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6 White Paper on the Business Environment in China
real estate boom has driven housing prices up by 140 percent than 40 other sectors from cement and steel to furniture, rose
nationwide since 2007, and by an eightfold increase in Beijing 19.3 percent in the first eight months from the same period
over the past eight years.”16 a year ago, slower than the 20.5 percent rise in the first seven
months.”21
Although efforts to adjust real estate prices are ongoing,
prices have fallen enough that there were reported at least five Consequently, “China’s biggest property developers [sit-
street demonstrations in Shanghai since October 2011, with ting] on $25 billion in cash as they prepare for a possible credit
early buyers protesting discounts offered to later buyers by, crunch and another round of crackdowns on real estate specu-
among other things, breaking into sales showrooms and smash- lation.”22
ing scale models. Brokers too have suffered, laying off thousands
of workers and closing hundreds of offices.17 “With land prices hitting record highs and authorities re-
newing their push to rein in house prices, the developers’ cash
In the face of this unrest, Premier Wen Jiabao indicated that hoards may well prove crucial in a sector where margins are
the government would continue its tightening measures.18 coming under pressure”.22
In July of the following year, Central government author- “Cash-starved smaller developers are proving tempting tar-
ities reportedly dispatched 16 inspection teams to major real gets for some of these cash-rich larger players,” it continues. “Ac-
estate markets around the country “after gauging the scale of the cording to Thomson Reuters data, some $14.9 billion in mergers
recent property price upturn as a result of lax implementation and acquisitions have been announced this year, already top-
of government policy.”18 In other words, the Beijing authorities ping 2012’s entire tally of $14.7 billion.”22
best efforts to control property prices may have been under-
mined by the very officials entrusted to execute on the plans. In July of 2013 the government “ordered a five-year sus-
pension of the construction of new official buildings,” its latest
The move coincided with “prices in some major cities, in- effort to “crack down on extravagance and pervasive corrup-
cluding Shanghai, Guangzhou and Beijing, showing early tion.”23
sign[s] of a sharp ‘U’ turn.”19
Nevertheless, by December it was reported that the ban was
Following the inspections, “the central government [report- not being effectively enforced, leading the government to order
edly gave] warnings to some local authorities who were found “a new crackdown to ensure promises are kept to rein in extrav-
not to be following the original guidelines, with the aim of max- agance and pervasive corruption.”24
imizing revenue from land sales.”19
An efficient, long-term solution to a superheated property
Although by that time “Land authorities [had] already market remains elusive. “China’s soaring house prices reveal an
started to cut land supplies in an effort to adjust the housing uncomfortable truth,” observes Reuters. “Government is one of
market, lowering land supply from 172,600 hectares planned the biggest obstacles to the success of taming the market. State
at the beginning of this year to 159,300 hectares,”19 the Cen- income is so entwined in the need for rising land prices that
tral government is widely seen to be stuck between a rock and policy efforts to try to curb the house market create an inherent
a hard place. On one hand there is a clear requirement to get conflict of interest.”25
housing prices under control not only for the disastrous effect
a real estate bubble popping on the Mainland might have but Foreign investment in the property market is growing, as
also in terms of maintaining social stability as home ownership well: the State Administration of Foreign Exchange reported in
in major cities becomes increasingly out of reach for ‘ordinary’ 2010 that 23 percent of foreign investment in the PRC went
citizens. Meanwhile, authorities are also hesitant to “counter into the real estate sector.26
the efforts of maintaining growth”19—presumably doubly-so in
such proximity to the Communist Party’s once-every-ten-years Due to tight restrictions on residential property, most for-
leadership changeover. eign investors enter into the nation’s commercial property
market—especially so in first-tier cities where there are quota
On the whole, the government’s measures to stabilize residen- restrictions on foreign investment scale.27
tial property prices seem to have succeeded despite their poor
implementation in some localities, with Xinhua reporting that Major foreign investors in the Mainland property market
“Housing prices have remained at roughly the same level [since are mostly from private equity,27 with large investments being
2010], while average per capita income has increased by more made in development enterprises.28
than 10 percent year-on-year, [indicating] that housing prices
[…] lowered in comparison to the average income.”20 As the Central Government’s tightening efforts have made
it more difficult to secure financing for developers, they are
By August 2013, authorities’ efforts to cool the market had increasingly turning to private equity to fund their projects.
