4万亿有多少拿去炒房了?

When China announced its massive stimulus plan, the package was aimed at putting the economy back on a long-term growth trajectory - not stoking another property boom.

But fears are growing that the 4-trillion-yuan ($586 billion) financial boost is being siphoned to inflate an unsustainable property bubble.

For many potential homebuyers, house prices were already too high when the package was launched in November last year. Yet the gap between salaries and house prices could widen even further if the record sums now being spent at land auctions are any indicator.



Across the country, property plots known as di wang, or "land kings", are fetching unprecedented amounts in bouts of frenzied bidding.

What has surprised many seasoned analysts, though, is that most of the bidding is being done by State-owned enterprises (SOEs), which have access to vast amounts of cheap financing thanks to the stimulus package.

Of the 10 most expensive land purchases in China's major cities this year, six were made by SOEs.

Last month, Poly Real Estate Group Co Ltd, a leading Chinese property developer and subsidiary of State-owned conglomerate Poly Group, paid 1.79 billion yuan - almost 7,000 yuan per sq m - for a plot in Nanjing, capital of Jiangsu province, making it the city's most expensive piece of land for commercial development.


China Overseas Land and Investment, a development firm listed on the Hong Kong Stock Exchange and a subsidiary of State-owned China State Construction Engineering Corp, in September purchased land in Putuo district of downtown Shanghai for 7 billion yuan, more than 22,000 yuan per sq m. Part of the plot attracted no bidders when it was put up for sale at 1.6 billion yuan in July last year.
The deals are causing consternation among Chinese government officials, including Li Rongrong, chairman of the State-owned Assets Supervision and Administration Commission, who said recently that SOEs should focus more on core activities.

Despite concerns over the stimulus money, however, the situation has presented the bosses at SOEs with a dilemma as the quick returns on property ensure enterprises meet the government-set performance targets.

"Because of the speed in which property can be developed in China, SOEs can get a return from real estate development in just one year. Returns from investments in research and development or a new manufacturing process take much longer," said Bing Zhang, of Shanghai-based management consultants A.T. Kearney.

However, Pan Shiyi, chairman of Soho, a major non-State commercial developer, said the behavior at land auctions of some State-owned bidders defies logic.

One of his company's competitors, Franshion Properties, a wholly owned subsidiary of State-owned Sinochem, successfully bid 4.06 billion yuan for land in Beijing in June.

"It was far higher than what other bidders were offering," said Pan. "Most SOEs have easy access to bank loans, and many are turning to real estate because they are reluctant to invest in manufacturing while there is still a problem of over-supply after the downturn."

Many people operating in the property sector are worried that SOEs have had the major share of


4-trillion-yuan stimulus fund.
If so, it puts private companies at a disadvantage, according to Ren Zhiqiang, chairman of Huayuan Property Co Ltd in Beijing, who said: "State-owned enterprises have an edge in fundraising and the cost of their fundraising can be a lot lower than for private companies."

The big question is, what will be the impact of the inflation of land prices on property down the line?



The average cost of residential property in China's 70 largest cities has already risen by 2.8 percent in the 12 months up to September, show figures released by the National Bureau of Statistics.

James MacDonald, head of research at estate agents Savills in Shanghai, said these statistics could even underestimate what is really happening. "In certain cases, you might be expecting prices to be 10 to 30 percent higher than in the second quarter of last year," he said.

He explained that those paying top price for land now will aim to recoup the original outlay when development is complete, signaling further price hikes in the future.



"For companies to turn a profit they need to sell the property for a value above the costs of land, construction, labor and administration. It means the buyers of the land are speculating on a further increase in property prices," he added.
But many fear this model is not sustainable, including Zhang at A.T. Kearney, who said many people are already stretched to the limit.

"The average graduate salary upon leaving university is 24,000 yuan a year, but that is the average price of just 1 sq m of a property in a Chinese city. It would therefore take the graduate 80 years to buy an average-sized apartment," he said.

The one inevitability about a bubble is that it will burst, he added. "I am not saying it is going to happen next year as it is very difficult to predict a time. But it could certainly happen in three or five years. When it does it will have serious repercussions for the economy because a lot of industries depend directly on the property market."



It would be difficult to distance the nation's SOEs from the property market. Of the 130 enterprises under the State-owned assets commission, 80 are involved in real estate and no fewer than 16 are property development companies.

Wang Yulin, a senior researcher with the Ministry of Housing and Urban-Rural Development, said it would be wrong to bar State-owned companies from investing in the property sector, and dismissed suggestions SOEs are free to become land speculators.

"Large SOEs are closely monitored in terms of expenditure and they will not spend money willfully. Whatever the ownership of an enterprise, it has the right to enter a sector and do business," he said.

SOEs have little alternative but to invest in property, added Larry Lang, professor of finance at the Chinese University of Hong Kong, who said the companies were the major recipients of funding from the stimulus package but lacked other rewarding projects to invest in. "They have opted to use the money to buy stocks and land," he said.

Exactly how much of the stimulus pot has gone to the land-grabbing SOEs remains a mystery. Dong Xia-nan, chief macroeconomics analyst for brokerage firm, Industrial Securities, said: "It is something that is hard to verify."

However, many analysts fear a repeat of the scenario witnessed in Japan during the 1990s, the country's "lost decade", when it endured a long period of recession after a massive collapse in house prices.

"If the housing bubble burst in China it would affect a lot of industries dependent on a booming property sector. People won't buy furniture and other consumer products," said management consultant Zhang. "It wouldn't necessarily make houses more affordable, either. People would lose their jobs and the poor would actually get poorer. The wealth gap would widen as the rich would be able to preserve their wealth."

MacDonald at Savills, however, said there was no need to panic about the immediate effect of the recent purchases on house prices.

"It will take two or three years for this land to be developed and the properties go on sale. By that time, the property market could look very different from the way it does now," he said. "Average incomes are growing 10 percent a year, so prices can go up more than 30 percent over that time and the affordability ratios will remain the same."

Meanwhile, SOEs have been warned they may regret their "land king" rush, with analysts predicting they will one day have to pay for their excesses.

"They will regret paying these high prices and history will prove they were not acting in a rational manner," said Ronnie C. Chan, chairman of Hong Kong-listed Hang Lung Properties Ltd.