The Development of China’s State-Owned Enterprises and Real Estate Industry

(In an interview with CCTV News-Biz China on April 18, 2012, Pro. Zhu Ning, talks about the declining profitability of SOEs and the turning point of China’s property market.)

Explain the decline of the property for SOEs

There are probably several reasons responsible for the decline and first of all the increasing commodity prices which are eating into the bottom line of many of the large steel and petrol chemical companies. And secondly in China the increasing labor cost is also hurting the bottom line of some of the large state-owned enterprises. Some of the SOEs, they have been heavily involved in the railway sector in a few years ago. So now that there is a curbing policy in cooling off the railway sector, we are not surprised to see that some of the SOEs are suffering in their bottom line and their profitability.

The first message is we should make two prices by the results, real estate market are primarily local market, so it is not too surprising that we see some increasing prices even though the national average is still coming down. Another major takeaway I will take from that is the demand for real estate remains pretty strong, be it in the consumption or the investment. So if the curb policy, or if the credit has been loosened up, we may well see a reversal, maybe even a rebound in housing prices pretty soon.

China central bank losing rank on lending in the country, about a third of those loans  went into the property market

Credit expansion has been attributed as one of the major reasons why we have seen very fast price appreciations in the real estate sector in the past few years, so if we were to see the PVOC keeps loosening the fiscal policy, or the credit supply, then is very well likely that the developers may find less urgency to keep cutting prices and also the home buyers will have better access to mortgage. So if you put the supply and demand together, any result will be, the housing price will keep rising, if we see increasing of credit supplies.

The prices in China for home are far from being reasonable

We are reaching a turning point in a sense that policies are not getting any tighter, which will not make life a whole lot more difficult for the real estate developers. That being said, I do not see any loosening or significant loosening or encouraging size either. So we will reach a plateau or reaching a sort of point where we will see maybe some pause in policy, or maybe after the economy changes dramatically, we will see a big shift in the policy at home.