Building a Real Estate Equity Market: Revitalizing 300–400 Trillion Yuan in Stock Assets to Solve Insufficient Demand

[[**The root cause of insufficient demand in China's economy lies in the lack of liquidity of the stock assets formed by debt, which leads to a contraction in money flow; the solution is to build a real estate equity market and revitalize approximately 300 trillion–400 trillion yuan of stock assets, so that money flows back into the banks.**

**Key points**

**1. Insufficient demand stems from a contraction in money flow, not from an insufficient total amount**

China's M2 is enormous in scale, but because the assets formed by large-scale borrowing by local governments and market entities (such as infrastructure and real estate) lack liquidity, most new debt is used to roll over old debt, causing the money flow actually used for the division of labor (M1/M2) to keep declining. Debt expansion creates money, but when debt is repaid liquidity disappears and the economic cycle is interrupted.

**2. Revitalizing stock assets requires establishing a real estate equity market to replace the land market**

Local governments financed the construction of public infrastructure through land finance, but as urbanization nears its end the land market is shrinking, and debts cannot be repaid by selling land. An equity market similar to stocks or REITs must be established to securitize the appreciation of real estate and the rights to charge fees brought about by public services, so that stock assets regain liquidity. The successful experience of the 1998 housing reform (commercialization of stock housing) can serve as a reference.

**3. Direct pricing of public goods is a prerequisite for generating cash flow, but institutional innovation is needed**

Infrastructure charges (such as parking fees and road tolls) can generate stable cash flow for financing in the equity market to repay debt. The case of Nanning Huibo Company met with resistance because of crude fee design, but if pricing is reasonable and the revenue is channeled into social security or handled in an open and transparent manner, the cycle of "charging—financing—debt repayment" can be achieved. China's REITs penetration rate is only about 0.05%, far lower than that of the United States, leaving huge room for growth.

**4. RWA technology can split real estate into digital warrants, greatly enhancing liquidity**

Through blockchain, real estate can be converted into tradable tokens (as in the case of an office building in Causeway Bay, Hong Kong), lowering the investment threshold and enabling 7×24 trading. This can solve the pain points of high transaction thresholds and poor liquidity in real estate, but regulatory systems are needed to prevent valuation manipulation and self-financing risks.

**5. Natural resources departments should take on the leading role in building the real estate equity market**

Counting from 2021, China's economy has been growing at a low speed for five years. This economic recession is like a major exam, and various schools of economic theory have each written their own prescriptions. The relatively consensus view is that this slowdown is caused by insufficient demand. The prescriptions differ in that some believe public investment should be increased, some believe the wealth gap should be narrowed and distribution improved, and others believe the market should be untied so that it can repair itself naturally. The important reason why the same symptom leads to different prescriptions is that understanding of the underlying cause of insufficient demand is not consistent. From a micro perspective, these prescriptions target different symptoms of insufficient demand and are targeted remedies, but at the macro level they do not touch the fundamental cause of insufficient demand.

First, a question: how is demand created? In a society with division of labor, the products each person produces are different, which means every act of labor is heterogeneous. If heterogeneous labor is to complete transactions, it must rely on a "general equivalent" to convert all labor into a comparable, unified dimension. This so-called "general equivalent" is money. If you have money, you can be drawn into the division of labor; without enough money, you can only be self-sufficient. On this basis it can be simply concluded that money creates demand: the more money there is, the more labor can be traded, and the greater the demand.

Next, a question: how is money created? To become a "general equivalent," money must be accepted by all labor—only something everyone needs can become the measure of heterogeneous labor. In other words, money is the commodity with the greatest liquidity. The quantity of this commodity determines the upper limit of the division of labor. In traditional economies, the most liquid commodity kept changing: first salt, grain, and silk, later metals—copper, iron, gold, and silver. But these commodities based on physical goods were limited and far from sufficient to meet the expansion of the division of labor.

