divides economic development into two stages, capital-based growth and operation-based growth: the former is a stage of spending money, in which China relied on land finance to solve the problem of capital and rapidly completed the accumulation of heavy assets; the latter is a stage of earning money, in which the key is whether cities can be profitable over the long term and repay their construction investment. He believes that success in the high-speed stage may become a problem in the high-quality stage; after moving to Xiamen University in 2015 he theorised this as a “two-stage growth model”, and predicted that land finance and real estate would transform along with the transformation of urbanisation.

In early 2022, Zhao Yanjing argued that what brought about China’s dramatic changes over the past 40 years was land “finance” in the sense of financing rather than land “public finance”, and that only after land financing completed its mission in the next 40 years would there be a shift to land public finance. He holds that modern growth obtains its original capital by discounting future returns; the 1982 Constitution stipulated that urban land is state-owned, so local governments could mortgage land not yet requisitioned to raise funds, and then requisition, develop and sell land to repay the loans; with the “two permits and one letter”, planning bureaus sat at the core of land finance and real estate.

In December 2022, Zhao Yanjing assessed land finance with “credit” as the main thread. He pointed out that the breakthrough in China’s urbanisation began in the late 1980s, when the special economic zones imitated Hong Kong in raising funds by selling land use rights; in 1987 Shenzhen held the first public land auction, and the constitutional amendment of the following year provided a basis for land transfers; the tax-sharing system of 1994 laid the institutional foundation for local land finance, which was perfected by the housing reform of 1998 and the tender, auction and listing system of 2003. Nationalisation of land created the conditions for the government to monopolise the primary market, and land finance converted hidden wealth into capital for urbanisation; the United States, too, historically relied mainly on public land revenue. He recalled that in 2003 it was stipulated that land for commercial housing must be sold by tender, auction or listing, with August 31, 2004 as the deadline, the so-called “831 deadline”; thereafter land changed from a buyer’s market to a seller’s market, local revenue grew rapidly, and infrastructure investment relied almost entirely on land sale proceeds. He described planning bureaus after 2004 as changing from the “steering wheel” to the “engine”, with planning deciding whether land was valuable, and maintained that the basis for land finance was its directly observed effects.

Zhao Yanjing believes that land financing underpinned China’s vast infrastructure, allowing the government to bear the heavy assets while enterprises held light assets, and created capital for investment in fields such as high technology and the military; he does not accept the claim that real estate crowded out the real economy. But he judges that this growth is hard to sustain: urbanisation is nearing its end, the urbanisation rate first exceeded 50% in 2011 and was about 56% in 2015, built-up area expanded from 7,000 square kilometres to 100,000 square kilometres, and cities are far ahead relative to population. In December 2022 he discussed the problems of land finance and the risks of exiting it, arguing that its essence is financing, which dictates that land and housing must be investment goods, widens the gap between rich and poor, creates “ghost buildings” and “ghost towns” and brings financial risks; he argued that land finance should not be lightly abandoned before an alternative financing model is found, that one should “accumulate small reforms into a big reform”, and that as urbanisation advances there should be a gradual shift to giving equal weight to direct and indirect taxes, with property taxes levied category by category.

In early 2021, Zhao Yanjing made an argument about the housing system from the perspective of wealth distribution, proposing the concept of “social wealth” and arguing that an individual’s ability to access social wealth determines the gap between rich and poor more than differences in private wealth; public services in Chinese cities are mostly tied to housing, so housing is the main interface for accessing social wealth. Citing 2019 data, he said that net housing assets accounted for 71.35% of household wealth for urban residents and 52.28% for rural residents, and on this basis argued that housing must have broad coverage, since only fair ownership of housing allows fair access to social wealth.

