December 9, 2021

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Private schools distort China’s property market, frustrating Xi’s egalitarian quest

Officials in an economic backwater in central China have struck upon a novel way to boost the local property market: schools funded by developers that have earned a reputation for getting their students into the country’s top universities.

Property sales in Hengshui, a city of 4.3m in Hebei province, are soaring despite recent attempts by the central government to rein in both runaway property prices and China’s booming private education sector.

“I have closed more deals over the past two months than the previous two years combined,” said Li Hongning, a real estate agent in downtown Hengshui. “Clients are willing to pay extra to finish the transaction as soon as possible.”

Xi Jinping’s determination to deliver “common prosperity” in one of the world’s most unequal societies will hinge in large part on his administration’s ability to rein in China’s runaway property market. The Chinese president has also pledged to equalise access to education, after cracking down on expensive private tutoring services last month.

But the degree to which good schools are continuing to distort property markets across the country suggests that even China’s most powerful leader in decades will struggle to overcome the market forces and local government interests standing in the way of his egalitarian goals.

“Beijing may not be happy about the Hengshui model, as it creates a property bubble and exacerbates education inequality,” said Dan Wang, an economist at Hang Seng Bank in Shanghai. “But local governments are keen to adopt the practice to boost the economy.”

Chinese president Xi JinpingChinese president Xi Jinping has often railed to little effect against runaway property prices © Leo Ramirez/AFP via Getty

Chinese property developers, led by industry leaders such as Vanke and Country Garden, have a tradition of building high quality private schools near residential projects to make the latter more appealing to home buyers.

New York-listed Bright Scholar Education Holdings, a unit of Country Garden, has grown to become one of the nation’s largest private school networks with more than 57,000 students.

Hengshui is no exception as parents have long been drawn to the city by the quality of its private schools, most of which have been funded by property developers and have garnered reputations for academic excellence.

The city’s average home prices have more than doubled over the past five years, while those in neighbouring cities increased by just 20 per cent during the same period.

The sales boom was triggered by the introduction of government rules restricting school places to the children of property owners. The requirement runs counter to central government policies aimed at reducing barriers to education and other social services in urban areas.

“Education in Hengshui is better than elsewhere in Hebei,” said Wang Xiaona, an office worker from Shijiazhuang, the provincial capital. “I have no problem buying an overpriced home as long as it helps my child get into a good school.”

This month Wang paid Rmb310,000 ($48,000) for a one-bedroom apartment, which will allow her son to enrol in a top-ranked middle school owned by one of Hengshui’s biggest real estate developers. Before the residency requirement was introduced, the flat was priced at Rmb280,000.

“Our economy thrives on the influx of students, which has benefited everyone from grocery stores to property developers,” said a Hengshui government official who asked not to be named.

Xi, however, has often railed to little effect against runaway property prices, saying that “homes are for living in, not speculating”.

Hengshui first outlined plans to expand its overcrowded school system a decade ago, when the then cash-strapped municipal government had no choice but to turn to deep-pocketed business owners for funding.

Property developers were quick to agree, betting that well-managed private schools would boost local home prices and also emerge as profit-centres in their own right.

“Local governments need us to build good schools to bolster the economy,” said a Hengshui real estate executive. “They are not able to do it on their own. It was a win-win for both us and the local government.”

Thanks to highly qualified teachers earning above-average salaries, and rigorous curriculums, Hengshui’s private schools now churn out students who excel at exams. In 2019, the city’s No 1 High School, owned by a local developer, accounted for 61 of Hebei’s top 100 college entrance exam results in Hebei.

“Give us an average student and we will return you a Peking University freshman,” said an official at Hengshui No 1 High, referring to one of China’s top-ranked universities.

Hengshui is now exporting its education-led growth model across the country. Over recent years Hengshui developers have opened schools in more than a dozen cities, most of them also under-developed.

Zhang Fuqian, a Hengshui-based developer and president of Taocheng Middle School, one of the city’s best, has opened a 15,000-student campus in Binxian, a rural county in north-eastern Heilongjiang province.

“The [local] government said the population and local home prices would decrease fast if I didn’t go there and open a good school,” Zhang said at a conference last month, referring to the sluggish housing markets and population outflows in Heilongjiang, as well as in nearby Jilin and Liaoning provinces.

Zhao Hongchen, governor of Binxian, said in April that the new Taocheng campus would “greatly meet education demand and promote economic development”.

Others, such as a Pan Guilan, a Binxian mother whose son did not score high enough to enter the new school, are more sceptical. She now worries that her son will be left behind.

“It is not fair for outsiders to steal our education resources,” Pan said.

Additional reporting by Tom Mitchell in Singapore and Xinning Liu in Beijing

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