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5 White Paper on the Business Environment in China
2.6 Construction
FOR THE PURPOSES of this discussion, “construction” highest increase in 21 months.”8
encompasses the various processes involved in raising While those gures were encouraging during the economic
structures—architecture, hardware, contracting, building
materials and development. slowdown, the Financial Times’ beyondbrics blog notes that
“House price-to-income ratios in large cities such as Beijing,
Interestingly, the construction industry was not o cially Shanghai and particularly Shenzhen have been rising steadily
recognized as a discrete sector contributing to GDP until over the past two years,” with the quali cation that “these
1983, following Deng Xiaoping’s making the case that the cities make up less than 5 percent of new home sales in
construction industry could be a pro t-making sector on its China… But the fact that China’s overall price-to-income
own and should be treated accordingly.1 ratio continues to fall – even as it rises in these cities – suggests
that this share is not large enough to in ict serious damage on
Under the jurisdiction of the Ministry of Housing and the property market.”9
Urban and Rural Construction, the industry in China has
continuously performed well, with total gross output value e growth in home prices does appear to have slowed
reported as 6.75 billion yuan in 1985 growing to 3.75 trillion since reaching an apparent peak in April 2010. In January
yuan (growing year-on-year by approximately 33 percent) by of this year, the State Council further “ordered cities to
the end of the third quarter in 2008; similarly, in the rst better manage the supply of land, raise tax rates on the sale
three quarters of 2008 the total income of the construction of apartments or houses held for less than ve years and set
industry increased year-on-year by nearly 25 percent to price control goals for new homes,” in an additional e ort
3.43 trillion yuan and the total pro t grew year-on-year by to contain future growth.10 A Businessweek report on surging
26.8 percent to 83.5 billion yuan.2 In 2009, output value of property prices in December 2009 noted that such increases
national construction was reported to have risen 22 percent were driven by “low interest rates, o cial encouragement of
year-on-year to reach 7.59 trillion yuan3 (no doubt helped bank lending, and then Beijing’s half-trillion-dollar stimulus
a great deal by the economic stimulus e orts of the PRC plan [which] all made funds readily available.”11
government against the global economic slowdown) and
in 2010 the gure was reported by the National Bureau of Despite government e orts to contain housing prices, the
Statistics to have reached 9.52 trillion yuan.4 Total investment situation has not substantially changed; in February 2011
in the sector over 2010 was reported to be in excess of 52.2 Reuters noted that “with one-year deposit rates at 2.75 percent
trillion yuan.4 and consumer prices seen jumping to an annual pace of 5.3
percent in January, in ation-adjusted deposit rates are set
More recently, an analyst writing for BBC News observed to fall to negative 2.55 percent,” and that “raising rates by
that, “Construction has come to dominate China’s economy, 350 basis points, the amount needed to make them clearly
accounting for roughly 25 percent of all activity and about positive in real terms, would wreak havoc on the economy
15 percent of all jobs,” while also cautioning that “No one and possibly fuel social unrest, a major concern for the ruling
knows exactly how much over-building has taken place. But Communist Party.”12
Beijing alone is said to have nearly four million apartments
standing empty.”5 Although experimental property taxes were announced for
Chongqing and Shanghai in January 2011, “the taxes, which
If over-building is really so widespread, it hasn’t had apply only to new purchases of relatively expensive housing,
much of an e ect on housing prices. Despite a slight dip mainly for investment purposes, are drawing a skeptical
during the early days of the nancial crisis (during the week- response.”13
long national holiday in October 2008, sales of residential
properties in Beijing alone were 72 percent lower than during e upward trend continued, and its e ects drove the
the same period in 2007),6 as a whole property sales in China State Council to continue to implement tightening policies
have remained relatively robust. It was estimated that in 2007 on the property market as well as expanding restrictions on
new and resold apartments in 70 cities across China were home purchases to second- and third-tier cities.14
selling for 12 to 15 percent more than in 2006,7 and China
Daily reported in February 2010 that “housing prices rose Other measures taken to control the property market
9.5 percent in January [2010] from a year earlier in China’s have included “purchase limits, higher down payments,
70 large and medium-sized cities […] 1.7 percentage points the introduction of a property tax in some cities and the
higher than December [2008]’s housing price rise, or the construction of subsidized housing projects.”15
176 ese actions have had at least some e ect: a National Bureau