In May 2022, in an interview, Zhao Yanjing addressed the sharp fall in residential sales in the first quarter and the limited effect of loosening measures, attributing it to three causes: an excessive supply of commercial housing that had not been cleared, policies suppressing home prices that had not been corrected, and a one-sided interpretation of “housing is for living in, not for speculation”. He pointed out that state-owned enterprises buying land did not solve the problem on the demand side, that the industry must shift from incremental to existing stock and from heavy assets to light assets, that the key in future would be turning existing stock into cash flow, and that property management might become a new blue ocean. He believed that failing to revive real estate in the short term would lead to a systemic financial crisis, that the correct slogan should be “real estate must not be used as a long-term means of stimulating the economy”, and that the most urgent task at present was to stop the bleeding; he argued that unfinished buildings should be liquidated or put into bankruptcy as soon as possible, with the government buying them back at a discount if necessary; that presales are essentially financing and should not be restricted across the board; and that shared areas are in essence the difference between “net weight” and “gross weight”, the real problem being fragmented property rights. He also held that commercial housing is in essence about “speculation” and cannot solve “living”, which can only rely on policy-based affordable housing; affordable housing should be linked to tax payment, and its scale should depend on the employed population. He argued that the government should design a business model in which the cash flow from affordable housing covers its costs and keep the costs of land requisition and demolition down, and he held that equal rights for renters and buyers cannot meet the investment demand for commercial housing, that real estate is a tool for preserving household wealth, and that the disappearance of the market would be a huge loss.

In an article analysing the real estate situation from the same period, Zhao Yanjing judged that real estate could turn into a “crisis”, arguing that the rapid economic decline since 2021 had been caused overwhelmingly by the decline in real estate, and that it was very likely real estate that would trigger systemic risk; the shocks of the epidemic and the international situation were “flesh wounds” that would cause overall chaos only if transmitted through the financial system. He recalled that China’s emergence from the three crises of 1989, 1997 and 2008 was in each case related to real estate: the 1990 Interim Regulations on the Assignment and Transfer of the Right to Use State-owned Land in Urban Areas made urban land a valuable asset; the 1998 housing reform turned urban households into a propertied class and revived unfinished buildings; and of the “four trillion” stimulus of 2008, local governments bore about 3 trillion, ultimately leveraging supporting investment of as much as 30 trillion yuan, with their financial resources coming from the surge in land revenue after the “831” tender, auction and listing reform of 2004. He believed that the root of the problems in real estate policy was setting “living” against “speculation” and treating new supply as the whole of real estate; the main function of real estate is not direct financing but the creation of credit, and the portion of real estate that is traded merely discovers a price and creates liquidity for the real estate that is not traded; past policies of “increasing volume to restrain prices”, together with shantytown redevelopment, demolition of urban villages and urban renewal, had created oversupply, and in the third quarter of 2021 market expectations suddenly switched from “supply falling short of demand” to “supply exceeding demand”, whereupon assets immediately lost liquidity. He argued that emergency treatment required strong medicine: withdrawing ill-suited suppressive policies and lifting price caps by category; shifting from price management to quantity management; replacing home prices with the destocking cycle as the core assessment indicator; determining land supply according to the destocking cycle and halting new land supply in cities that failed to meet the standard; large-scale government buybacks of land and commercial housing if necessary; and halting all projects that would substantially increase the supply of commercial housing. He warned that if the market were not quickly “put on a ventilator”, the real estate market was in danger of Japanification.

To address the misallocation of resources under land finance, Zhao Yanjing proposed using the destocking cycle instead of home prices to assess the health of urban real estate, tilting land quotas towards cities with high demand, and establishing a mechanism for transferring tax revenue from regions that “occupy” farmland to regions that “protect” it. He described an “incentive-based fiscal transfer” system: the central government levies taxes according to the scale of construction land and makes refunds according to the quality and area of farmland, turning farmland protection into a profitable commercial activity and putting into practice the “linking of people, money and land”.

Zhao Yanjing has discussed the rise and decline of cities in the high-quality stage from a planning perspective, arguing that past planning concepts were suited to the high-speed stage, while the goals and methods of the high-quality stage are different; the depreciation of large railway stations, large airports and the like is counted as government expenditure, and if facilities cannot earn money, cities may go bankrupt. Citing the simplicity of urban facilities in British and French cities as examples, he pointed out that behind the glossy new districts of some Chinese cities lies the decay of old districts, and judged that future competition among cities would be brutal and that many cities would go bankrupt.