Modern money is different: it is not based on physical goods but on credit. It is not through the accumulation of past production surpluses but through the discounting of future returns. When you possess a future right that everyone is willing to accept, you can use this credit as collateral to obtain money from the banking system. In other words, modern money is all created through debt—debt expands, money increases, and demand is created at the same time. It is imaginable that if all debts were repaid and no new borrowing occurred, money would disappear accordingly. Without money, there is no demand—even if others produce all the things you need, you cannot trade with them.

Thus we reach a conclusion that goes strongly against common sense: at the micro level, debt is a bad thing—the less debt you owe, the smaller the burden and the stronger your spending power; at the macro level, debt is a good thing—the more debt, the more money, and the more income. Although deleveraging can reduce the burden on micro entities, it simultaneously reduces their income. The real problem to be solved at the macro level is how to reduce the debt costs of micro entities without reducing income. There is one method, and only one: make new debt greater than repaid debt.

China's economy has run into trouble in this debt cycle—debt has formed assets, but the assets cannot repay the debt.

Over the past four decades, China has experienced urbanization on a scale rarely seen in history. Local governments, through land credit, created a vast amount of money. Because real estate breaks land down into housing that anyone can invest in, real property became collateral that everyone is willing to accept. Local governments borrowed on a massive scale through land finance (that is, the misunderstood land-based fiscal system), creating an unprecedented volume of money. With this money, the government completed a series of heavy-asset construction projects: “seven connections and one leveling,” schools, hospitals, airports, high-speed rail, and so on.

This process is essentially converting highly liquid equity (money) into low-liquidity assets; to sustain the cycle, these assets must be converted back into highly liquid equity. And it is precisely at this link that China's local governments ran into serious trouble. The assets formed by government debt—the “seven connections and one leveling,” parks, schools, subways—do not themselves make money (many even require subsidies), and the government cannot directly return these infrastructure facilities to the banks. The value of these assets is reflected in the appreciation of land. Because of these public services, real property (especially housing) commands a higher valuation, and the government can sell more land. Being able to sell land means being able to repay the debt incurred for infrastructure.

But the problem arose when Chinese urbanization entered its final stage: at the very time when it should have “reduced quantity to protect prices,” it adopted the completely opposite real estate policy of “increasing quantity to suppress prices.” The result was a collapse in housing prices, a surplus of all kinds of real property, the loss of liquidity in local governments' most important collateral, and a concentrated wave of defaults on local debt. All market participants, including the government, stopped borrowing and sold assets to repay debt, which in turn led to a further decline in equity markets and a comprehensive contraction of social credit. This means that the liquidity that existed when the money was borrowed disappeared when it came time to repay. If money is regarded as the blood of the economy, then there is no problem when it flows out of the heart (the banks)—the arteries are fine; the problem lies in the veins when the money flows back to the heart. Highly liquid money cannot be converted back into liquidity and returned to the banks through the equity (land) market.

On the surface, China's total money supply is not small; M2 has even surpassed the combined total of the United States, Europe, and Japan (of course, China's M2 is measured on a broader basis than those of the US, Europe, and Japan, and includes a large amount of time deposits, so a direct comparison overstates the scale of China's money supply). But one cannot look only at the total when examining money; one must also look at the structure of flows and stocks within it (the θ value, that is, the ratio of newly added debt to the outstanding debt balance over a given period, for which M1/M2 can also be used as a proxy variable). What truly participates in the division of labor is the flow of money. If most of the newly added debt is used to roll over old debt and extend maturities, then no matter how much there is, it will not generate incremental demand. Although China's M2 is large, it is locked up by enormous illiquid assets.

Admittedly, this portion of debt used to roll over old debt is essential for maintaining economic stability. Without new debt to replace old debt and without extending old debt, limited liquidity would have to be used to repay debt. Once newly added debt falls below the debt that is extinguished, the liquidity in the market that is actually used for the division of labor will shrink; not only will demand fail to expand, but the division of labor may also contract. This is why Mr. Yu Yongding recently emphasized at the Wudaokou forum that investment must be expanded. Only new investment can bring new debt, so that the flow of money will not shrink because of debt repayment. Although consumption is also demand, its capacity to create debt is not on the same order of magnitude as investment.