of Statistics report from November 2011 showed that 59 out of
2.6 Construction
FOR THE PURPOSES of this discussion, “construction” highest increase in 21 months.”8
encompasses the various processes involved in raising While those gures were encouraging during the economic
structures—architecture, hardware, contracting, building
materials and development. slowdown, the Financial Times’ beyondbrics blog notes that
“House price-to-income ratios in large cities such as Beijing,
Interestingly, the construction industry was not o cially Shanghai and particularly Shenzhen have been rising steadily
recognized as a discrete sector contributing to GDP until over the past two years,” with the quali cation that “these
1983, following Deng Xiaoping’s making the case that the cities make up less than 5 percent of new home sales in
construction industry could be a pro t-making sector on its China… But the fact that China’s overall price-to-income
own and should be treated accordingly.1 ratio continues to fall – even as it rises in these cities – suggests
that this share is not large enough to in ict serious damage on
Under the jurisdiction of the Ministry of Housing and the property market.”9
Urban and Rural Construction, the industry in China has
continuously performed well, with total gross output value e growth in home prices does appear to have slowed
reported as 6.75 billion yuan in 1985 growing to 3.75 trillion since reaching an apparent peak in April 2010. In January
yuan (growing year-on-year by approximately 33 percent) by of this year, the State Council further “ordered cities to
the end of the third quarter in 2008; similarly, in the rst better manage the supply of land, raise tax rates on the sale
three quarters of 2008 the total income of the construction of apartments or houses held for less than ve years and set
industry increased year-on-year by nearly 25 percent to price control goals for new homes,” in an additional e ort
3.43 trillion yuan and the total pro t grew year-on-year by to contain future growth.10 A Businessweek report on surging
26.8 percent to 83.5 billion yuan.2 In 2009, output value of property prices in December 2009 noted that such increases
national construction was reported to have risen 22 percent were driven by “low interest rates, o cial encouragement of
year-on-year to reach 7.59 trillion yuan3 (no doubt helped bank lending, and then Beijing’s half-trillion-dollar stimulus
a great deal by the economic stimulus e orts of the PRC plan [which] all made funds readily available.”11
government against the global economic slowdown) and
in 2010 the gure was reported by the National Bureau of Despite government e orts to contain housing prices, the
Statistics to have reached 9.52 trillion yuan.4 Total investment situation has not substantially changed; in February 2011
in the sector over 2010 was reported to be in excess of 52.2 Reuters noted that “with one-year deposit rates at 2.75 percent
trillion yuan.4 and consumer prices seen jumping to an annual pace of 5.3
percent in January, in ation-adjusted deposit rates are set
More recently, an analyst writing for BBC News observed to fall to negative 2.55 percent,” and that “raising rates by
that, “Construction has come to dominate China’s economy, 350 basis points, the amount needed to make them clearly
accounting for roughly 25 percent of all activity and about positive in real terms, would wreak havoc on the economy
15 percent of all jobs,” while also cautioning that “No one and possibly fuel social unrest, a major concern for the ruling
knows exactly how much over-building has taken place. But Communist Party.”12
Beijing alone is said to have nearly four million apartments
standing empty.”5 Although experimental property taxes were announced for
Chongqing and Shanghai in January 2011, “the taxes, which
If over-building is really so widespread, it hasn’t had apply only to new purchases of relatively expensive housing,
much of an e ect on housing prices. Despite a slight dip mainly for investment purposes, are drawing a skeptical
during the early days of the nancial crisis (during the week- response.”13
long national holiday in October 2008, sales of residential
properties in Beijing alone were 72 percent lower than during e upward trend continued, and its e ects drove the
the same period in 2007),6 as a whole property sales in China State Council to continue to implement tightening policies
have remained relatively robust. It was estimated that in 2007 on the property market as well as expanding restrictions on
new and resold apartments in 70 cities across China were home purchases to second- and third-tier cities.14
selling for 12 to 15 percent more than in 2006,7 and China
Daily reported in February 2010 that “housing prices rose Other measures taken to control the property market
9.5 percent in January [2010] from a year earlier in China’s have included “purchase limits, higher down payments,
70 large and medium-sized cities […] 1.7 percentage points the introduction of a property tax in some cities and the
higher than December [2008]’s housing price rise, or the construction of subsidized housing projects.”15
176 ese actions have had at least some e ect: a National Bureau
of Statistics report from November 2011 showed that 59 out of
