|(This illustrates the futility of looking at the state sector in
China as evidence of "socialism".)
NY Times August 1, 2010
State-Owned Bidders Fuel China’s Land Boom
By DAVID BARBOZA
WUHU, 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
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
“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
“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.
Beijing is now struggling to rein in credit without slowing the
nation’s roaring economy. And regulators are trying to stop state
banks from using clever maneuvers to secretly lend money to overly
aggressive state-owned developers.
Beijing also wants to restrain state companies that have little or
no expertise in real estate. Last March, the State Assets
Supervision and Administration Commission — one of the national
government’s most powerful bodies — ordered 78 state-owned
companies to shed their real estate divisions.
But analysts say the government will have difficulty stopping
hundreds of state-owned companies and their various subsidiaries
from participating in what has become one of the country’s hottest
industries. Experts say that more than 90 of the 125 state-owned
companies directly under Beijing’s control still have property
divisions. And local and provincial governments control many
The national government is grappling with a complex set of
incentives that drive state-run companies to speculate in the
property market with the aid of local governments.
Rosealea Yao, an analyst at Dragonomics, a research consultant in
Beijing, says a growing number of municipalities have formed local
investment vehicles that borrow heavily from state-owned banks to
pay to relocate residents and build infrastructure around big
plots of land they intend to sell at auction. (In China, local
governments cannot directly borrow from banks or issue bonds for
real estate development.)
Those off-balance-sheet debts are essentially bets on rising land
prices, she says, which could become big liabilities if land
prices were to decline sharply or the auction market were to dry up.
“This is why local governments are so enthusiastic about
infrastructure,” Ms. Yao says. “They borrow to build something
that raises the value of the land they want to sell at auction.”
Here in Wuhu, a sleepy industrial town about 70 miles west of
Nanjing, Anhui Salt is breaking ground on its high-rise project in
the center of town — next to a hotel operated by Anhui Conch Holdings.
The land was put up for auction in May 2009, and there were just
three bidders — another of which was also a state-owned company.
Anhui Salt, which also boasts of operating a steel trading arm, a
financing vehicle and even two Honda dealerships, says it is eager
to expand beyond industrial products and table salt.
“Platinum Bay is Anhui Salt Industry’s first luxury project and
targets the very rich, the very elite class of Wuhu,” said Su
Chuanbo, marketing manager.
Asked why Anhui Salt wants to be a developer, Mr. Su said the
central government had encouraged state companies to be more
profitable, and that real estate was incredibly lucrative.
And so the government, he added, is actually behind its push into
“Even though many central government-controlled state companies
are banned from the real estate sector,” Mr. Su said, “local
state-owned companies like Anhui Salt can still develop its
projects within reasonable bounds. The situation is the same all
Bao Beibei and Chen Xiaoduan contributed research.