2 Revitalizing Assets

However, to fundamentally solve the problem of poor circulation in China's economy, continuously increasing new debt is far from enough. For China, revitalizing the enormous stock of real property and restoring its liquidity is the fundamental remedy for reversing the decline in the ratio of money flows to stocks. The biggest difference between China's debt and that of other countries is that most of the debt did not enter the income statement to fill gaps in welfare and social security, but was transformed into illiquid assets. If debt is used to hand out money for consumption, that debt can never be recovered, and the only path is rolling over old debt with new debt and a Ponzi cycle. But if it is used to form assets, then all that is needed is for those assets to regain liquidity, and the economy will suddenly expand, driving domestic demand to grow exponentially.

One of the most typical examples is the 1998 “housing reform.” Before that, a large amount of housing had been built during the planned economy era. But because these assets could only be used by their occupants and could not circulate or be priced in the market, their construction costs could not be recovered. By 1998, the fiscal system could no longer sustain such a model of housing construction. Through the housing reform, a huge stock of existing housing was suddenly priced in the commercial housing market, liquidity in the market increased markedly, and China became one of the few economies to maintain rapid growth during the Asian financial crisis.

The key to the success of the housing reform was that China already had an equity market capable of pricing real estate. In this market, existing housing could be valued and mortgaged, and thus liquidity could be restored through the financial system. To replicate the success of the “housing reform,” China needs to form a real property equity market as soon as possible to price all real property, including housing (commercial real estate, infrastructure). The purpose is to restore liquidity to the enormous stock of assets formed during the stage of rapid incremental expansion.

We can use a simple two-stage model to describe this process. In the high-growth stage, local governments obtain capital income R₀ through financing, and the cost of forming fixed assets is C₀. As long as R₀-C₀=S₀ is greater than zero, the assets can be built. Anyone familiar with accounting can see at a glance that this is a transformed balance sheet. Entering the stage of stock upgrading, the assets must be able to generate net operating income (NOI), that is, the income statement of this asset Ri-Ci=Si must be greater than zero.

To repay the liability R₀ created when the balance sheet was established, the cumulative amount of operating income Ri must be greater than the capital income R₀. However, since operating income is a continuous flow that requires time to accumulate, if the repayment period is shorter than the time needed for accumulation to be completed, the cash flow will break at the time of repayment, and the debt will default. This is precisely the problem encountered by China's local governments. Public infrastructure usually has a very long service life but charges very low fees, so the probability of repayment at debt maturity is very small, and structural default therefore occurs.

At this point, if there is a capital market K that can discount the future income of this infrastructure to the present, most of the liquidity kSi created by the infrastructure can be used to repay the debt R₀. Expressed in a formula, this is R₀

This market K is the equity market. This inequality contains an often overlooked requirement: investment must have an equity market in order to achieve "exit." Different assets require different equity markets. If discounting an enterprise's future income, the enterprise must cash out in the stock market; if it is the central government's future income, it must cash out in the government bond market; local governments cannot list, and public infrastructure is all cashed out in the land market.

Now that the stage of high-speed urban expansion has been completed, an equity market that can cash out the future income of stock assets is needed to replace the land market. Through this market, public infrastructure and services are valued, and the liquidity of real estate is restored. Without such a market, even if new investment temporarily solves the problem of insufficient liquidity, these fixed assets will again become new debt stock, and the money flow-to-stock ratio (the ratio of net social financing to total debt, θ) will still deteriorate. Since local government debt is the core of this round of economic difficulty and public infrastructure is the largest part of local government assets, among all equity markets, building an equity market specifically for real estate is the top priority of the capital market.

The next question is how to build such an equity market.

3 Indirect pricing of public debt

As mentioned earlier, local government investment in public services such as road building, bridge construction, water supply, and power supply is all debt. These inputs are not directly charged for but are "discounted" back through the primary land market—the price of land is essentially the discounting of fees for free infrastructure. But the end of the real estate mega-cycle has interrupted this circulation. Local governments must find a new equity market to replace incremental land.

