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State-Owned Groups Fuel China’S Real Estate Boom

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http://www.nytimes.com/2010/08/02/business/global/02chinareal.html?_r=1&hp

China — The Anhui Salt Industry Corporation is a state-owned company that has 11,000 employees, access to government salt mines and a Communist Party boss.

Now it has swaggered into a new line of business: real estate.

The company is developing a complex of luxury high-rises here called Platinum Bay on a parcel it acquired last year by outbidding two other developers to win a local government land auction.

Anhui Salt is hardly alone among big state-owned companies. The China Railway Group is developing residential complexes in Beijing after winning the auction for a huge piece of land there.

Likewise, the China Ordnance Group, a state-led military manufacturer best known for amphibious assault weapons, paid $260 million for Beijing property where it plans to build luxury residences and retail outlets.

And in one of China’s biggest land deals yet, the state-run shipbuilder Sino Ocean paid $1.3 billion last December and March to buy two giant tracts from Beijing’s municipal government to develop residential communities.

All around the nation, giant state-owned oil, chemical, military, telecom and highway groups are bidding up prices on sprawling plots of land for big real estate projects unrelated to their core businesses.

“These are the ones that have the money to buy the land,” says Prof. Deng Yongheng at the National University in Singapore. “Because in China, it’s the government that controls the money supply and the spending.”

By driving up property prices, the state-owned companies, which are ultimately controlled by the national government, are working at cross-purposes with the central government’s effort to keep China’s real estate boom from becoming a debt-driven speculative bubble — like the one that devastated Western financial markets when it burst two years ago.

Land records show that 82 percent of land auctions in Beijing this year have been won by big state-owned companies outbidding private developers — up from 59 percent in 2008.

A recent study published by the National Bureau of Economic Research in Cambridge, Mass., found that land prices in Beijing had jumped by about 750 percent since 2003, and that half of that gain came in the last two years. Housing prices have also skyrocketed, doubling in many cities over the last few years.

The report pegged a big part of the increase to state-owned enterprises that have “paid 27 percent more than other bidders for an otherwise equivalent piece of land.”

Critics say the central government in Beijing unwittingly propelled the land frenzy by pushing a huge $586 billion economic stimulus package last year and encouraging state-owned banks to lend more aggressively.

And as the prices of new apartments soar — in Shanghai, for instance, they often exceed $200,000, while the average disposable income is about $4,000 a year — the trend also threatens to undermine the central government’s goal of affordable housing for the rising middle class.

In some cases, local governments — which earned over $230 billion from land auctions in 2009 — are also being accused of demolishing old neighborhoods and unfairly compensating residents. In a recent poll conducted by China Youth Daily, a state-run newspaper, more than 80 percent of the respondents said local governments were a “major driving force” behind the skyrocketing property prices.

All of this is happening to the chagrin of private developers that dominated China’s property market for more than a decade but are now feeling squeezed out of a game that favors developers with state-backed financing.

“It’s a little like a son who borrows money from his mother,” says Yang Shaofeng, head of the Conworld Real Estate Agency in Beijing.

Last year, state banks made a record $1.4 trillion in loans, nearly twice as much as the year before. Analysts say they believe much of that money was diverted into the property market through off-balance-sheet maneuvers, leading to the record land bids and soaring property prices. That belief is adding to concerns that some of China’s biggest state-owned banks may be sitting on enormous unreported debt.

Excellent, so a huge property bubble is helping to drive the Chinese economic miracle. Still there's limited supply and massive demand. Prices can only go up.

Looks like a great way to boost profits and get yourself a big fat bonus.

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http://www.nytimes.com/2010/08/02/business/global/02chinareal.html?_r=1&hp

Excellent, so a huge property bubble is helping to drive the Chinese economic miracle. Still there's limited supply and massive demand. Prices can only go up.

Looks like a great way to boost profits and get yourself a big fat bonus.

It's not the same though as there are consequences for shysters in China. If lehmans happened in China, the executives would all be sentenced to death.... BUT before being sentenced to death would be sent to a Laogai (a hard labour death camp) for 5-10 years as extra punishment survivors given a lethal injection and organs harvested.

We see people like Fred Goodwin get away scot free and paid £10000s for farking it all up!

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It's not the same though as there are consequences for shysters in China. If lehmans happened in China, the executives would all be sentenced to death....

Cannot agree with you there. Lehmans would be secretly bailed as the CCP would undoubtedly be involved at the highest levels. A lot of the problems in China are caused not by the initial corruption, but the manner in which it snowballs as the powers that be turn a blind eye/cover it up until the situation is so bad it cannot be denied any more.

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  • 144 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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