The land of promise

                          Reform is China's second revolution

                                                                      Deng Xiaoping



1988, Deng Xiaoping, the leader of both the country and the communist party of China, stressed his position of continuing China’s reforming and opening-up policy. Three years later, a new province was separated from Guangdong province and became the province of Hainan. Learning from the dramatic rise of Shenzhen, China was determined to expand the scope of special economic zones. The youngest province was not only the largest island of mainland China but also the largest special economic zone.

How did the reform change Hainan? 
The story of Shenzhen’s success was the best propaganda of working in Hainan, thousands of hundred of college graduates, entrepreneurs, teachers and unemployed people crowded in the shabby quays in Beihai, Guangdong. The breeze of the sea was fresh and moist, as the strangers anxiously waiting for boarding. They are traveling to Hainan for opportunities, which could the biggest chance in their lives.

What was it like in Hainan at that time?
According to China's national bureau of statistics In 1986, Hainan's per capita GDP was 744 yuan, which was about 83% of the national average of 893 yuan. [1]
Around one-sixth of the population of the island was below the poverty line. In fact, most of the migrants were facing the truth that Hainan could provide them with barely decent jobs. College students, scholars, and engineers were selling newspapers, shining shoes and working on the construction sites to feed themselves.

What did Hainan do to change the situation?
Considering the weak foundation of the economy, Hainan’s government decided to make good use of its most abundant resource, which is the land that almost barren and abandoned. By selling lands in exchange for investment, both domestic and foreign contractors flooded into the market. 
The deregulation of the land market was considered to be a positive signal of the free land market, which could be the start gun of the opening up of China’s housing market. It’s a chance that nobody could ever imagine.

In 1991, the State Council issued the "Opinions on Comprehensively Promoting the Reform of the Urban Housing System", which clarified the development direction of the real estate industry. In 1992, Hainan's real estate market began to expand rapidly.

As one of the richest businessmen in China and the chairman of SOHO group, Pan Shiyi started his career in Hainan’s real estate industry. At that time, Pan earned his first million in his life: "I couldn't believe it at first, I didn't dare to sign the contract. I signed it on the first floor and sold it when I walked to the sixth floor. Now I'm scared of even thinking about it."

How did the real estate occupy the island?
This small island with a population of 6 million has more than 20,000 real estate companies. Most of them are state-owned enterprises and private enterprises with government relations, only then can they have access to the rare resource of "government approval".

Due to the corruption and lack of supervision, the negotiation with the government was rather casual. In most cases, the government signs the agreement and draws a map. Speculators could then sell the approval and map. The buyers, however,  usually also speculators, and they would sell the same papers for five or six times at most.

Making money in Hainan was then only a matter of debt and courage. With passionate borrowers and higher ending rates, commercial banks were also willing to lend money to speculators. While there were in fact much less demand for houses, the bubble became bigger in time, and the risks were accelerating. Investors, banks and the government were happy about the situation that everyone seemed to be richer and the economy was growing.

As the monster of greed and ignorant began to win, the storm was yet to come.

[1] http://www.stats.gov.cn/