This market is the secondary real estate market. On the surface, transactions in the secondary market have nothing to do with the government, but the government's public services are all indirectly reflected in the prices of second-hand real estate. The better the public services, the higher the price. The question is how the government can extract, in second-hand housing transactions, the appreciation of public services contained therein. Obviously, the higher the housing price and the higher the frequency, the more tax revenue the government obtains from transactions.

Obviously, this kind of passive transaction is far from able to reflect the value of the enormous public service assets. More value is hidden in the process of urban renewal. After any real estate is completed, its value is formed by the superposition of two independent value curves. The first curve is the depreciation curve. Any asset has a lifespan and continuously depreciates as time passes and its remaining life shortens; the second curve is the externality curve. Any real estate is inevitably affected by the value of its location. If public services continue to improve, the price of the asset will rise accordingly.

Urban renewal is the process of discovering the maximum value of assets by changing these two curves. Suppose a piece of warehouse land originally on the edge of a city becomes the central area of the city as the city expands, and nearby public transportation, schools, and parks increase the potential value of the land. Without urban renewal, the value of surrounding public service facilities cannot be reflected. But as long as the planning attributes of the plot are changed—use, floor area ratio, term of property rights, etc.—the asset value will increase significantly. In theory, as long as the value after renewal is higher than the value before renewal, the government has the opportunity to share in the appreciation brought by public services through planning rights, thereby achieving indirect pricing of public service investment.

When many people mention urban renewal, their first reaction is government land expropriation and demolition, on the grounds that original owners have no incentive to renew on their own. One of the biggest problems with government expropriation and demolition is that the cost is too high. Property owners often use the appreciated value after demolition as the standard for compensation claims. If real estate development is not carried out and density is not increased, the new asset value often cannot even recover the demolition cost. In particular, with the end of the real estate mega-cycle, the path of renewal through expropriation and demolition is basically locked.

So why do original owners lack the incentive to renew? Our survey found that owners do have the incentive for self-renewal; rather, under current planning regulations, most of this self-renewal falls under "illegal" or "non-compliant." The unauthorized construction that repeatedly persists in the market all stems at bottom from the impulse toward self-renewal. The first thing urban renewal should do is decriminalize and legalize these illegal self-renewals, turning them into a normal driving force for preserving and increasing the value of stock assets.

The key reason self-renewal is illegal is that the current method of land transfer discounts the income of the next few decades into current value in one lump sum according to financing needs. If planning conditions are arbitrarily changed within the contract period, malicious arbitrage will be induced. For example, land is bought at a land price paid according to a floor area ratio of 1, and after a period of time the floor area ratio is privately changed to 2; or what was bought at the beginning was industrial land, and after using it for half the term it is privately changed to commercial use. These acts of violating planning permission are obviously illegal, and their essence is "theft" of urban public services.

But if owners are not allowed to renew their properties on their own initiative, the value brought by improved public services cannot be realized, and land cannot be used at its current highest value. The correct approach is: 1) allow owners to change planning conditions for the highest use without harming the rights and interests of surrounding owners; 2) the resulting changes in planning conditions must be accompanied by payment of the difference according to prices at the time; 3) the price may be paid as a one-time lump-sum market land premium, or as annual land rent paid to the government.

If the land rent is paid in a one-time lump sum, it is equivalent to the government selling the land again for a new use. Paying rent annually is similar to property tax in other countries; local governments can discount the rent in the REITs market to repay public infrastructure debt. Under this model, government departments can relax all planning conditions so that they meet the newly emerging optimal demand in the market, while the government sets a price for each change, and owners use that price to judge how to renew their properties to maximize value.

For example, an office building can, as needed, convert its upper floors into apartments, its middle floors into a hotel, its ground floor into retail, and keep the rest as offices. The government then collects different rents by layer according to the new use functions. If in the second year new public services cause demand for some functions to decrease and demand for others to increase, owners adjust according to market changes, expanding some functions and reducing others, while paying rent to the government according to the new functions. Through this method, the government can share in the benefits brought by public infrastructure through the continuous appreciation of existing assets. It can then realize these benefits in the equity market and repay the debt formed by investment.