In December 2022, Zhao Yanjing analysed globalisation through balance sheets, dividing countries into capital countries and manufacturing countries and arguing that balance sheet contraction in capital countries would lead to asset contraction in manufacturing countries; globalisation over the past 20 years had approximated a two-country relationship between China and the United States, and decoupling would cause both countries to experience balance sheet recessions with opposite symptoms at the same time. He stressed that the weakness of China’s balance sheet lies on the debt side, that the key is the capital market, and that the key to building a capital market lies in real estate; the countercyclical expansion of 2008 relied on real estate to underpin commercial banks’ collateral assets, and in 2022, if the second balance sheet could not be repaired, it would be difficult to repeat. He believed the housing market was the only capital market that combined good liquidity, large scale and high valuation, that policy should shift from “increasing volume to restrain prices” to “restraining volume to protect prices”, and that land and unfinished buildings should be bought back to restore liquidity; the United States’ direct rescue of the capital market had worked better than Japan’s fiscal expansion, and China should build a strong capital market, swap local government debt for long-term treasury bonds, build investment banks and a renminbi futures market, and be alert to the fact that land revenue is in reality a “liability”.

On the question of expanding domestic demand, Zhao Yanjing believes that policies such as subsidies and tax cuts, handing out money, stabilising employment, raising the share of household income in distribution, increasing transfer payments and raising social security and welfare spending can only change the structure of domestic demand, not its total volume, and amount to “pseudo domestic demand”. He opposes setting consumption against investment, arguing that every cent of consumption is someone else’s investment, that the two are the same fixed-asset item on the balance sheet, and that expanding domestic demand means expanding investment; investment can go into new fixed assets or into the existing equity market, and the latter likewise creates money and expands domestic demand without accumulating excess capacity. He advocates opening the stock market to public capital, giving land funds, pension funds, social security funds and bond funds priority rights or even monopoly rights in the stock market similar to those local governments have in the primary land market, and allowing banks to include the purchase of highly liquid ETFs among their tools for money creation.

Zhao Yanjing regards the quantity of money as the total volume of consumption, arguing that banks must buy highly liquid assets in order to sell money, and that the main function of the equity market is to raise the liquidity of assets; a large part of M2 is a “money inventory” sitting within the banking system and is not effective money. He pointed out that during periods of economic contraction market participants rush to repay debt, so that however loose monetary policy is, it is hard to get funds to flow into the market, forming a “liquidity trap”; breaking the recessionary spiral requires someone to borrow against the market trend and shift investment from fixed assets to the equity market. He summarised his three core policy recommendations as pushing up the stock market, stabilising home prices (stability requires expectations of appreciation) and stabilising local government debt, arguing that China’s current problem is contraction on the debt side and that expanding the equity market would be enough to repair the macroeconomy; China has a large labour surplus, unlike the asset-side constraints Japan faces with population ageing, so the same expansion on the debt side would have different effects, and China should draw on Japan’s experience in light of its own economic characteristics. He has also explained fertility rates from a monetary perspective, arguing that the main economic function of the family system is intergenerational mutual insurance, that modern social insurance and pension systems use money in place of the next generation to provide for old age, weakening the economic significance of having children, while modern pensions are in essence still the next generation supporting the previous one, so a shrinking population will make pensions unsustainable; he therefore advocates that people with children receive a larger share in pension distribution, and says this explanation is for now only an academic conjecture requiring more cases to confirm it.

