Page 314 - 2018 White Paper on the Business Environment in China
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8 White Paper on the Business Environment in China
investment slowing, China’s economic outlook looks less 20 to 30 percent of real estate firms go bankrupt every
optimistic, and may worsen further if the government year for the foreseeable future. Against this backdrop,
continues its tough line. The real estate sector is vitally many firms are looking to exit the industry, and this is
important to China’s economy, employing an estimated spurring a wave of mergers and acquisitions (Sheehan).
29 million people, generating investment worth 7.9
percent of additional annual GDP in 2016, contributing The total investment in real estate development
up to 35 percent of local government fiscal revenue, in the first six months of 2017 was 5.061 trillion yuan,
and creating demand for China’s steel, cement, glass, a nominal increase of 8.5 percent year-on-year. The
and other industrial sectors. But China’s real estate growth rate went down by 0.3 percentage points over
developers owe the banking sector a lot of money—2.8 the first five months of 2017. Of which, the investment
trillion yuan—and most of that is due in the next two in residential buildings was 3.43 trillion yuan, up by
years. Developers have been on a debt-fueled expansion 10.2 percent, 0.2 percentage points higher, accounted
binge, taking on 852 billion yuan of new debt between for 67.8 percent of real estate development investment.
2015 and 2016, exceeding the 820 billion yuan taken on In these first six months, the real estate investment in
from 2010 to 2014 (Sheehan). eastern region stood at 2.73 trillion yuan, up by 8.4
percent year-on-year, and stayed in the same level over
With a heavy load of debt in mind, it’s a bad time the first five months in 2017; the central region stood
for the Chinese government to be making it harder for at 1.06 trillion yuan, went up by 16.0 percent, and
developers to sell properties, but that’s exactly what the growth rate was down by 0.9 percentage points;
they are doing. Starting in the first quarter of 2016, the western region stood at 1.1 trillion yuan, up by 6.8
Chinese government introduced a raft of measures, percent, down by 0.2 percentage points; northeastern
including higher minimum down payments, controls region reached 173.7 billion yuan, decreased 14.0
on multiple home ownership, and curbs on purchases percent, the pace of drop rate narrowed 2.1 percentage
by non-registered residents to dampen buyer demand points. Floor space under construction by the real
and cool rocketing prices. Meanwhile, costs are rising estate development enterprises accounted for almost
for developers. After a huge year for sales in 2016, when 7 billion square meters, a year-on-year increase of 3.4
residential real estate sales jumped 36.1 percent from percent, an increase of 0.3 percentage points over the
the previous year, developers are aggressively trying to first five months in 2017. Of which, the floor space of
replenish their land banks, and that’s causing prices to residential building construction area was 4.73 billion
rise. China Real Estate Information reported that average square meters, up by 2.9 percent. The floor space
prices of land sold from January through June 2017 started in 2017 was 857.20 million square meters, up
grew 32.6 percent from 2016. To add further pressure, by 10.6 percent, up by 1.1 percentage points. The floor
the Chinese government is shutting down developers’ space of residential buildings started in the same year
sources of credit. Since October 2016, the government amounted to 613.99 million square meters, up by 14.9
has tightened domestic bond insurance rules, stopped percent. The floor space of buildings completed stood
loans to finance land purchases, pressured lending at 415.24 million square meters, went up by 5.0 percent,
by trust companies, and virtually stopped offshore and went down by 0.9 percentage points. Of which, the
bond issuances by real estate developers. Narrower floor space completed of residential buildings stood at
financing channels, plus the People’s Bank of China’s 297.60 million square meters, went up by 2.5 percent.
(PBoC) steady tightening of monetary policy, has raised The land area purchased by the real estate development
financing costs. The PBoC has raised rates via open enterprises totaled 103.41 million square meters, was
market operations and, when coupled with narrower up by 8.8 percent year-on-year, and the growth rate was
financing channels, real estate developers have seen up by 3.5 percentage points over the first five months in
their financing costs rise 2 to 3 percentage points 2017. The total transaction of land reached 437.6 billion
during the past six months, with some seeing rises of yuan, increased 38.5 percent, and the pace of increase
eight percentage points, according to Xinhua Finance. went up 6.2 percentage points (NBS).
