Private schools distort China’s real estate market, frustrating Xi’s quest for equality

Officials in an economic swamp in central China have found a new way to boost the local real estate market: schools funded by reputable developers to get their students to top universities in the country.

Property sales in Hengshui, a city of 4.3 million people in Hebei province, are skyrocketing despite recent attempts by the central government to curb both the spike in house prices and the housing sector. booming private education in China.

“I completed more deals in the past two months than the previous two years combined,” said Li Hongning, a real estate agent in downtown Hengshui. “Customers are willing to pay extra to complete the transaction as quickly as possible. “

Xi Jinping’s determination to ensure “common prosperity” in one of the world’s most unequal societies will depend in large part on the ability of his administration to tame China’s racing real estate market. The Chinese president has also pledged to equalize access to education, after cracking down on expensive private tutoring services last month.

But the degree to which good schools continue to skew real estate markets across the country suggests that even China’s most powerful leader in decades will struggle to overcome market forces and local government interests that stand in the way of his goals. egalitarian.

“Beijing may not be happy with the Hengshui model because it creates a real estate bubble and exacerbates inequalities in education,” said Dan Wang, economist at Hang Seng Bank in Shanghai. “But local governments are keen to adopt this practice to stimulate the economy.”

Chinese President Xi Jinping has often complained of little effect against soaring house prices © Leo Ramirez / AFP via Getty

Chinese real estate 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 attractive to home buyers.

Bright Scholar Education Holdings, a New York-listed subsidiary of Country Garden, has grown into 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 real estate developers and have earned a reputation for academic excellence.

Average house prices in the city have more than doubled over the past five years, while those in neighboring towns have only increased by 20% over the same period.

The sales boom was sparked by the introduction of government rules restricting school places to children of owners. This 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 house as long as it helps my child get into a good school. “

This month, Wang paid 310,000 Rmb ($ 48,000) for a one-bedroom apartment, which will allow his son to attend a top college owned by one of the world’s largest real estate developers. by Hengshui. Before the introduction of the residency requirement, the price of the apartment was 280,000 Rmb.

“Our economy is thriving thanks to the influx of students, which has benefited everyone from grocery stores to real estate developers,” said a government official in Hengshui who requested anonymity.

Xi, however, has often complained of little effect against soaring house prices, saying “houses are made to live in, not to speculate.”

Hengshui first presented plans to expand its overcrowded school system a decade ago, when the then cash-strapped municipal government had no choice but to turn to business owners with deep pockets. to obtain financing.

Real estate developers quickly agreed, betting that well-run private schools would raise the prices of local homes and also become full-fledged profit centers.

“Local governments need us to build good schools to support the economy,” said a real estate manager from Hengshui. “They can’t do it alone. It was a win-win for us and for the local government.

Thanks to highly qualified teachers earning above-average salaries and rigorous study programs, Hengshui private schools now produce students who excel in exams. In 2019, the city’s No.1 High School, owned by a local developer, achieved 61 of the top 100 scores in Hebei University entrance exams.

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

Hengshui is now exporting its education-based growth model across the country. In recent years, the developers of Hengshui have opened schools in more than a dozen cities, most of which are also underdeveloped.

Zhang Fuqian, a Hengshui-based developer and president of Taocheng Middle School, one of the best in the city, opened a 15,000 student campus in Binxian, a rural county in northeastern Heilongjiang Province. .

“The [local] government said the population and local house prices would drop rapidly if I didn’t go there and open a good school, ”Zhang said at a conference last month, referring to the gloom housing markets and population exodus in and around Heilongjiang. Jilin and Liaoning provinces.

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

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

“It is not fair that foreigners are stealing our educational resources,” said Pan.

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

Penny D. Jackson