The indirect pricing model for public goods is very similar to the pricing model of internet platform companies. Internet platforms are generally free, and their revenue mainly comes from charging for use of platform apps (such as the Apple tax) or online stores (such as Taobao). These stable cash flows support the huge valuations of internet companies, enabling initial investors to exit at a profit. City governments are essentially platform companies as well. To repay the huge debt incurred in building the platform, they must, like internet companies, convert assets back into cash flow in the equity market.

Huibo has 30,535 parking spaces and 36,908 meters of parking strips in Nanning. Including government agency and bus parking lots, there are about 50,000 public parking spaces. Calculated on the basis of full occupancy, a charge of 100 yuan per space per day, and a 40% collection rate, 2 million yuan can be collected per day; after deducting operating costs and calculating at a 50% net profit rate, the net profit is 1 million yuan per day, or 365 million yuan per year. Using this future cash flow as collateral and pledging the income rights from parking fees for the next 25 years, Huibo obtained a bank financing limit of up to 7.209 billion yuan (according to a subsequent response by the Nanning municipal government, no actual loan of 7.2 billion yuan occurred).

However, the practice of charging roadside fees was strongly resisted by vehicle owners who originally did not have to pay. They accused Huibo of "just drawing a few boxes on the roadside" and then starting to collect money, which they called a typical case of arbitrary charging. In the end, to calm public opinion, the matter concluded with the government apologizing, canceling the fees, and dealing with the company's responsible person. The Huibo case failed half because society lacks an understanding of public goods pricing and assumes that public services are inherently characterized by "low price" or even "free"; the other half was due to crude institutional design—the charging standards were obviously too high, the franchise was not subject to public bidding, and even a memorandum of cooperation on fee enforcement was signed with a court, all of which deprived this pricing practice of procedural legitimacy. This is a problem encountered by almost all public goods charging, whether water fees, electricity fees, bridge tolls, or scenic areas. Whenever fees are charged, they are strongly resisted by consumers. For this reason, the government established specialized price management agencies to focus on auditing the items and standards of public service charges.

Any asset, as long as it has no cash flow, cannot be directly priced. If it cannot be priced, it cannot be revitalized in the equity market. This requires restoring the good name of public goods charging. For a long time, public goods charging has been labeled with the word "arbitrary." A term was even invented specifically in public finance called "legitimate taxes, clean fees." To directly price public goods, one must understand the essence of "taxes" and "fees."

First, one must establish the understanding that no public service is free! Whether "tax" or "fee," their essence is to price public services. Because the biggest characteristic of public goods is collective consumption, it is difficult to reveal consumers' preferences. For example, with national defense, it is hard to say who needs it and who does not; and it is hard to measure how much is consumed. For example, if urban roads were charged section by section, it would seriously affect traffic efficiency and the cost would also be very high. The simplest method is to levy taxes on economic activities or properties within the space covered by public services, thereby pricing a package of public goods.

Obviously, this pricing method of taxing different public services together is imprecise—when tax revenue is used to provide roads, households with cars benefit more; when used for education, households with children benefit more. If the consumption of public goods can be measured at low cost through technology, such as accurately measuring each household's consumption through water meters and electricity meters, then "fees" can be used to charge for that public service. The Huibo company mentioned earlier is precisely an example of separating roadside parking, a public facility, from roads and pricing it separately.

Therefore, whether to price public goods with "taxes" or "fees" is not a question of which is better or worse. The difference lies in which pricing method yields higher benefits at lower cost. Generally speaking, "fees" price more precisely than "taxes," but at a higher cost. Once public consumption can be measured at low cost, direct charging is more efficient than indirect taxation. In China, local governments have no right to levy new taxes or set tax rates; when the government provides new or better public services, such as highways or bridges, charging users directly is the fairest and most efficient method. Early fees such as airport construction fees and telephone installation fees provided essential cash flow for financing this infrastructure.

