Chapter 44

After teaching the little girl two classes, Jia Hongjian was invited by Old Luo and Wang Coulan to stay for dinner. It seemed that even Xiao Zhang's cooking had improved significantly since the last time. While eating, Jia Hongjian chatted with Old Luo and Wang Coulan about the various news reports on the evening news.

"Today, the Securities Regulatory Commission announced that it will soon open A-share trading qualifications to domestic legal entities..." When the TV broadcast this news, Jia Hongjian stared at the screen, stunned for a moment.

Wang Coulan noticed Jia Hongjian's reaction and seemed to realize something. She asked, guessing, "Little Hongjian, do you have some knowledge of finance?"

At that moment, Jia Hongjian didn't notice that Wang Coulan had changed the way she addressed him because of his dedication to teaching the little girl. He nodded absentmindedly, "I know a little bit. Opening A-share trading to domestic legal entities means allowing mergers and acquisitions of listed companies..."

"Is that what it means?" Wang Coulan was taken aback. She, who was not familiar with finance, had no idea what the incomprehensible financial news meant.

"Yes, domestic legal entities are domestic companies. Legal entities are not natural persons; they are the personification of social organizations in the law. This means that social organizations and groups can enter the stock market. However, because of their substantial financial power, they can even acquire a large number of shares in a company and become shareholders or even major shareholders..." Jia Hongjian explained. Although he, as a middle school student in his previous life, did not remember the implementation of this regulation, he knew that with this rule in place, the Yanzhong Industrial Company where his father worked would definitely be acquired soon.

"They are all state-owned enterprises, what's there to acquire? We are all contributing to socialism..." Old Luo said dismissively.

Hearing Old Luo's words, Jia Hongjian smiled, thinking of his father, Jia Gang, who had faced an acquisition in his previous life. At that time, his father's reaction was exactly the same as Old Luo's. "Yes, we are all contributing to socialism. But socialism also has its favorites and stepchildren... State-owned enterprises are the favorites, collective enterprises are the adopted sons, and private enterprises are the stepchildren. Private enterprises have a hard time getting loans. In this era of rising inflation, if they want to raise capital, what can they do besides acquiring shares of listed companies to go public?..."

Old Luo and Wang Coulan were stunned. They had never thought about this issue. Unlike Jia Hongjian, they had not experienced the explosion of internet knowledge in the future. They couldn't learn a lot of specialized knowledge just by chatting online, and they were not as familiar with the financial sector as Jia Hongjian was in his previous life, where the state had always been indifferent to private enterprises.

"You mean... many large state-owned enterprises haven't gone public yet... so they can spend money to acquire shares of listed collective enterprises, become major shareholders, and then raise capital through the rise in stock prices?" Wang Coulan suddenly thought of this.

Although what she said was not exactly the same as what Jia Hongjian had said, he still nodded. "Yes, the first eight listed companies were all collective enterprises. They were pushed out as the first to try because they lacked capital and their shares were widely dispersed, with no one to protect them. And indeed, many state-owned enterprises and central enterprises have not gone public yet. They can acquire shares of the first eight listed companies to raise capital. For example, at my father's company, Yanzhong Industrial, over 91% of the shares are held by individual investors. By acquiring more than 5% of the shares, one can become a board member, and by acquiring more than 9% of the shares, one can become a major shareholder and even the chairman..."

After Jia Hongjian finished speaking, Wang Coulan was lost in thought, as if she was considering something, perhaps a plan.

"Is this lady going to get involved too? Oh right! I don't even know what she does! She couldn't be from the Shenzhen Baoan Shanghai branch, could she?" Jia Hongjian felt a chill down his spine, worried that his father's company might be acquired because of his loose talk. However, before he could ask, Wang Coulan apologized and went to her bedroom to make a phone call...

Watching the graceful back of the lady, Jia Hongjian thought, "Whatever, it probably won't be that coincidental. Even if it is, it doesn't matter. After all, his father needs to leave the company to work with him. As long as Shenzhen Baoan doesn't cancel the acquisition, everything will be fine."

"How did you become so knowledgeable about finance, Little Hongjian?" Old Luo asked curiously.

"Knowledgeable? Haha, I didn't specifically study it. I just have a basic understanding of the rules, and after seeing the news, I can guess the future trends..." Jia Hongjian said casually.

