China Puts Squeeze on SOEs with Property Units

China has stepped up pressure on state- owned enterprises to sell their property arms in a bid to curb home prices. Earlier this year, the State-owned Asset Supervision and Administration Commission urged that state-run firms whose primary businesses are not real estate to quit the real estate industry in a bid to cool the red-hot housing market.

However, only seven of those companies have done so in the past eight months; while the others have yet to act. Our reporter Wang Ling finds out.

In March, the government halted new property loans to 78 state-owned enterprises that are banned from real estate investment. But many of these enterprises have yet to quit the lucrative market.

Professor Cao Jian-hai from the Chinese Academy of Social Sciences says as some state-administered companies are solely profit-driven; it is difficult for them to give up the fortune-making business.

"Property investment must be the most profitable one in a company's portfolio nowadays. The business is irresistible to those who only believe in profits. The problem is that many of the state-owned companies are profit-driven, which means it will be a really difficult decision for them to leave the real estate business."

Attracted by the huge profits generated by property investment, many state-owned companies rushed into the housing market, pushing prices to record highs. The situation has led to public anger and the central government's decision to tighten real estate lending to these enterprises.

However, Professor Cao is concerned that the measure won't be strong enough to discourage those companies from pursuing future profit.

"I'm afraid tightened lending won't help the problem very much, since real estate business is so cost-effective and developers can get large returns with limited amounts of investment. Furthermore, it is not a serious problem for state-owned companies to raise money as they enjoy more resources."

Unless the state-owned enterprises change their profit-driven business model, professor Cao says it would be difficult to stop them venturing in the property market.

"It is imaginable that companies will continue their bets on property investment if the market remains hot. And if the country can't change the current trend of local governments cashing in on land sales, the housing market will be hard to rein in."

Right after the government's attempt to squeeze the state-owned companies out the housing market, CITIC Group, a state-owned investment company, offered 6.3 billion yuan to acquire a piece of land in Beijing.

If the deal is successful, the price will be the highest land transfer payment in the city.

For CRI, I'm Wang Ling.