Page 190 - 2016_WhitePaper_web
P. 190
6 White Paper on the Business Environment in China
2.6 Construction
For the purposes of this discussion, “construction” slowdown, the Financial Times’ beyondbrics blog notes that
encompasses the various processes involved in raising struc- “House price-to-income ratios in large cities such as Beijing,
tures—architecture, hardware, contracting, building materials Shanghai and particularly Shenzhen have been rising steadily
and development. over the past two years,” with the qualification that “these cities
make up less than 5 percent of new home sales in China… But
Interestingly, the construction industry was not officially the fact that China’s overall price-to-income ratio continues to
recognized as a discrete sector contributing to GDP until 1983, fall – even as it rises in these cities – suggests that this share
following Deng Xiaoping’s making the case that the construc- is not large enough to inflict serious damage on the property
tion industry could be a profit-making sector on its own and market”9.
should be treated accordingly.1
The growth in home prices does appear to have slowed since
Under the jurisdiction of the Ministry of Housing and Ur- reaching an apparent peak in April 2010. In January of this year,
ban and Rural Construction, the industry in China has contin- the State Council further “ordered cities to better manage the
uously performed well, with total gross output value reported as supply of land, raise tax rates on the sale of apartments or houses
6.75 billion yuan in 1985 growing to 3.75 trillion yuan (grow- held for less than five years and set price control goals for new
ing year-on-year by approximately 33 percent) by the end of the homes,” in an additional effort to contain future growth.10 A
third quarter in 2008; similarly, in the first three quarters of Businessweek report on surging property prices in December
2008 the total income of the construction industry increased 2009 noted that such increases were driven by “low interest
year-on-year by nearly 25 percent to 3.43 trillion yuan and the rates, official encouragement of bank lending, and then Beijing’s
total profit grew year-on-year by 26.8 percent to 83.5 billion half-trillion-dollar stimulus plan [which] all made funds readily
yuan.2 In 2009, output value of national construction was re- available”11.
ported to have risen 22 percent year-on-year to reach 7.59 tril-
lion yuan3 (no doubt helped a great deal by the economic stimu- Despite government efforts to contain housing prices, the
lus efforts of the PRC government against the global economic situation has not substantially changed; in February 2011 Reu-
slowdown) and in 2010 the figure was reported by the National ters noted that “with one-year deposit rates at 2.75 percent and
Bureau of Statistics to have reached 9.52 trillion yuan.4 Total consumer prices seen jumping to an annual pace of 5.3 percent
investment in the sector over 2010 was reported to be in excess in January, inflation-adjusted deposit rates are set to fall to neg-
of 52.2 trillion yuan.4 ative 2.55 percent,” and that “raising rates by 350 basis points,
the amount needed to make them clearly positive in real terms,
More recently, an analyst writing for BBC News observed would wreak havoc on the economy and possibly fuel social un-
that, “Construction has come to dominate China’s economy, rest, a major concern for the ruling Communist Party.”12
accounting for roughly 25 percent of all activity and about 15
percent of all jobs,” while also cautioning that “No one knows Although experimental property taxes were announced for
exactly how much over-building has taken place. But Beijing Chongqing and Shanghai in January 2011, “the taxes, which ap-
alone is said to have nearly four million apartments standing ply only to new purchases of relatively expensive housing, main-
empty”5. ly for investment purposes, are drawing a skeptical response.”13
If over-building is really so widespread, it hasn’t had much of The upward trend continued, and its effects drove the State
an effect on housing prices. Despite a slight dip during the early Council to continue to implement tightening policies on the
days of the financial crisis (during the week-long national holiday property market as well as expanding restrictions on home pur-
in October 2008, sales of residential properties in Beijing alone chases to second- and third-tier cities.14
were 72 percent lower than during the same period in 2007),6 as
a whole property sales in China have remained relatively robust. Other measures taken to control the property market have
It was estimated that in 2007 new and resold apartments in included “purchase limits, higher down payments, the intro-
70 cities across China were selling for 12 to 15 percent more duction of a property tax in some cities and the construction of
than in 2006,7 and China Daily reported in February 2010 subsidized housing projects.”15
that “housing prices rose 9.5 percent in January [2010] from a
year earlier in China’s 70 large and medium-sized cities […] 1.7 These actions have had at least some effect: a National Bureau
percentage points higher than December [2008]’s housing price of Statistics report from November 2011 showed that 59 out of
rise, or the highest increase in 21 months”8. 70 major cities in their sample saw property price increases slow,
up from only 40 cities in August of the same year.15
While those figures were encouraging during the economic
There still remains substantial correction to be made, how-
190 ever; China Daily reported in late 2011 that “the unrelenting
2.6 Construction
For the purposes of this discussion, “construction” slowdown, the Financial Times’ beyondbrics blog notes that
encompasses the various processes involved in raising struc- “House price-to-income ratios in large cities such as Beijing,
tures—architecture, hardware, contracting, building materials Shanghai and particularly Shenzhen have been rising steadily
and development. over the past two years,” with the qualification that “these cities
make up less than 5 percent of new home sales in China… But
Interestingly, the construction industry was not officially the fact that China’s overall price-to-income ratio continues to
recognized as a discrete sector contributing to GDP until 1983, fall – even as it rises in these cities – suggests that this share
following Deng Xiaoping’s making the case that the construc- is not large enough to inflict serious damage on the property
tion industry could be a profit-making sector on its own and market”9.
