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.
But perhaps the more relevant question is: what is the rightful role of a state-owned developer? The answer should be obvious. Its status as a public company obliges it to provide goods and services that meet public needs. In today's China, low-cost housing is urgently needed to further urbanisation and ensure the country's steady, stable development.
In the past two decades, commercial property development has boomed across the mainland while the programme to build affordable housing for low-income groups has languished in fits and starts. The lopsided development is creating unbalanced supply and demand, exacerbating the wealth gap and amplifying social tensions.
Fundamental change is needed. While continuing to nurture private-market growth, the government must redouble its efforts to improve housing affordability for the people. The government should bring under its supervision a national public housing project operated by state-owned builders.
The immediate need is to ensure adequate resources to meet the severe housing shortage; thereafter, the programme should be fine-tuned to cater to more diverse needs, and its coverage expanded from the current target of 20 per cent of total housing (public housing makes up 50 per cent of total housing in Hong Kong while in Singapore, the figure is about 85 per cent).
In this way, both the public and private markets should develop in tandem.
Of course, the government can't ignore existing problems in public housing development. Over the past two years, we've seen hiccups in many places where the programme has been rolled out, due to a confusion of roles between the government and market.
The central government must try to fix these problems by learning from others. In terms of housing finance, the US mortgage lenders of Freddie Mac and Fannie Mae may be studied; for overall management, the public housing models of some Asian countries may offer ideas; and for product variety, the government could gradually offer different types of housing.
Further, private developers should also be let in to introduce competition, in order to lower prices and raise quality.
While state developers have been aggressive in land bids, in truth their share of the market - in terms of sales volume and revenues - is still tolerably small; their departure would not unduly upset the market.
The privatisation experience of the past 20 years will be invaluable in guiding action on how to ease out these state-owned developers. The exercise should be transparent and fully accountable to the public. There should also be a timetable.
State-owned enterprises' exit from the commercial housing market would boost the government's credibility. And by taking on the national project of building affordable homes - which are particularly needed in the major cities - state-owned developers would be fulfilling their public mission. This is the good news China needs.