Mistresses Blamed For China Property Bubble

HONG KONG - Prostitution is illegal in China, but the police crackdowns recently launched across the country indicate that the "world's oldest profession" is doing as well as ever. In Beijing, there are reportedly so many xiaojie (mistresses) that state media claim their numbers have driven up housing prices.

After efforts to "physically and spiritually" cleanse Beijing for the 2008 Summer Olympic Games, prostitution has made a big comeback, so much so that municipal police launched a citywide "strike hard" vice crackdown in April entitled "Operation 4.11".

Coincidentally, in line with central government policy, the municipal government has also began taking measures (so far in vain) to bring down the city's skyrocketing housing prices.

The two crackdowns, one on social vices and the other on housing prices, seem unrelated. But a May 14 editorial in the Beijing Evening News, a sister publication of the Beijing Daily - the mouthpiece of the Communist Party's Beijing municipal committee - made an imaginative link between the two.

The article argued that a (downward) turning point in Beijing's property market could be achieved if prostitutes were driven out of the city. Skeptics say the article's flawed reasoning suggests that Beijing authorities are scrambling for a scapegoat for their failure to bring the property market under control.

The editorial, entitled "Turning point will come when all mistresses are driven out of Beijing", estimated that there were 200,000 xiaojie or "mistresses" in Beijing - xiaojie is a face-saving term for prostitutes as the trade is illegal. The article argues that if Beijing police kept up their "strike hard" crackdown, these mistresses could be forced out of the capital within three months. As a result, an extra 200,000 rental flats would be added to the property market. With the sharp increase in supply, "a genuine turning point" would be seen in housing prices.

The article's first confusing premise is that the "more than 200,000 mistresses" working in Beijing could be cleared out of the city within three months. (The assumption that each xiaojie rents a flat is already problematic, since most likely share flats to reduce living costs.)

Since the start of "Operation 4.11", Beijing police have smashed about 400 small prostitution rings, usually working out of hair salons, with some 1,100 suspects detained, according to local media. The operation has been hailed as a "great success", with even high-class night clubs raided, such as Tianshang Renjian or Paradise on Earth, which is rumored to be owned by a Hong Kong tycoon and senior Chinese officials.

However, if after a month such a high-profile crackdown has only been able to net some 1,000 working girls, then it would take 20 years to clear Beijing of 200,000 mistresses. This also doesn't account for newcomers arriving. It is also hard to believe that if mistresses were forced out of the city they would stay away - past experience tells them such anti-vice campaigns are usually short-lived.

Another mistake made by the Beijing Evening News article is that it confuses rentals and sale prices. The two are related to each other - in the long term - but rents do not rise or fall immediately with sale prices, especially when the property market is highly speculative, like Beijing's. One of this author's friends bought a 70-square-meter flat for nearly 1 million yuan (US$146,443) four years ago. It is now worth more than double that, 2.1 million yuan, but the monthly rent has only risen by 30%, from 3,000 to 4,000 yuan.

Most prostitutes come from poor rural areas and use their income to support families at home, they are unlikely to be involved in the sector that has seen the greatest price hikes - luxury housing. While the average price of an apartment in Beijing within the city's Third Ring highway is around 30,000 yuan per square meter, luxury downtown apartments sell at 70,000 yuan per square meter. The average per capita monthly income is only 2,000 yuan.

It is difficult to see how removing prostitutes from Beijing would affect the property market. Moreover, if the owners of flats who rented to "mistresses" wanted to sell their property for profit, they could do so at any time. Why would they wait for the police to scare away their tenants?

Skyrocketing housing prices are an emotive issue in China, particularly in Beijing. Fresh university graduates make about 2,000-3,000 yuan a month if they are lucky enough to find a job. Their total income in a year (without spending) is not even enough to buy a toilet in an average-priced apartment.

Fully aware that high housing prices could become an issue that threatens social stability, Premier Wen Jiabao pledged that his government would keep housing prices in check until March 2013, the end of its term. The State Council has launched tough measures to curb rising prices, such as tightened restrictions on mortgages for second homes, a ban on unauthorized state-owned enterprises investing in the property market, and threats to punish local officials if local housing prices were not brought under control.

However, as many analysts point out, keeping housing prices high is in the interests of local governments (to boost revenues from land sales) as well as for local officials (to collude with developers for kickbacks). Reducing housing prices may be impossible unless the central government finds a way to rein in local governments and officials.

The Beijing Evening News seems to have chosen an easy target. As prostitution is illegal, the women cannot respond publicly to the attack, only accept it in silence.