A common way to understand commodity housing in China is this: it refers to housing that can be legally bought and sold on the open market, without being subject to special government policy restrictions on circulation.
Taken literally, the term means a home that can be treated as a “commodity” — something that may enter the market and circulate freely. The contrast is housing that cannot be freely traded in the same way. Such homes can be broadly described as policy-based housing. Examples include the old system of work-unit housing allocation, collectively funded housing, affordable housing, and later shared-ownership housing. These forms of housing usually contain some element of policy welfare. Because of that, the owner often does not hold a complete and unrestricted property right, and any transfer can only take place under certain conditions.
The harder question is why this type of housing is called “commodity housing” in the first place. The answer is not simply that houses are commodities. To understand the name, it helps to look at why, in China, so many things were once given the prefix “commodity.”
China is a socialist country, and in the 1950s and 1960s the socialist economic model was a full planned economy. The whole country functioned somewhat like one large organization: production and distribution of materials were arranged under state planning. A specialized department was responsible for national planning — the State Planning Commission of the Central People’s Government. But the country was vast, and the range of goods was enormous. Even with detailed planning, serious shortages still occurred.
These shortages were not unique to China. Other socialist countries also faced similar problems, and from the 1960s onward many of them began to explore economic reform. One direction was to loosen planning to a limited degree: keep planning at the macro level, while allowing some market mechanisms at the micro level. This was often discussed as a form of market socialism.
At the time, however, the phrase “market economy” was politically sensitive because it was widely associated with capitalism. To get around that barrier, terms related to the “market” were often rendered in Russian and related socialist discourse through the idea of “commodity” rather than directly through “market.” This habit later influenced Chinese usage as well. As a result, many Chinese expressions began with the word “commodity,” such as commodity grain and commodity cloth.
In the early reform period, “commodity” stood in contrast to “planned.” Under the planned economy, goods were produced and distributed according to plan, not freely circulated. Reform first involved giving enterprises somewhat more autonomy and motivating state-owned and collective enterprises by decentralizing certain powers. Once an enterprise fulfilled its annual planned production quota, any extra output could be sold more freely according to market mechanisms. The enterprise could set prices and retain the resulting income. For consumers, these freely sold goods did not require ration coupons; they could be purchased directly. That is why they were called “commodities.”
The name commodity housing came from China’s housing reforms in the 1980s. Before that, urban housing was largely built and allocated under a unified state system. After reform, some housing could be bought and sold on the market. Since these homes entered circulation as marketable goods, they came to be called commodity housing.
Today, the term has largely moved away from the historical meaning behind its creation. It remains in use mostly as a conventional name for market-tradable housing.
There is also a broader historical background to this terminology. China was not the only socialist country to explore changes to the planned economy. The Soviet Union, Yugoslavia, and Hungary all experimented with reform, and Yugoslavia and Hungary moved especially early among socialist states. China’s own exploration of ways to supplement a pure planned model began soon after the founding of the People’s Republic. In 1952, Chen Yun proposed that private economic activity in the production and circulation of consumer goods could serve as a supplement to planning.
In the Soviet Union, after Khrushchev came to power, he strongly criticized Stalinism and introduced reforms in agriculture and industry. In the industrial field in particular, a 1962 reform experiment expanded enterprise autonomy. Profit and bonuses were used as incentives to promote production. The state assigned production targets, but enterprises had more say in how those targets were fulfilled.
At the time, Mao Zedong believed the Soviet approach had departed from the socialist path and had formed a new type of imperialism. The former “elder brother” was then criticized as “Soviet revisionist social-imperialism,” often shortened in Chinese political language to “Soviet revisionism.” As political differences deepened, the relationship between planning and markets was elevated into a question of whether an approach was socialist or capitalist. China’s exploration of reform within the planned economy was therefore interrupted for a time.
Although the reforms of the Soviet Union, Yugoslavia, Hungary, and other socialist countries ultimately failed to achieve lasting success, their experiences were later studied and selectively absorbed by China. They had an important influence on China’s economic reforms in the 1980s and 1990s, including the reforms that gave rise to the term “commodity housing.”