Chongqing presses on with cheap housing
Despite massive fiscal deficit, the city intends to continue to pour billions into the project that was launched by disgraced leader Bo Xilai
Chongqing's ambitious programme of building affordable housing, launched by its disgraced former chief Bo Xilai, has fallen far short of its targets. Yet the city, which is running a massive fiscal deficit, plans to continue spending billions on the project.
Bo had set an objective of building 40 million square metres of affordable housing for two million people at a cost of 140 billion yuan (HK$177 billion) from 2010 to last year.
Most of the project took place under Bo, who was the city's party secretary from November 2007 to March last year.
Building affordable housing for the masses was seen as an important factor in the ambitions of Bo, which collapsed when he was dismissed in March last year. He is now awaiting trial for corruption.
At the end of last year, 120,000 units of affordable housing with a total area of 6.6 million sq metres were completed, according to a bond prospectus of Chongqing City Construction Investment Corp. This is less than 20 per cent of the target of 40 million sq metres.
"Why are we hearing the bad stuff finally? Because the political boss that would have provided cover is not around, so that can come up," said Patrick Chovanec, the chief strategist of Silvercrest Asset Management, a US asset management firm.
"I'm not surprised there was a disconnect between what they said they would build and what was built.
"Developers have never been interested in affordable housing. They make a lot more money from luxury housing than affordable housing."
Chovanec was also formerly a professor at Tsinghua University's School of Economics and Management in Beijing.
Chongqing City Construction, wholly owned by the city government, plans to issue 2.2 billion yuan of seven-year bonds. The funds will be spent on building 27,600 affordable homes with a total area of 1.36 million sq metres by next year.
"In the next few years, with strong state support, there will continue to be big investment in and rapid construction of affordable housing in Chongqing," the company said.
At the end of last year, the firm had a budget of 41.34 billion yuan for building affordable housing, of which 21.96 billion yuan remained to be invested, said a report by Shanghai Brilliance Credit Rating & Investors Service.
During the first four months of this year, Chongqing suffered a fiscal deficit of 14.5 billion yuan, according to the city's website. From 2008 to 2011, while Bo was running the city, it consistently ran a fiscal deficit, which rose to 138.2 billion yuan last year.
"I don't think the data of Chongqing is worse than other Chinese cities," Chovanec said.
He cited Tianjin, which embarked on an expensive infrastructure construction programme under former city party secretary Zhang Gaoli. Zhang was promoted to the Politburo Standing Committee in November last year.
Tianjin's debt more than tripled to more than 300 billion yuan in 2011 from 90 billion yuan in 2007.
"The problem is the government wants housing to be affordable but it doesn't want real estate prices to go down. So they build affordable housing. This creates incentives for speculation. It's not surprising you get irrational and wasteful outcomes," Chovanec said.