ref:topbtw-4024.html - 3 Agosto 2024
Amid China's prolonged property crisis, an urban legend has managed to take hold, going viral on Chinese social media: Shenzhen, a megacity
of over 12 million people in Guangdong province, is suffering from a boom in divorces.
The myth started spreading in the fall, when the third plenary session, or plenum, of the Chinese Communist Party's 20th Central
Committee was initially expected to be held.
In Shenzhen -- a symbol of China's surprisingly rapid emergence as the world's second-largest economy -- growing numbers
of couples struggling to sell their condominiums amid the property slump are magically turning their homes into cash through sham divorces.
Or so the story goes. Here's how it is often told, perhaps by a businessperson familiar with the local real estate market.
This person has heard about a middle-aged married couple that runs a business.
As their business was humming along, he says, the couple, who have one child, put up some money and took out a large loan to
buy a luxury condo in Shenzhen for more than $1.3 million.
Skyscrapers in Shenzhen.
Couples in the city are not really feigning divorces to win approval for home loans,
then using the money for something else. (Photo by Yusuke Hinata)
As the story continues, COVID hits and the property sector implodes, dealing the couple's business a serious blow.
The couple tries to sell their treasured condo to repay an outstanding loan and secure working capital for their business but
cannot find a buyer in the down market.
So they work out a scheme that involves them getting a divorce, if only for show.
After the divorce, the ex-husband hands over the condo to the wife so she can care for their child.
The divorcees then live separately for a certain period. Sometime later, the ex-wife, no longer able to endure
the huge debt burden, puts the condo up for sale.
Who shows up to buy it?
The former husband himself.
He is able to take out a housing loan now that once-strict home-purchase restrictions have been eased.
Easier down payment requirements and falling interest rates also work in the ex-husband's favor.
With the loan, the former husband finds himself with a huge amount of money, enough to repay the old loan and secure working capital
for the couple's business.
The drama climaxes when he deliberately fails to repay the loan, the lender seizes the condo and puts it up for auction.
Essentially, the lender has just bought the condo from the urban legend heroes, who not only succeed in monetizing
an impossible-to-sell asset but also secure working capital for their business.
It's easy to see how the story is accepted on its own merit. Call it plausible believability.
Traditional family values are crumbling in big Chinese cities, and divorce is commonplace.
Shenzhen's divorce rate in recent years has been among the highest in China.
It is said that one in two married couples in the metropolis get divorced.
Shenzhen's divorce applications are indeed numerous, but it is difficult to instantly determine if any of them are fake.
When home prices in China were skyrocketing, there were rumors that some people were acquiring the right to buy second
condos through make-believe divorces, thereby circumventing restrictions on the number of homes that could be purchased.
When this old rumor took off, Chinese authorities acted quickly to plug the loophole.
One Chinese source familiar with social media trends pointed out that the Shenzhen divorce legend "has either been extremely exaggerated or
fabricated outright" by accounts trying to gain clicks.
Another media industry source, however, says the myth matters less than the fact that it has gained traction.
"The core part of the story is widely taken as largely true," this source said.
The legend also matters because of how Chinese in other parts of the country perceive the inhabitants of Shenzhen, which is where
EV giant BYD and the Huawei electronics juggernaut are headquartered.
The impression among regular folks elsewhere is that people who have flocked to Shenzhen in search of the "Chinese dream"
will go to any length to avoid suffering a loss.
Finally, the story has been able to lodge itself in the Chinese psyche amid widespread discontent over the government's failure
to lift China out of the prolonged property crisis.
Perhaps Chinese have taken to the story because it allows them to vicariously vent their frustrations.
For wealthy Chinese who own one or more properties, that frustration stems from the sharp decline in asset value.
For ordinary Chinese with no property holdings, the frustration is with the long-stumbling economy making their lives all the more difficult.
The third plenum of the Communist Party's 20th Central Committee was finally held in mid-July. But the key meeting failed to
show how this pent-up anger might be relieved.
Aside from the current property crisis, the biggest issue in addressing the gap between haves and have-nots is tax
reform and the wealthy people with vested interests who vehemently oppose it.
The biggest issue is tax reform and the wealthy people with vested interests who vehemently oppose it.
In China, where land is owned by the state, no taxes on residential real estate is levied, not even on the super-wealthy who
hold multiple properties.
There is also no inheritance tax.
As a result, a wealth gap has persisted for generations.
Consider the irony:
A country that advocates socialism has instead allowed a wealth gap to fester.
China cannot reform how it taxes real estate partly because those with vested interests overlap with party cadres.
Politburo Standing Committee members Li Xi (left), Cai Qi, Zhao Leji, Xi Jinping, Li Qiang, Wang Huning and Ding Xuexiang attend
the third plenary session in Beijing in July.
After the third plenum, a communique and resolution were issued.
While the former did not mention real estate taxation, the latter said that "improvements will ...
be made to the taxation system in the real estate sector." Yet it is premature to think these words will be followed up on in a meaningful way.
Any bold reform measure will not progress toward implementation until it is first spelled out
in a communique.
Any later resolution merely reflects the ideals of party bureaucrats.
That lesson came out of the third plenum of the 18th Central Committee in November 2013.
It was the first Central Committee plenum since Xi Jinping assumed the post of Chinese president eight months earlier.
He had become the party's general secretary five months before that.
The full text of a resolution released after the 2013 plenum proposed reforms to property and other taxes that went ignored
in the meeting's communique.
The 2013 plenum resolution referred to property-related tax reform more clearly than did the recent plenum's resolution.
It said China would "accelerate" property tax-related legislation and "move forward with reform in a timely manner."
But China during the past 11 years has actually retrogressed on the long-standing property tax issue.
The Xi family has had economic ties to Shenzhen. After Deng Xiaoping announced his "reform and opening-up" policy in the 1970s,
Xi's father, Xi Zhongxun, then Guangdong province's first secretary, began the development of Shenzhen.
Xi Jinping (left) with his father Xi Zhongxun in 1958. Xi Zhongxun began the development of Shenzhen in the 1970s.
The elder Xi and his wife spent much of their later years in the southern city adjacent to Hong Kong.
Xi Jinping's older sister and her husband, meanwhile, have a business foothold in Shenzhen.
As China's top leader, Xi is advocating a policy of "common prosperity" that would correct income disparities.
Income and other tax reform measures aimed at bringing China a step closer to socialism were suggested at the recent plenum.
The question now is whether the Xi administration will be able to quiet the vested interests and embark on bold real estate-related tax reform.
There is no doubt that the Shenzhen divorce heroes -- or the city's many residents who find themselves in a financial straitjacket --
are eagerly awaiting news on how this plays out.
( Courtesy by Katsuji Nakazawa )