should be treated accordingly.1
The growth in home prices does appear to have slowed since
Under the jurisdiction of the Ministry of Housing and Ur- reaching an apparent peak in April 2010. In January of this year,
ban and Rural Construction, the industry in China has contin- the State Council further “ordered cities to better manage the
uously performed well, with total gross output value reported as supply of land, raise tax rates on the sale of apartments or houses
6.75 billion yuan in 1985 growing to 3.75 trillion yuan (grow- held for less than five years and set price control goals for new
ing year-on-year by approximately 33 percent) by the end of the homes,” in an additional effort to contain future growth.10 A
third quarter in 2008; similarly, in the first three quarters of Businessweek report on surging property prices in December
2008 the total income of the construction industry increased 2009 noted that such increases were driven by “low interest
year-on-year by nearly 25 percent to 3.43 trillion yuan and the rates, official encouragement of bank lending, and then Beijing’s
total profit grew year-on-year by 26.8 percent to 83.5 billion half-trillion-dollar stimulus plan [which] all made funds readily
yuan.2 In 2009, output value of national construction was re- available”11.
ported to have risen 22 percent year-on-year to reach 7.59 tril-
lion yuan3 (no doubt helped a great deal by the economic stimu- Despite government efforts to contain housing prices, the
lus efforts of the PRC government against the global economic situation has not substantially changed; in February 2011 Reu-
slowdown) and in 2010 the figure was reported by the National ters noted that “with one-year deposit rates at 2.75 percent and
Bureau of Statistics to have reached 9.52 trillion yuan.4 Total consumer prices seen jumping to an annual pace of 5.3 percent
investment in the sector over 2010 was reported to be in excess in January, inflation-adjusted deposit rates are set to fall to neg-
of 52.2 trillion yuan.4 ative 2.55 percent,” and that “raising rates by 350 basis points,
the amount needed to make them clearly positive in real terms,
More recently, an analyst writing for BBC News observed would wreak havoc on the economy and possibly fuel social un-
that, “Construction has come to dominate China’s economy, rest, a major concern for the ruling Communist Party.”12
accounting for roughly 25 percent of all activity and about 15
percent of all jobs,” while also cautioning that “No one knows Although experimental property taxes were announced for
exactly how much over-building has taken place. But Beijing Chongqing and Shanghai in January 2011, “the taxes, which ap-
alone is said to have nearly four million apartments standing ply only to new purchases of relatively expensive housing, main-
empty”5. ly for investment purposes, are drawing a skeptical response.”13
If over-building is really so widespread, it hasn’t had much of The upward trend continued, and its effects drove the State
an effect on housing prices. Despite a slight dip during the early Council to continue to implement tightening policies on the
days of the financial crisis (during the week-long national holiday property market as well as expanding restrictions on home pur-
in October 2008, sales of residential properties in Beijing alone chases to second- and third-tier cities.14
were 72 percent lower than during the same period in 2007),6 as
a whole property sales in China have remained relatively robust. Other measures taken to control the property market have
It was estimated that in 2007 new and resold apartments in included “purchase limits, higher down payments, the intro-
70 cities across China were selling for 12 to 15 percent more duction of a property tax in some cities and the construction of
than in 2006,7 and China Daily reported in February 2010 subsidized housing projects.”15
that “housing prices rose 9.5 percent in January [2010] from a
year earlier in China’s 70 large and medium-sized cities […] 1.7 These actions have had at least some effect: a National Bureau
percentage points higher than December [2008]’s housing price of Statistics report from November 2011 showed that 59 out of
rise, or the highest increase in 21 months”8. 70 major cities in their sample saw property price increases slow,
up from only 40 cities in August of the same year.15
While those figures were encouraging during the economic
There still remains substantial correction to be made, how-
190 ever; China Daily reported in late 2011 that “the unrelenting
