Property market continues to yo-yo as bureaucrats flip-flop
What's going on? First, Beijing orders 80 per cent of major state-owned enterprises to get out of the property market. Then the Ministry of Land and Resources says local governments must come up with plans for subsidised housing before they can apply for commercial land sales.
So, this means there will be no more embarrassing land auctions where SOEs whose core business is not property bid up record prices, right?
As always, I prefer to answer with facts.
A day after the exit order, State-owned Assets Supervision and Administration Commission (Sasac) chairman Li Rongrong summoned the heads of all major SOE heads to his office. He told them they must not only fulfil their economic obligations but also their political and social ones.
'You must voluntarily carry out the state's economic policies. Officers of SOEs in the property sector, in particular the chiefs, must chi tou [thoroughly understand] the real estate policies and measures of the party and the State Council. People's livelihoods and the current trend of the property market are your concern,' he said.
Li then called on the 16 major SOEs with real estate as their core business to take the lead in facilitating a healthy development of the market and the remaining 78 to submit their exit plans within 15 days.
Sounds like a plan. But wait.
Two days later, Sasac put out another statement. This time from deputy chairman Shao Ning: 'Today's conference was meant to be about the internationalisation of SOEs but our media friends are so concerned with the property market, they have surrounded me and refused to go away, so I have to give some personal views.
'Developers, be they state-owned or private, have a very limited role in determining property prices. Our property market is highly competitive. The developers are no more than normal corporates operating within a specific macro environment and policy framework.
'Nobody wants to see excessively high property prices. It destabilises society ... But property prices are determined by demand and supply. The fact is, income is polarising China ... the rich have a lot of money, while there is a huge low-income group ... Our property policy must target different classes.
'The government does not need to control prices of houses for the rich ... profit or loss, it's the developers' own business. Property prices for the low-income group need to be controlled and subsidised ... Local governments [benefactors of land sales] should be asked to spend part of the sale proceeds on this.'
In short, there is a problem but I didn't cause it.
However, it poses the question: which is the true voice of Sasac?
Perhaps, the bitter experience of former chief secretary Anson Chan Fang On-sang can shed some light. The year is 2000. It's no secret that Chan wants the job of her boss, then chief executive Tung Chee-hwa. She was summoned to Beijing and met then vice-premier Qian Qishen.
The meeting started cordially with Qian praising her ability while asking her to co-operate with Tung. Then Qian left and a 'junior' staffer entered the room. No more kind words. The 'junior' let fly in fluent Cantonese a tirade against Chan, detailing her various attempts to undermine Tung. Within months, Chan quit.
The No1 speaks the 'right' lines, then the No 2 speaks the 'real' lines.
Another No 2 spoke up on property prices this week - central bank deputy governor Zhu Min. Asked at an investor conference about the country's 'property bubble', he replied: 'Between 2003 and 2007, the stock market rose 500 per cent, people were happy. From 2003 to 2009, the stock market went down 72 per cent, people were not happy. Yet nothing happened to the real economy. This is because there is no leverage, no margin. You invest with your own money. That is your own business.
'Yes, [property] prices are way high. The income to house price ratio in Beijing is 20 times. That is higher than London and New York. But affordability is a social issue. It's a cultural thing that people want to have their own house. Even those who graduated no more than six months ago want a house.
'But let's look at the figures. Loans to real estate are only 7.9 trillion yuan (HK$8.97 trillion). That is 19.6 per cent of the total. That is a very small percentage ... Even if house prices go down 50 per cent, that will only add 60 basis points to the non-performing loans of our banks. Besides, our loan coverage is high.
'You don't want to mix social and financial issues. I really don't think there is any financial knock-on effect [from the property market].'
In short, what problem?
Getting the picture? No? Okay, how about this.
Earlier this month, the Ministry of Housing and Urban Rural Development pledged to build six million subsidised houses this year. That is way above the original target of seven million between 2008 and 2011.
Then this week the Ministry of Finance announced a government budget for this year which is 6.3 per cent above that of 2009. The government will spend 99.2 billion yuan on subsidised houses. That is only 1.4 per cent above the 2009 figure. Take into account 2.5 per cent for estimated inflation and the government will in fact be spending less on subsidised houses.
I am sure you've got it now.
State leaders may be talking about a stable property market, but to the bureaucrats, there can only be three responses. One, there isn't a problem. Two, there is a problem but I didn't cause it. Three, there is a problem but there isn't much I can do about it.
The only way to get bureaucrats to act seriously on the property market is through strong leadership or political interest. Yet, judging from the public 'personal' statements, neither exists.
Occasional political outbursts over such events as the record-high land auctions may summon sufficient energy for the introduction of a short-term fix, but the long-term solution is unlikely to come. The mainland property market will continue to yo-yo as before.