In December 2023, Zhao Yanjing wrote that the Guiding Opinions on the Planning and Construction of Affordable Housing, adopted at the State Council executive meeting on August 25, 2023, had ushered in a dual-track system for real estate, namely “commodities are commodities, and protection is protection”, and was the most valuable policy in the real estate field in recent years; the most important thing in 2024 was to speed up implementation of the policy and restore market confidence. He argued that real estate cannot be viewed only in terms of new supply: according to the Seventh National Population Census, China had an urban population of 900 million and an urban housing stock of as much as 33.3 billion square metres, of which housing built before 1990 accounted for 8.7%, about 2.9 billion square metres, and housing built before 2000 accounted for 27.5%; by 2030, housing more than 30 years old would reach 9.2 billion square metres, and renewal of the existing stock would be a blue ocean. Citing an estimate by Bloomberg Economics that every 5% fall in home prices wipes out 19 trillion yuan of real estate wealth, he stressed that rescuing real estate was not about selling more homes and land but about restoring the liquidity of real estate as an asset, and that price recovery should be treated as a more important goal than volume recovery; in 2024 the top assessment indicator for first- and second-tier cities should be whether real estate prices had stabilised. He advocated reducing the total supply of real estate and adhering to “setting land by population, setting land by housing, and setting money by housing”, resolutely shrinking land supply in cities with net population outflows and excessively long destocking cycles while freeing up the supply of high-end upgrade housing; in cities with a real estate glut, land and commercial housing should be decisively bought back and converted into affordable housing, with financial support from the central government if necessary. On local government debt, he suggested that the central government promptly verify social debts such as local governments’ arrears on construction projects, with those meeting the requirements redeemed directly at a central bank debt window, converting local social debt into national debt owed to the central government; after the central government issued low-interest treasury bonds to repay on their behalf, a dedicated asset management department would be set up to take over the corresponding assets and revive them through fees or entrusted operation; he considered liquidating local liabilities a better way of handing out money than handing out money directly. He also pointed out that new commercial housing starts had fallen 60% from their peak, a contraction more severe than the collapse of Japan’s bubble, and that affordable housing should be built on as large a scale as possible and regarded as strategic infrastructure similar to the expressways of 1998 and the high-speed railways of 2008; according to the Seventh National Population Census, less than 45% of the urban population owned their own homes, while the remaining 55% lived in rented accommodation.

In May 2024, Zhao Yanjing wrote about the new real estate policies introduced on May 17, arguing that their forcefulness had shaken the market and that their significance far exceeded that of an ordinary market rescue. He pointed out that this economic downturn originated in a balance sheet recession triggered by the suppression of real estate: China’s asset side, based on manufacturing, is strong, and the problem lies on the debt side; real estate accounts for a very large share of the equity items on the debt side, and falling home prices caused banks to lose their money-creating function and the debt side to contract sharply, whereupon the asset side became comprehensively excessive; therefore rescuing real estate was only a means, and rescuing the debt side was the end. He analysed that under China-US decoupling both sides had a gap between the asset side and the liability side, and whichever had the smaller gap would be more resistant to recession; China needed external demand to make up the gap on the debt side, while the United States made up the asset side through “attracting deposits with high interest rates” and maintaining the stock market bubble, and used tariff increases to prevent China from using external markets, while China-Russia energy trade settled in renminbi had expanded demand for the renminbi and offset the impact of US tariff increases. He argued that among the stock market, bond market and housing market that make up the equity items, real estate carries the greatest weight, that the scale of existing real estate is far greater than that of new supply, and that home prices and land prices matter far more for equity valuations than the scale of new supply. He assessed that the central bank’s interest rate cuts and lower down payments, combined with the Ministry of Natural Resources reducing land supply according to the destocking cycle and localities abolishing price caps, purchase-eligibility restrictions and floor-area-ratio caps, marked a 180-degree policy turn from “capping prices and increasing volume” to “capping volume and protecting prices”, with supply-side policies more important than demand-side ones; the central bank’s 300 billion yuan relending facility for affordable housing, supporting localities in buying completed but unsold commercial housing for use as affordable housing, had opened a channel for the central bank to inject money through the capital market, but relative to a severely oversupplied market it was still a drop in the bucket. Citing estimates, he said that bringing the destocking cycle down to 18 months to clear the market would require at least 1 trillion to 5 trillion yuan; the 300 billion yuan, with relending issued at 60% of loan principal, would only drive about 500 billion yuan of bank lending, and local governments’ financial resources were limited, so the central government needed to issue treasury bonds on the scale of trillions of yuan specifically for buying up existing housing stock. He also cited the 30-year ultra-long special treasury bonds issued on May 17 as an example, pointing out that their issuance size of 40 billion yuan, coupon rate of 2.57% and marginal subscription multiple as high as 382.6 showed that China’s shortage of risk-free assets was large and that there was still room to issue treasury bonds.