Some will argue that charging for public service facilities merely transfers wealth from consumers' income statements to the government's income statement and does not increase total social wealth. That is true, but if the government takes the cash flow from these charges to the equity market for financing, the situation is different. Through the equity market, the government allows illiquid infrastructure to be valued, enabling it to repay its original debts and balance its balance sheet. The example of Huibo above is exactly this: parking fees did not enter the government's income statement but returned to the balance sheet to repay local debt. So-called social "wealth" is the sum of the balance sheets of all market participants; if the debt that formed public goods disappears, the wealth of the whole society is "written down."

If the charging problem is solved, many public goods can be securitized and debts can be repaid in full. Take a simulated case. The Duku Highway in Xinjiang required enormous investment, but the value of the landscape resources it unlocks is even greater. How can landscape resources be charged to repay the huge costs of building and operating the Duku Highway? According to public data, during the 2025 open season, traffic on the Duku Highway reached 3.7 million vehicles. If modern automated tolling technology is used to charge different sections according to landscape value, a stable cash flow can be generated.

Suppose each vehicle is charged 1,000 yuan; that is 3.7 billion yuan in cash flow per year—even if charging causes traffic to contract sharply, the cash flow would still be enough to cover costs; and the highway's annual operating and maintenance cost is reported at only 30 million to 66 million yuan. Based on net operating income (NOI) of 3.5 billion yuan, under the current domestic REITs market environment, its reasonable valuation would be roughly between 43.7 billion and 77.7 billion yuan. An open season of about four months would be enough to recover the cost of building and operating the highway, and the Duku Highway would become Xinjiang's cash cow.

A highway is a gold mine. The same is true of a city's road network. Modern technology can easily install a "water meter" on every road section, "metering" vehicle road use at different times at extremely low cost, which makes it possible to directly price the urban road network that was originally difficult to charge for. Huge road investments can then be financed in the capital market, and even without selling land, the corresponding local debt can be repaid.

The real difficulty of charging lies in institutional design. Good institutional design can reduce the "tax pain" of public goods users. Take the Huibo example again: if parking fees were not used directly as collateral for financing but instead went into everyone's individual social security accounts, most residents would probably support it. After all, only a small portion of residents use parking spaces. As the city's "owners," residents would certainly support charging for parking on their "shared areas" (roads). The government, in turn, could take the revenue originally used to fill the social security gap to the capital market (banks or REITs) as collateral for financing. Once the revenue and expenditure channels are switched, the net burden does not increase, but public services acquire a price and assets acquire value.

What China's debt lacks is not assets, but an institutional arrangement that puts charging rights into the equity market. Currently, China's issued REITs total about 250 billion yuan, compared with total real estate market value on the order of 300 trillion to 400 trillion yuan, a penetration rate of only about 0.05%. For reference, the total market value of listed REITs in the United States is about 1.6 trillion US dollars, and the commercial real estate assets held by REITs exceed 4.5 trillion US dollars. The gap is the space. If China could reach the US level, the existing money that has lost liquidity could flow back into banks, and the flow-to-stock ratio of money (θ) would rise. Even without countercyclical investment and without giving money to residents, demand would expand by orders of magnitude, just as it did in the earlier "housing reform."

5 The "Stock Market" of Real Estate

Going further, can every piece of real estate be treated as an SPV company—with its own assets, liabilities, and cash flow—and then issue its own "shares" like an ordinary enterprise?

With the improvement of equity registration systems, especially the emergence of RWA (Real World Assets) technology, we can use blockchain to convert physical assets in the real world that have real value, cash flow, and property rights backing—real estate, government bonds, new energy facilities—into on-chain tradable, divisible digital tokens, and then trade them like stocks.

It solves three deadlocks in traditional real estate transactions:

Lowering the investment threshold. Most real estate, especially public infrastructure, has enormous market value, and few investors can buy these properties outright; the huge size of the target itself is a liquidity obstacle for these assets. High-value assets can be split into small tokens. A commercial building worth hundreds of millions can be split into a million tokens, allowing ordinary investors to participate with a few hundred yuan and enjoy rental dividends.

