Page 242 - 2017 White Paper
P. 242
7 White Paper on the Business Environment in China
remained at roughly the same level [since 2010], while to curb the house market create an inherent conflict of
average per capita income has increased by more than 10 interest” (Shao and Qing 2013).
percent year-on-year, [indicating] that housing prices […]
lowered in comparison to the average income” (Xinhua Foreign investment in the property market is growing,
2012b). as well: the State Administration of Foreign Exchange
reported in 2010 that 23 percent of foreign investment
By August 2013, authorities’ efforts to cool the in the PRC went into the real estate sector (Xinhua 2011).
market had begun to have some effect, with real estate
investment and sales growth slowing in that month. Due to tight restrictions on residential property, most
According to the National Bureau of Statistics, investment foreign investors enter into the nation’s commercial
in the sector, “which affects more than 40 other sectors property market—especially so in first-tier cities where
from cement and steel to furniture, rose 19.3 percent there are quota restrictions on foreign investment scale
in the first eight months from the same period a year (Wang 2011).
ago, slower than the 20.5 percent rise in the first seven
months” (Reuters 2013d). Major foreign investors in the Mainland property
market are mostly from private equity (Wang 2011),
Consequently, “China’s biggest property developers with large investments being made in development
[sitting] on $25 billion in cash as they prepare for a enterprises (China Briefing 2011c).
possible credit crunch and another round of crackdowns
on real estate speculation” (Desai and Lee 2013). As the Central Government’s tightening efforts have
made it more difficult to secure financing for developers,
“With land prices hitting record highs and authorities they are increasingly turning to private equity to fund
renewing their push to rein in house prices, the their projects. White Paper contributors Dezan Shira
developers’ cash hoards may well prove crucial in a sector note that “In 2010 alone, overseas PE funds including
where margins are coming under pressure” (Desai and the U.S.-based Blackstone, Netherlands-based GTC Real
Lee 2013). Estate, and some foreign capital-based PE funds of the
HSBC Bank have established partnerships with domestic
“Cash-starved smaller developers are proving property developers” and that “As a major channel for
tempting targets for some of these cash-rich larger foreign funds to enter the Chinese property market,
players”, it continues. “According to Thomson Reuters foreign direct investment into the field in 2010 saw an
data, some $14.9 billion in mergers and acquisitions have impressive 40 percent year-on-year increase, reaching
been announced this year, already topping 2012’s entire US$24 billion and contributing 22.7 percent to the total
tally of $14.7 billion” (Desai and Lee 2013). actual foreign capital that went to non-financial areas”
(China Briefing 2011c).
In July of 2013 the government “ordered a five-year
suspension of the construction of new official buildings”, With the slowdown in construction (as well as the
its latest effort to “crack down on extravagance and overall economy), Premier Li Keqiang has emphasized
pervasive corruption” (Reuters 2013b). the importance of tackling the long-standing problem
of industrial overcapacity as traditional industries and
Nevertheless, by December it was reported that “zombie enterprises” continue to struggle. Speaking at
the ban was not being effectively enforced, leading a December 2015 seminar on the country’s economic
the government to order “a new crackdown to ensure situation, Premier Li discussed the increasingly prioritized
promises are kept to rein in extravagance and pervasive issue of overcapacity on traditional industries, which has
corruption” (Reuters 2013a). been blamed for surplus inventory and shrinking profits
in the industrial sector and a drag on overall economic
An efficient, long-term solution to a superheated growth. “From next year”, the Premier said, “we should
property market remains elusive. “China’s soaring house be determined to cut back on overcapacity in traditional
prices reveal an uncomfortable truth”, observes Reuters. industries as well as a large number of zombie enterprises”,
“Government is one of the biggest obstacles to the pointing out in particular the worst-performing steel and
success of taming the market. State income is so entwined coal industries (Xing and Zhao 2015).
in the need for rising land prices that policy efforts to try
242
remained at roughly the same level [since 2010], while to curb the house market create an inherent conflict of
average per capita income has increased by more than 10 interest” (Shao and Qing 2013).
percent year-on-year, [indicating] that housing prices […]
lowered in comparison to the average income” (Xinhua Foreign investment in the property market is growing,
2012b). as well: the State Administration of Foreign Exchange
reported in 2010 that 23 percent of foreign investment
By August 2013, authorities’ efforts to cool the in the PRC went into the real estate sector (Xinhua 2011).
market had begun to have some effect, with real estate
investment and sales growth slowing in that month. Due to tight restrictions on residential property, most
According to the National Bureau of Statistics, investment foreign investors enter into the nation’s commercial
in the sector, “which affects more than 40 other sectors property market—especially so in first-tier cities where
from cement and steel to furniture, rose 19.3 percent there are quota restrictions on foreign investment scale
in the first eight months from the same period a year (Wang 2011).
ago, slower than the 20.5 percent rise in the first seven
months” (Reuters 2013d). Major foreign investors in the Mainland property
market are mostly from private equity (Wang 2011),
Consequently, “China’s biggest property developers with large investments being made in development
[sitting] on $25 billion in cash as they prepare for a enterprises (China Briefing 2011c).
possible credit crunch and another round of crackdowns
on real estate speculation” (Desai and Lee 2013). As the Central Government’s tightening efforts have
made it more difficult to secure financing for developers,
“With land prices hitting record highs and authorities they are increasingly turning to private equity to fund
renewing their push to rein in house prices, the their projects. White Paper contributors Dezan Shira
developers’ cash hoards may well prove crucial in a sector note that “In 2010 alone, overseas PE funds including
where margins are coming under pressure” (Desai and the U.S.-based Blackstone, Netherlands-based GTC Real
Lee 2013). Estate, and some foreign capital-based PE funds of the
HSBC Bank have established partnerships with domestic
“Cash-starved smaller developers are proving property developers” and that “As a major channel for
tempting targets for some of these cash-rich larger foreign funds to enter the Chinese property market,
players”, it continues. “According to Thomson Reuters foreign direct investment into the field in 2010 saw an
data, some $14.9 billion in mergers and acquisitions have impressive 40 percent year-on-year increase, reaching
been announced this year, already topping 2012’s entire US$24 billion and contributing 22.7 percent to the total
tally of $14.7 billion” (Desai and Lee 2013). actual foreign capital that went to non-financial areas”
(China Briefing 2011c).
In July of 2013 the government “ordered a five-year
suspension of the construction of new official buildings”, With the slowdown in construction (as well as the
its latest effort to “crack down on extravagance and overall economy), Premier Li Keqiang has emphasized
pervasive corruption” (Reuters 2013b). the importance of tackling the long-standing problem
of industrial overcapacity as traditional industries and
Nevertheless, by December it was reported that “zombie enterprises” continue to struggle. Speaking at
the ban was not being effectively enforced, leading a December 2015 seminar on the country’s economic
the government to order “a new crackdown to ensure situation, Premier Li discussed the increasingly prioritized
promises are kept to rein in extravagance and pervasive issue of overcapacity on traditional industries, which has
corruption” (Reuters 2013a). been blamed for surplus inventory and shrinking profits
in the industrial sector and a drag on overall economic
An efficient, long-term solution to a superheated growth. “From next year”, the Premier said, “we should
property market remains elusive. “China’s soaring house be determined to cut back on overcapacity in traditional
prices reveal an uncomfortable truth”, observes Reuters. industries as well as a large number of zombie enterprises”,
“Government is one of the biggest obstacles to the pointing out in particular the worst-performing steel and
success of taming the market. State income is so entwined coal industries (Xing and Zhao 2015).
in the need for rising land prices that policy efforts to try
242
