Opinion | Bar state-owned developers from commercial housing market

Despite government efforts to cool the property market, land sales in China have surged in the first five months of the year, with record prices set. More worryingly, state-owned enterprises were once again in the thick of the action, despite an order from the State-owned Assets Supervision and Administration Commission (Sasac) to back off.

Sasac stepped in, in March 2010, after state-owned companies muscled in to outbid the competition at three separate land auctions on a single day. Other than the 16 state developers, the 78 state-owned groups whose core business was unrelated to real estate were told to get out of the market.

Yet the situation seems to have got worse. The number of state-owned builders has grown from 16 to 21; both their sales and the size of their assets have increased; and some are now among the mainland's 20 biggest developers.

On the other hand, non-real-estate state-owned companies have been slow to exit the market; only 30 per cent of them have complied, and only where it involved less profitable projects. Clearly, for state-owned groups, property development is too lucrative a business to give up.

Policymakers must more effectively rein in state-owned companies. Indeed, they should go further: all state-owned groups - not just those whose core business is unrelated to real estate - should be barred from taking up commercial projects. The same goes for firms linked to local governments.

Instead, state-owned companies with a good track record should be directed to contribute to national development by building low-cost public housing.

There are many reasons why state-owned enterprises have no place in commercial development. Here are two: by bidding up prices, they are foiling the government's efforts to control market excess, and, in the longer run, they distort the market and prevent its healthy development.