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Former Premier Stirs China Property Policy Debate as Prices Rise

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June 24 (Bloomberg) -- Former Chinese Premier Zhu Rongji’s recent criticism of the country’s property policy underscores the debate over the extent to which rising real estate prices are benefiting the country as a whole.

Zhu, who served as premier from 1998 to 2003, said in a speech at Beijing’s Tsinghua University that a decision to allow local governments to pocket money from land sales contributed to rising property prices and has been like “plundering” from the people. The remarks are spurring discussion in China because they reflect people’s dissatisfaction, said Joseph Cheng, a political-science professor at the City University of Hong Kong.

The comments by Zhu reflect a 1994 policy that boosted local government revenue as property prices soared. Discontent over China’s widening income gap and corruption has deepened, contributing to riots and demonstrations in some regions.

“We formulated a wrong policy by letting local governments pocket all of the land sale revenue without taking some for the national budget,” Zhu said in April at a 100th anniversary celebration for Tsinghua University, according to a report by the website of Phoenix TV. “The money is like plundering from people and has lifted up land prices so much.”

While President Hu Jintao and Premier Wen Jiabao have been seeking to cool down the real estate market by imposing tougher requirements on mortgage applications and building more affordable housing, the trend has yet to reverse. New home prices rose in 67 or 70 cities in May, according to the National Bureau of Statistics.

“We can’t say Zhu is criticizing the government but his comments reflect people’s dissatisfaction over the current situation,” said City University of Hong Kong’s Cheng. Almost three-fourths of people think property prices are too high, according to a People’s Bank of China survey released this month.

In some cases, land sales account for over 60 percent of local government revenue, Cheng said. He praised efforts to build affordable housing to reduce conflicts over the widening wealth gap, while adding it remains to be seen whether local governments will provide financial support for the effort.

To contact the editor responsible for this story: Peter Hirschberg at