begun to have some effect, with real estate investment and sales White Paper contributors Dezan Shira note that “In 2010
growth slowing in that month. According to the National Bu- alone, overseas PE funds including the U.S.-based Blackstone,
reau of Statistics, investment in the sector, “which affects more Netherlands-based GTC Real Estate, and some foreign capi-
tal-based PE funds of the HSBC Bank have established partner-
192 ships with domestic property developers.” and that “As a major
real estate boom has driven housing prices up by 140 percent than 40 other sectors from cement and steel to furniture, rose
nationwide since 2007, and by an eightfold increase in Beijing 19.3 percent in the first eight months from the same period
over the past eight years.”16 a year ago, slower than the 20.5 percent rise in the first seven
months.”21
Although efforts to adjust real estate prices are ongoing,
prices have fallen enough that there were reported at least five Consequently, “China’s biggest property developers [sit-
street demonstrations in Shanghai since October 2011, with ting] on $25 billion in cash as they prepare for a possible credit
early buyers protesting discounts offered to later buyers by, crunch and another round of crackdowns on real estate specu-
among other things, breaking into sales showrooms and smash- lation.”22
ing scale models. Brokers too have suffered, laying off thousands
of workers and closing hundreds of offices.17 “With land prices hitting record highs and authorities re-
newing their push to rein in house prices, the developers’ cash
In the face of this unrest, Premier Wen Jiabao indicated that hoards may well prove crucial in a sector where margins are
the government would continue its tightening measures.18 coming under pressure”.22
In July of the following year, Central government author- “Cash-starved smaller developers are proving tempting tar-
ities reportedly dispatched 16 inspection teams to major real gets for some of these cash-rich larger players,” it continues. “Ac-
estate markets around the country “after gauging the scale of the cording to Thomson Reuters data, some $14.9 billion in mergers
recent property price upturn as a result of lax implementation and acquisitions have been announced this year, already top-
of government policy.”18 In other words, the Beijing authorities ping 2012’s entire tally of $14.7 billion.”22
best efforts to control property prices may have been under-
mined by the very officials entrusted to execute on the plans. In July of 2013 the government “ordered a five-year sus-
pension of the construction of new official buildings,” its latest
The move coincided with “prices in some major cities, in- effort to “crack down on extravagance and pervasive corrup-
cluding Shanghai, Guangzhou and Beijing, showing early tion.”23
sign[s] of a sharp ‘U’ turn.”19
Nevertheless, by December it was reported that the ban was
Following the inspections, “the central government [report- not being effectively enforced, leading the government to order
edly gave] warnings to some local authorities who were found “a new crackdown to ensure promises are kept to rein in extrav-
not to be following the original guidelines, with the aim of max- agance and pervasive corruption.”24
imizing revenue from land sales.”19
An efficient, long-term solution to a superheated property
Although by that time “Land authorities [had] already market remains elusive. “China’s soaring house prices reveal an
started to cut land supplies in an effort to adjust the housing uncomfortable truth,” observes Reuters. “Government is one of
market, lowering land supply from 172,600 hectares planned the biggest obstacles to the success of taming the market. State
at the beginning of this year to 159,300 hectares,”19 the Cen- income is so entwined in the need for rising land prices that
tral government is widely seen to be stuck between a rock and policy efforts to try to curb the house market create an inherent
a hard place. On one hand there is a clear requirement to get conflict of interest.”25
housing prices under control not only for the disastrous effect
a real estate bubble popping on the Mainland might have but Foreign investment in the property market is growing, as
also in terms of maintaining social stability as home ownership well: the State Administration of Foreign Exchange reported in
in major cities becomes increasingly out of reach for ‘ordinary’ 2010 that 23 percent of foreign investment in the PRC went
citizens. Meanwhile, authorities are also hesitant to “counter into the real estate sector.26
the efforts of maintaining growth”19—presumably doubly-so in
such proximity to the Communist Party’s once-every-ten-years Due to tight restrictions on residential property, most for-
leadership changeover. eign investors enter into the nation’s commercial property
market—especially so in first-tier cities where there are quota
On the whole, the government’s measures to stabilize residen- restrictions on foreign investment scale.27
tial property prices seem to have succeeded despite their poor
implementation in some localities, with Xinhua reporting that Major foreign investors in the Mainland property market
“Housing prices have remained at roughly the same level [since are mostly from private equity,27 with large investments being
2010], while average per capita income has increased by more made in development enterprises.28
than 10 percent year-on-year, [indicating] that housing prices
[…] lowered in comparison to the average income.”20 As the Central Government’s tightening efforts have made
it more difficult to secure financing for developers, they are
By August 2013, authorities’ efforts to cool the market had increasingly turning to private equity to fund their projects.
begun to have some effect, with real estate investment and sales White Paper contributors Dezan Shira note that “In 2010
growth slowing in that month. According to the National Bu- alone, overseas PE funds including the U.S.-based Blackstone,
reau of Statistics, investment in the sector, “which affects more Netherlands-based GTC Real Estate, and some foreign capi-
tal-based PE funds of the HSBC Bank have established partner-
192 ships with domestic property developers.” and that “As a major
