July 8, 2014

The Old System Is Being Overturned

A report from Want China Times. “Several development projects in Shanghai, Hangzhou, and Suzhou, have come to a halt, due to a disruption in funding for developers. Construction works for the Yuehe International Square project in the Cao’an business circle of Shanghai’s Jiading district, for example, have stopped over debt disputes, as the developer has used up funds, and a local court has seized the property. Similar cases have occurred in other municipalities. The disruption to developments has affected a number of property trust funds, as subscribers had difficulty redeeming their beneficiary certificates following their maturity.”

“A series of lawsuits between trust firms and property firms have broken out, as developers continue to have difficulty selling or leasing their properties amid the sluggish market and cannot secure fresh funds from banks, the capital market, or from overseas markets. In the first quarter, the average debt/assets ratio of the 23 realty firms listed on the A-share market hit 77%, a record high, according to Centaline Group. Yang Hongxu, VP of E-House China’s Research and Development Institute, said that the situation will be exacerbated in the third quarter, when large amounts of credit loans and property trust funds will mature.”

South China Morning Post. “Mainland loan guarantors have found themselves ensnared in the woes of the underground banking sector following a fresh wave of bankruptcies around the country. Creaking under the weight of bad debts, hundreds of guarantee groups would be unable to bear even more, although their services are critical for the economic system and the millions of small firms that provide the majority of the mainland’s jobs.’

“Rampant loan-shark schemes in Wenzhou resulted in the collapse of the city’s economy, with dozens of underground banking operators and investors either committing suicide or fleeing the country. ‘It is by all means a risky business,’ said Wang Xiao, a Zhejiang entrepreneur who invests in a loan guarantee business. ‘An increasing number of loan defaults will soon force us to close down the business.’”

From Bloomberg. “Chinese developers, hit by tighter liquidity and a widespread anti-graft campaign, are delaying paying fees to realtors who help them sell new projects, according to the nation’s biggest real estate brokerage. Project launches are also being delayed as developers can no longer ‘offer advantages’ to officials in order to speed up pre-sale approvals amid a fledging crackdown on corruption, said Centaline Group founder Shih Wing Ching. The old system of doing business is being overturned, he said.”

“‘Aside from disruption to the developers’ liquidity, our customer base is also affected by the anti-corruption drive,’ he said. ‘In the past, officials and their relatives made up between one-fourth and one-third of buyers.’”

“Excessive profits can be earned through land speculation that are even higher than those stemming from housing speculation and many local government officials are overfeeding the itch. Some local governments have been able to generate profits of as much as 20x in some cases, according to the Beijing-based China Times.”

“Developer Gou Jian said he had participated in the construction of an industrial park in Foshan. An investment firm with a government background had acquired thousands of acres of land from farmers at a price of 30 yuan (US$4.87) per acre. The city government later acquired the land from the investment firm for the construction of an industrial park. In 2000, land prices in the area surged to 2,000 yuan (US$322) per acre.”

“‘Speculating in land sales is a highly profitable business, but government officials cannot openly intervene in the deals so some local officials hide their identities for such business,’ a small-scale housing developer from Guangzhou stated on the condition of anonymity.”

From NTD TV. “As the richest Chinese business tycoon for 16 consecutive years, Li Ka-shing has sold his shopping plaza in the Guangzhou Metropolitan Plaza, the Credit Agricole in Shanghai and the International Financial Center in Nanjing. They were priced 35 percent lower than last August’s market price. His son Richard Li also sold his Beijing shopping mall. It seems that the Li family has no longer owns large-scale real estate projects in China.”

“Former Associate Professor of Beijing Capital Normal University Li Yuanhua: ‘He noticed the many impoverished people in Chinese society, and he sees them in a lot of pain…Because he has dealt with Chinese government officials at various levels in Chinese society, he knows that Chinese society is currently very corrupt. He has also noticed that China’s economy is on the brink of collapse. In particular, he has foreseen the risks in real estate and other various businesses he invested in.’”

From Trading Floor. “The corruption crackdown on China’s state-owned enterprises is officially billed as part of a drive to end waste and inefficiency in the public sector. But what the party really wants delivered is positive PR to turn round the public perception of a sector seen as too big to fail and too corrupt to save. The anti-corruption campaign has spawned a new campaign as Beijing renews efforts to eliminate so-called ‘naked officials.’ These are government officials and state company executives whose families live abroad or have foreign citizenship. Beijing frowns on such behaviour – the reasoning is that only those with something to hide would send their families abroad.”

“The southern province of Guangdong has recently uncovered 866 ‘naked officials.’ These officials have variously been demoted or told to retire or resigned. Another 200 plus officials moved their families back from overseas. And this is data for just one province.”

“Will the campaign succeed in reducing the number of ‘naked officials’ nationwide? The number of EB-5 visas issued by the United States under its investment programme provides a proxy measure that is publicly accessible. Applications from China so far this year are up 50 percent. It would be interesting to see how the numbers stack up by October at the end of the programme’s quota year.”

Bits Bucket for July 8, 2014

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