Zhao Yanjing also argued that cutting real estate supply would hit upstream and downstream industries and employment, and that urban renewal should play a strategic role. Based on the roughly 9.2 billion square metres of existing stock awaiting renewal mentioned above, he estimated that if renewal were completed over 5 years, it would average about 1.2 billion square metres a year, essentially the same order of magnitude as the 1.67 billion square metres of new starts at the real estate peak in 2019. He believed that the previous model of demolition, increased density and resettlement financed by real estate no longer worked, and that a new model of owner-led renewal was needed, using owners’ credit to finance property renewal: since no land cost is involved, the cost of renewing old housing is generally less than one-fifth of that of commercial housing of the same area, and in high-price locations even less than one-tenth; the principal of loans secured on the property could be offset when the property rights are traded, so owner-occupiers would only need to pay interest; after renovation the property’s value would be far higher than the cost, making it safe collateral, and it could also drive employment in construction, building materials and finance as well as consumption of durable goods, while creating new money through bank lending and driving expansion of the debt side. He stressed that the weak point of China’s balance sheet is the debt side, that the scale of the debt side sets the upper limit of the scale of the economy, and that the May 17 new policies were not an emergency tactic but a grand strategy bearing on the overall situation.

In May 2024, in an interview with Guancha, Zhao Yanjing said that national real estate development investment fell 9.6% year on year in 2023, that this round of real estate decline was different from previous ones, its root being that urbanisation was nearing its end and the transfer of rural population to cities was stabilising, and that real estate would continue to decline. He believed that 2024 was a key turning point, that the real estate problem was in essence a financial problem, that China’s money issuance was closely tied to real estate, and that the decline in real estate was causing money and debt to shrink, so the decline had to be stopped. He advocated drawing on the Singapore model and implementing a dual-track system of affordable housing and commercial housing: affordable housing would secure housing and stabilise society, while commercial housing would preserve liquidity and perform a financing function; the higher the proportion of affordable housing, the more stable the market, while commercial housing must be kept in short supply to maintain liquidity. He criticised the past policy of “increasing volume to suppress prices”, arguing that the supply of affordable housing should be increased and land for commercial housing reduced, and pointed out that the 2023 Guiding Opinions on the Planning and Construction of Affordable Housing clearly establishing the dual-track system was an important turning point, and that affordable housing construction should have been started five or six years earlier. On the specific design of affordable housing, he held that it must be cheap and cannot be more expensive than the market price, but that government-subsidised construction is unsustainable, so the source of funds must be solved first. He argued that eligibility for affordable housing should be linked to employment and payment of the five social insurances and housing fund rather than simply to household registration, with the government attracting enterprises to obtain tax revenue and using recurring tax revenue to cover affordable housing expenditure, completing the transition from one-off land sale revenue to sustained tax revenue. On closed management of affordable housing, he suggested setting a long lock-up period before resale, such as 20 or 30 years, so that buyers’ accumulated rent would be equivalent to a mortgage and on expiry they could pay a small additional sum to obtain full property rights, thereby bringing in private capital, expanding bank mortgage lending and driving the expansion of household balance sheets. He also held that affordable housing and commercial housing should be kept separate, with affordable housing aimed at groups unable to afford commercial housing, so that it would not hit the commercial housing market; for high-end demand, restrictions should be lifted, since the more expensive commercial housing is, the more land revenue the government can recover to subsidise affordable housing.