Just as Old Luo was impressed by Jia Hongjian's knowledge, the TV broadcast another piece of news: "Today, Vice Premier and Governor of the People's Bank of China, Zhu Rongji, announced that China will implement a tax-sharing system nationwide starting from January 1, 1994. After that, the national tax bureau will be divided into the State Taxation Administration and the Local Taxation Administration..."

At this news, Jia Hongjian sighed deeply, looking沧桑 (world-weary). "What's wrong?" Old Luo asked.

"Once the tax-sharing system is implemented, the previous situation where the central government was poor and local governments were rich will change, becoming the opposite..." Jia Hongjian said, deeply aware of the consequences of the tax-sharing system for 21st-century China.

"Hmm?" Old Luo, who was not familiar with finance, thought for a moment and felt that the situation Jia Hongjian described wasn't bad. "Isn't that good? I heard that the central government in Beijing was quite tight on funds. The finance minister, Liu Zhongli, had to ask the vice premier in charge of finance for money, but the vice premier said there was no money and didn't give him a single cent. I heard that last year, several central government agencies couldn't even pay year-end bonuses and salaries without borrowing money..."

Jia Hongjian was shocked by Old Luo's words—what kind of person was this old man? How could he know so much about the central government's situation last year? Even if it was just hearsay, such information was not something ordinary people could easily come by. Even the fact that the finance minister had to ask the vice premier for money was known through hearsay.

He tried to keep his composure, pretending to organize his thoughts for a few seconds to recover from his shock. "Yes, the tax-sharing system is actually good, and it's popular in other countries. However, our country is different from others in that the government controls the land. I think Vice Premier Zhu must have had a long tug-of-war with local governments to implement the tax-sharing system. Even if they comply with the organization, they will need some compensation, right? The central government might delegate more autonomy to local governments. After the tax-sharing system is implemented, the central government will be rich, and local governments will be poor. It's easy to go from frugality to luxury, but hard to go from luxury to frugality. If local governments want more money, what do you think they will do? If I were in their shoes, the simplest thing would be to sell land..."

Indeed, the first housing reform had been completed in 1992. This reform involved selling houses, which were previously owned by enterprises and rented to state-owned enterprise employees, to the employees at relatively low prices. This opened up the real estate market. With the tax-sharing system in place and local governments controlling land sales, it was obvious that real estate developers would start acquiring land and building houses, leading to rising land and housing prices...

Jia Hongjian shared his predictions about the real estate market with Old Luo, concluding, "The current economic situation is a bit overheated. Looking at the current inflation rate and the tax-sharing system, it's possible that in 20 years, several hundred thousand yuan might only be enough to buy a bathroom in your house..."

"Several hundred thousand yuan?" Old Luo's eyes widened. "Hahaha, Little Hongjian, you're really joking! Our country's renminbi is not the Nationalist Party's gold yuan. How could it depreciate so quickly? The inflation rate in 1988 was high, but the average worker's salary has only doubled in the past ten years. In 20 years, even if there's a major inflation every ten years, a middle-aged worker might earn 400 yuan a month at most. Back in 1988, with inflation and the price hikes for food, the prices of daily necessities soared. My family even stockpiled a bathtub full of soy sauce..."

Clearly, Old Luo did not believe that the value of the renminbi would be so low by 2013, nor did he believe that people would need so much paper money, which would indicate a lower real value. He also did not believe that it would take several hundred thousand yuan to buy a bathroom in a prime location in the city center...

Jia Hongjian smiled along with Old Luo but didn't say anything. He wasn't a child who would insist that others believe him. He told the old man about the future of the real estate market because he knew that as an old revolutionary, the old man would not believe him!

Old Luo was even more "antique" than Jia Hongjian's father. If he told his father that Yanzhong Industrial would be acquired soon, his father's reaction would be, "Hahaha, don't joke around. They are all state-owned enterprises. They have party principles. How could they acquire each other..."

Therefore, Jia Hongjian was almost certain that the 70-something-year-old Old Luo would not have a significant impact on the future real estate market of the People's Republic. This was why he felt comfortable sharing his predictions with the old man.

**********

Note: The description of the central government's dire financial situation before the implementation of the tax-sharing system is accurate. However, Liu Zhongli approached Zhu Rongji in 1993, and the timeline has been adjusted for the story.

Appendix: In real history, in 1992, the national fiscal revenue was 350 billion yuan, of which the central government's revenue was 100 billion yuan, and the local government's revenue was 250 billion yuan. The central government's expenditure was 200 billion yuan, resulting in a deficit of 100 billion yuan...

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