Monopoly rise risk in SOEs' property exit

10:20, March 29, 2010      

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The exit of some Stated-owned enterprises from investing in real estate will help suppress speculation in the housing market, but more measures tackling systemic problems are needed to bring high housing prices under control, experts said.

Some State-owned enterprises under the central government have already started to withdraw from investment in the property sector, as mandated in a recent order from the State-owned Assets Supervision and Administration Commission of the State Council (SASAC).

So far, two SOEs have listed their stakes in property development subsidiaries for sale on the Beijing Equity Exchange. China National Nuclear Corporation offered an 8 percent share and China Aerospace Sciences & Industry Corp listed 80 percent equity for sale in their real estate sector subsidiaries, respectively.

The China Ocean Shipping Group (COSCO) also intends to sell off the 8 percent property equity that its subsidiary COSCO Hong Kong holds, the Yangtse Evening News Sunday cited Wei Jiafu, president and CEO of COSCO, as saying.

Apart from the 16 SOEs affiliated with the central government that have core business in real estate development, the other 78 SOEs without core business in property are not allowed to acquire new land, and will be phased out from the property sector after the completion of their on-going projects, according to the SASAC's March 18 press conference.

SASAC's decision came after several SOEs under the central government pushed record high prices in land auctions. New highs in land prices will further drive up the already bubbling housing market, posing a threat to the nation's economy.

"This is good news," said Dong Liming, a professor with the College of Urban and Environmental Sciences at Peking University.

Unlike private businesses, SOEs' money is taxpayers' money. They tend to care less about prices and drive up the market when they swarm into it and compete with their capital advantage, Dong said.

"However, the effect of the initiative will be limited if the 16 SOEs' focus on property development remains and if the system is not adjusted to ensure fair competition between Stated-owned developers and private businesses," he said.

The exit of the 78 central SOEs is almost meaningless given the remaining 16 SOEs, and the move could even consolidate the monopoly status of the 16, the National Business Daily reported March 25, citing property developers based in Jiangsu Province and Shanghai.

The 16 central government-affiliated SOEs with major business in property had assets and net profits of 561.6 billion yuan ($82.23 billion) and 18.8 billion yuan ($2.75 billion) respectively in 2009, about 85 percent and 94 percent of the total assets and profits of all the central government-affiliated SOEs in the property sector.

A responsibility mechanism should be set up for SOEs investing in the property market, Dong suggested.
Since land prices are too high, private business refrains from putting in large bids, fearing losses and bankruptcy.

But SOEs don't care, and even if they lose billions, only the chairman and CEO are criticized. That's how China's "land kings" were created, Dong said, referring to the buyers setting new price records in the real estate market.

Following the SASAC's order, the China Banking Regulatory Commission (CBRC) said Friday that banks would not issue loans to new property projects of the 78 central SOEs, the Shanghai Securities News (SSN) reported Saturday, citing an unnamed CBRC official.

The CBRC will also ask banks not to issue new loans to developers who are on the Ministry of Land and Resources' blacklist for delaying development of properties, and ensure developer's collaterals for new loans are buildings instead of land, Liu Mingkang, chairman of the CBRC, said during a forum in London Saturday, the SSN reported.

Source: Global Times
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