Enhancing liquidity and efficiency. Tokenized assets support 7×24 cross-border circulation and second-level settlement, solving the pain points of poor liquidity and cumbersome transactions in real estate.

Automation and transparency. Through smart contracts, income distribution and interest payments are executed automatically, with no need for manual accounting; transaction records are uploaded to the blockchain in real time, open, transparent, and tamper-proof.

The limitation of both the second-hand housing market and the REITs equity market is that the value of such an asset can only be priced by the market when an overall transaction occurs or when cash flow arises. But stocks can value an asset before it has generated cash flow (or even when cash flow is negative), and this is precisely the stage when asset formation most needs capital. The stock market can also price assets in real time without the original owner losing the right of use. Such an equity market fits the needs of public assets very well. The emergence of RWA technology provides the conditions for real estate to be traded like stocks.

This is not empty talk. The Causeway Bay office building RWA project in Hong Kong is a typical case of the Chinese real estate industry's first large-scale practice of RWA: the underlying asset is an office building located in Causeway Bay under Greenland Jinhui, a subsidiary of Greenland Group, valued at HK$2.9 billion. The project split the entire office building into 1 million NFT property rights certificates, each representing a proportional share of ownership and income rights, with the investment threshold lowered to HK$1,000–2,100. After launch, it was snapped up within 72 hours, successfully revitalizing this existing large-scale asset of nearly HK$3 billion.

Using the same method, any real estate can be securitized like a stock. Suppose 4 billion yuan is borrowed to invest in building a property, and 500 million yuan is still needed to complete it, but the investor's funding chain breaks and the project is left unfinished. Because the investment is huge, the highest bid from existing investors is only 3 billion yuan. At this point, the best approach is to use electronic contracts to turn the real estate into an SPV company and then package and list it like an enterprise—step one, divide the asset into 4 billion tokens, each worth 1 yuan; step two, take out 10% to enter the equity market, with the market maker issuing at 1.5 yuan/token, raising 600 million yuan, and the market valuation then rises to 6 billion yuan; step three, use the 600 million yuan in financing to complete the subsequent construction. The remaining 5.4 billion yuan in equity can be pledged for refinancing to repay the 4 billion yuan debt.

The biggest obstacle at present is still understanding of newly emerging financial technologies. Financial regulators hold a very conservative attitude toward RWA technology, because when RWA technology is combined with decentralized stablecoins, it will create huge regulatory loopholes. But when used for real estate, the risk is relatively small—because real estate has a centralized registration system and spatial immobility, and even anonymous transactions are difficult to transfer in violation of regulations. Of course, the risk is not zero: problems such as valuation manipulation and related-party self-financing (when the asset owner also serves as the token issuer, independence will be questioned) still need to be prevented through regulatory systems. In this regard, a more accurate judgment is: RWA technology is already ready; what is lacking is a suitable regulatory system design.

Any financial exploration carries risk.

John Law (1671–1729), the "father of finance and paper money," proposed in his 1705 work On Money and Trade that money is essentially credit and need not be gold or silver; state credit is the foundation of money; credit creates wealth, and issuing paper money through banks to increase the money supply can stimulate employment and growth; he also advocated establishing a state bank monopoly. Yet his theory collapsed because of the bursting of the Mississippi Bubble caused by uncontrolled national debt, the entire country's financial system collapsed, and the word "bank" was cursed in France for nearly a century.

But Hamilton (1755/1757–1804) discovered a valuable core in John Law's failed exploration. His core propositions were highly consistent with John Law's: anchor to national debt, with the federal government assuming the debts of the states and national credit as the guarantee; establish the First Bank of the United States, imitating the Bank of England model to issue banknotes; credit is money, and through the government bond market and the national banking system, transform national credit into circulating currency. As a result, U.S. Treasury bonds obtained Europe's highest credit rating, foreign capital poured in, the economy took off, and a financial framework that supported more than two hundred years was established. The United States ultimately relied on credit money to surpass Europe's metallic money and become the world's new hegemon.