On the redevelopment of urban villages, Zhao Yanjing believes that the “shantytown redevelopment” model of turning urban villages into commercial housing cannot simply be copied. He pointed out that land requisition must now be compensated at market prices, and that illegal structures account for 70 to 80% of urban villages, so compensation costs are extremely high; costs can only be recovered by increasing density and selling commercial housing, and if home prices fall and the homes cannot be sold, the government will fall into a financial trap. He stressed that urban villages actually perform the function of affordable housing, providing low-cost housing for large numbers of migrants, serving as a “regulator” of urban functions and as an important support for the low-cost operation of manufacturing. Taking Shenzhen as an example, he said that urban villages account for about 60% of Shenzhen’s total housing supply and that more than 70% of its permanent residents live in urban villages, allowing Shenzhen to maintain its manufacturing competitiveness despite high home prices. He advocated that urban villages be renewed and redeveloped on their own initiative, with possible government subsidies, rather than being entirely requisitioned and demolished, and argued that urban villages are inherently unable to enter the market and can only be rented out, so they can maintain their affordable housing function.

On local government debt, Zhao Yanjing pointed out that Chinese local governments borrowed using land as credit and built world-class infrastructure, an important source of China’s competitiveness. But local debt has fixed terms and interest, while infrastructure has long payback periods, and the mismatch between the maturities of debt and returns has left some local governments under repayment pressure. He believes that debt cannot be viewed in isolation from assets, that the Chinese government has accumulated an enormous quantity of assets over the past ten or twenty years, that the capital of the modern economy comes from discounting future returns, and that China’s debt is mainly domestic debt with strong capacity for credit creation. He advocates defusing local debt risks by rebuilding balance sheets, extending debt maturities and lowering interest, and believes that urban village redevelopment and affordable housing construction should avoid creating new financial traps. He further pointed out that local governments’ difficulty in repaying debt stems from maturity mismatches and bubbles, but the assets formed still generate returns; tax revenue is shared between the central and local governments while debt is borne by local governments, so the central government should take over part of the debt and assets and defuse the risks by swapping high-interest debt for low-interest debt and revaluing assets; he also acknowledged that some assets (such as “water authority buildings”) are hard to recoup, but stressed that the vast majority of assets are useful and that China has not arbitrarily printed money to hand out welfare. On a property tax, he believes that real estate accounts for a far larger share of credit sources in China than in other countries, and that levying a property tax would weaken the collateral value of housing; alternative capital markets such as stocks and treasury bonds must first be developed to create sufficient credit, otherwise shrinking debt would make everyone poorer; he does not oppose a property tax, but advocates “establishing the new before breaking the old”, and pointed out that direct taxes must be matched to the political system, so their introduction requires careful and comprehensive consideration.

On October 19, 2024, Zhao Yanjing spoke at Guancha’s “China Economic Quarterly Observation: Roundtable Discussion”, systematically setting out his thinking on expanding domestic demand. He argued that China’s economic problem lies not on the production side but on the demand side: however advanced new quality productive forces may be, if nobody buys, they are worthless; expanding domestic demand must start with consumption, and consumption is a function of money, with total consumption depending on the total quantity of money, so the problem comes down to money creation. In the era of credit money, money is created by debt and credit; consumption can rise only if net social financing rises, while deleveraging and debt repayment both destroy money, and when the total is falling, transferring wealth between individuals is meaningless. He pointed out that the problem with China’s balance sheet lies mainly on the debt side, which consists of equity and liabilities; within equity, highly liquid assets such as stocks, bonds and real estate are the collateral for banks’ money creation; real estate collateral accounts for more than 70 to 80% of Chinese bank loans, real estate’s share of the debt side is far higher than in other countries, more than 400 trillion yuan of assets lack liquidity, and the contraction of bank credit has caused consumption to disappear. He proposed three ways of expanding the debt side: first, the stock market, where the immediate boost to National Day holiday consumption after the small stock market surge at the end of September showed that the stock market is a fast variable, so liquidity should be released boldly to the market without worrying about “bubbles”, as cashed-out funds would flow into consumption and investment; second, the debt market, with the central government taking over local government debt and converting it into long-term debt, lending out the money sitting in banks and putting it into the market; and third, restoring liquidity to the real estate market, where the goal is not to sell more homes and land but to make prices rise and get the market moving.