Go West lure of low land prices

Chongqing reaches out to investors with smaller profits tax and commitments to keep a lid on property and logistics costs

PUBLISHED : Tuesday, 16 April, 2013, 12:00am
UPDATED : Tuesday, 16 April, 2013, 5:24am

Chongqing's policy of low land prices was a drawcard for foreign direct investment and the authorities were working to keep those costs down, the municipality's mayor said yesterday in Hong Kong as more than US$30 billion of contracts were signed between the two centres.

More than 30 companies, including HSBC, Wharf, and China Merchants Group, signed contracts with Chongqing to invest in 35 projects, ranging from property and industrial park development to logistic facilities, trading and finance-related investment. The roadshow is Chongqing's first in Hong Kong since the ousting last year of former leader Bo Xilai, which put a cloud over Chongqing's investment future.

"Of the US$10 billion in foreign capital invested in Chongqing every year, some 60 per cent is from Hong Kong," Chongqing mayor Huang Qifan said, with most of that share going into the property development and finance sectors.

Huang said any government that allowed land prices to surge unchecked would be hindering economic growth, Chongqing planned to keep a lid on those prices by increasing land supply.

"We adopted a policy six to seven years ago to contain the average replacement cost to one-third of the flat price," Huang said. Average replacement cost refers to the land price's share of the flat price.

But, an anonymous nationwide flat price affordability ranking circulating online claims that flats in Chongqing are the eighth least affordable of all mainland cities. For example, a 90 square metre flat, priced at 8000 yuan per square metre, costs the equivalent of 30 years of an average salary in Chongqing, the ranking claims.

Huang said flats were cheaper in Chongqing than in coastal areas and property developers could still enjoy relatively high profit margins in the municipality because of lower land costs. "That's the reason why a property executive gets promoted most of the time after being stationed in Chongqing for a while," he said.

Investment in Chongqing also attracts tax incentives under the national "Go West" policy, subjecting profits to a 15 per cent tax rather than the 25 per cent national average.

Chongqing is also pressing hard to lower logistics costs by cutting road tolls and warehouse expenses. It aims to keep logistics costs below 10 per cent of the value of a firm's sales, as opposed to the 20 per cent national average.

Huang also promised to lower the cost of financing by expanding funding channels for small- and medium-sized companies turning to private lenders for high-interest loans because they cannot get access to commercial bank funds.