The progress of financial technology, like the progress of production technology, requires taking huge risks. In a sense, the risks of exploring financial technology are even greater. But its returns are also greater. The progress of financial technology is essentially the establishment of equity markets suited to different asset attributes. Among China's assets, real estate accounts for an extremely high proportion, which also makes an equity market suited to real estate extremely important.

The total market value of China's real estate is about 300 trillion–400 trillion yuan, while the total market value of the stock market is about 120 trillion yuan. If real estate had liquidity similar to the stock market, it would create a huge capital market comparable to the U.S. stock market ($75 trillion, about 503 trillion yuan). Just as the exploration of land bidding, auction, and listing in Shenzhen back then started the engine for China's great leap in the incremental development stage, today's exploration of the real estate equity market will also open the door to wealth expansion in the era of quality improvement of existing assets.

6 Who is in the driver's seat?

Returning to the discussion at the beginning of this article, the most important problem facing the Chinese economy is that the growth cycle has already completed the transition from money to assets, and now assets must be converted back into money. Without this step, money cannot flow back to the banks and can only accumulate in the financial system in the form of stock, the enormous productive capacity cannot be transformed into income for the whole population, and demand will not expand in sync. Policies that rely on improving distribution, raising welfare guarantees, or even issuing consumption vouchers have diminishing marginal effects on aggregate demand, and their limitations have been proven by more and more practice. In the debate over expanding consumption versus expanding investment, I side with expanding investment, because investment can bring new debt and corresponding money. That is, the debt formed by investment can be converted into household income, but household consumption cannot bring new income.

However, one side effect of expanded investment is that it increases more stock debt. As stock debt increases, a growing portion of new debt is not used to organize the division of labor but to sustain the existence of debt. As long as debt cannot complete the return flow, the stock of debt will grow faster than the flow. The debt flow-to-stock ratio (θ) is like the thrust-to-weight ratio of an economic engine; once it falls below the critical value, the Ponzi cycle of borrowing new to repay old cannot continue, and the economy will stall and fall. Therefore, China's increased investment to maintain growth is only a temporary fix; the fundamental solution is to convert stock debt into flow debt and reduce the dead weight in the economy.

The only way to reduce the stock of debt is the equity market. For China, the real estate equity market is even more important. This is because the stock debt of the Chinese economy is mainly the public debt of local governments, and most of the corresponding assets are public infrastructure. Without a developed real estate equity market, these stock assets cannot be revitalized, and stock debt will continue to increase. As long as the equity market, the key lever, is grasped, the Chinese economy will immediately start a new round of expansion.

Among all equity markets, the real estate equity market is the most important breakthrough point. And the one sitting in the driver's seat of this market is not the financial sector, but the natural resources department. Just as it was the land department that launched land finance back then, today the one sitting in the driver's seat of the Chinese economy is not the financial authorities, but the natural resources authorities responsible for the two unifications (uniformly exercising the responsibilities of owner of all natural resource assets owned by the whole people, and uniformly exercising the responsibilities of use control over all territorial space and ecological protection and restoration). Most of the operating system for building the real estate equity market falls under the authority of the Ministry of Natural Resources.

In this regard, the natural resources authorities must have a clear historical consciousness: 1) introduce the most advanced blockchain technology and establish a real estate registration system that includes all transaction information, property rights attributes, and building quality; 2) improve the legal system, eliminate policy and institutional obstacles (especially property rights obstacles) for users to use according to the optimal use, and solve the problem of charging for public services; 3) use AI technology, combined with property rights registration information and real-time transaction data, to automatically evaluate existing real estate and reduce the cost for the market to find fair prices; 4) around property rights registration, improve supervision of the real estate equity market, ensure the liquidity of real estate equity, and make it safe collateral. Channel: Finance and Economics. This content comes from the Internet, original link, the views only represent the author himself and do not represent the position of Huxiu. If there is any copyright issue, please contact hezuo@huxiu.com, and we will verify and handle it promptly. Everyone who is changing and wants to change the world is on the Huxiu APP [ ]