Aug. 2: The Anhui Salt Industry Corporation is a state-owned company that has 11,000 employees, access to government salt mines and a Communist Party boss. Now it has swaggered into a new line of business: real estate. The company is developing a complex of luxury high-rises here called Platinum Bay on a parcel it acquired last year by outbidding two other developers to win a local government land auction.
All around the nation, giant state-owned oil, chemical, military, telecom and highway groups are bidding up prices on sprawling plots of land for big real estate projects unrelated to their core businesses.
By driving up property prices, the state-owned companies, which are ultimately controlled by the national government, are working at cross-purposes with the central government’s effort to keep China’s real estate boom from becoming a debt-driven speculative bubble —like the one that devastated Western financial markets when it burst two years ago.
Land records show that 82 percent of land auctions in Beijing this year have been won by big state-owned companies outbidding private developers — up from 59 per cent in 2008.
A recent study published by the National Bureau of Economic Research in Cambridge, Mass., found that land prices in Beijing had jumped by about 750 percent since 2003, and that half of that gain came in the last two years. Housing prices have also skyrocketed, doubling in many cities over the last few years.
The report pegged a big part of the increase to state-owned enterprises that have “paid 27 per cent more than other bidders for an otherwise equivalent piece of land.” Critics say the government unwittingly propelled the land frenzy by pushing a huge $586 billion economic stimulus package last year and encouraging state-owned banks to lend more aggressively.
And as the prices of new apartments soar — in Shanghai, for instance, they often exceed $200,000, while the average disposable income is about $4,000 a year — the trend also threatens to undermine the central government’s goal of affordable housing for the rising middle class.
In some cases, local governments — which earned over $230 billion from land auctions — are also being accused of demolishing old neighborhoods and unfairly compensating residents. All of this is happening to the chagrin of private developers that dominated China’s property market for more than a decade.