Taken together, the increased pressure is starting to
seriously impact China’s real estate developers, with Leasing
signs of distress emerging. The problem is so serious
that Greenland Chairman Zhang Yuliang recently China is pushing development of the home rental
predicted that continued government pressure will see market in large and medium cities to address rising
314
investment slowing, China’s economic outlook looks less 20 to 30 percent of real estate firms go bankrupt every
optimistic, and may worsen further if the government year for the foreseeable future. Against this backdrop,
continues its tough line. The real estate sector is vitally many firms are looking to exit the industry, and this is
important to China’s economy, employing an estimated spurring a wave of mergers and acquisitions (Sheehan).
29 million people, generating investment worth 7.9
percent of additional annual GDP in 2016, contributing The total investment in real estate development
up to 35 percent of local government fiscal revenue, in the first six months of 2017 was 5.061 trillion yuan,
and creating demand for China’s steel, cement, glass, a nominal increase of 8.5 percent year-on-year. The
and other industrial sectors. But China’s real estate growth rate went down by 0.3 percentage points over
developers owe the banking sector a lot of money—2.8 the first five months of 2017. Of which, the investment
trillion yuan—and most of that is due in the next two in residential buildings was 3.43 trillion yuan, up by
years. Developers have been on a debt-fueled expansion 10.2 percent, 0.2 percentage points higher, accounted
binge, taking on 852 billion yuan of new debt between for 67.8 percent of real estate development investment.
2015 and 2016, exceeding the 820 billion yuan taken on In these first six months, the real estate investment in
from 2010 to 2014 (Sheehan). eastern region stood at 2.73 trillion yuan, up by 8.4
percent year-on-year, and stayed in the same level over
With a heavy load of debt in mind, it’s a bad time the first five months in 2017; the central region stood
for the Chinese government to be making it harder for at 1.06 trillion yuan, went up by 16.0 percent, and
developers to sell properties, but that’s exactly what the growth rate was down by 0.9 percentage points;
they are doing. Starting in the first quarter of 2016, the western region stood at 1.1 trillion yuan, up by 6.8
Chinese government introduced a raft of measures, percent, down by 0.2 percentage points; northeastern
including higher minimum down payments, controls region reached 173.7 billion yuan, decreased 14.0
on multiple home ownership, and curbs on purchases percent, the pace of drop rate narrowed 2.1 percentage
by non-registered residents to dampen buyer demand points. Floor space under construction by the real
and cool rocketing prices. Meanwhile, costs are rising estate development enterprises accounted for almost
for developers. After a huge year for sales in 2016, when 7 billion square meters, a year-on-year increase of 3.4
residential real estate sales jumped 36.1 percent from percent, an increase of 0.3 percentage points over the
the previous year, developers are aggressively trying to first five months in 2017. Of which, the floor space of
replenish their land banks, and that’s causing prices to residential building construction area was 4.73 billion
rise. China Real Estate Information reported that average square meters, up by 2.9 percent. The floor space
prices of land sold from January through June 2017 started in 2017 was 857.20 million square meters, up
grew 32.6 percent from 2016. To add further pressure, by 10.6 percent, up by 1.1 percentage points. The floor
the Chinese government is shutting down developers’ space of residential buildings started in the same year
sources of credit. Since October 2016, the government amounted to 613.99 million square meters, up by 14.9
has tightened domestic bond insurance rules, stopped percent. The floor space of buildings completed stood
loans to finance land purchases, pressured lending at 415.24 million square meters, went up by 5.0 percent,
by trust companies, and virtually stopped offshore and went down by 0.9 percentage points. Of which, the
bond issuances by real estate developers. Narrower floor space completed of residential buildings stood at
financing channels, plus the People’s Bank of China’s 297.60 million square meters, went up by 2.5 percent.
(PBoC) steady tightening of monetary policy, has raised The land area purchased by the real estate development
financing costs. The PBoC has raised rates via open enterprises totaled 103.41 million square meters, was
market operations and, when coupled with narrower up by 8.8 percent year-on-year, and the growth rate was
financing channels, real estate developers have seen up by 3.5 percentage points over the first five months in
their financing costs rise 2 to 3 percentage points 2017. The total transaction of land reached 437.6 billion
during the past six months, with some seeing rises of yuan, increased 38.5 percent, and the pace of increase
eight percentage points, according to Xinhua Finance. went up 6.2 percentage points (NBS).
Taken together, the increased pressure is starting to
seriously impact China’s real estate developers, with Leasing
signs of distress emerging. The problem is so serious
that Greenland Chairman Zhang Yuliang recently China is pushing development of the home rental
predicted that continued government pressure will see market in large and medium cities to address rising
314
