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COEs Required to Draw Up Exit Strategy from Real Estate Market

News, cover, Issue 462, March 29, 2010
Translated by Liu Peng
Original article:

Seventy-eight central-owned enterprises (COEs), whose core business is not real estate, have been ordered to formulate a plan for their withdrawal from the real estate market; however, doubts remain as to whether the withdrawal order can be effectively implemented.

At a meeting held on March 19, Li Rongrong, director of the State-owned Assets Supervision and Administration Commission (SASAC), the agency charged with managing the non-financial assets under the control of the country's central government, announced that aside from the 16 centrally-owned enterprises, who focus on property development, the remaining 78 COEs who have invested in real estate will be required to formulate a plan for withdrawal from the market within 15 days.

That means that these companies have a deadline of April 9th, and only 9 days remain for these 78 COEs to hammer out their exit strategy.

A source from the SASAC said, "All we've done is announce the need for an action plan for COEs to exit the market, specific ideas on how to organize their withdrawal are still unclear."

An industry player interviewed by the EO said given that the commission already stipulated that these 78 COEs are permitted to complete developments that are already under way, it's hard to understand how the new exit order will be implemented.

With the question of how COEs planned to respond to the SASAC's withdrawal order in mind, the EO approached seven COEs including China Energy Conservation Investment Corporation, China Railway Materials Commercial Corporation, China Hengtian Group Corporation, Aviation Industry Corporation of China, Shandong Luneng Group Corporation, China North Industries Group Corporation, and China National Petroleum Corporation. However, they either said that their land was alloted to them by the government and thus the order did not apply to them, or gave unclear replies.

In an interview with the EO, a person in charge of the general office of China Xinxing Real Estate Corporation, a subsidiary of the centrally-owned China Xinxing Pipe Group, said he had seen the SASAC's order to draw up an exit plan from the real estate market on its website, but had yet to receive orders from the parent firm. He continued to say his company didn't purchase any land at public auction.

In fact, it's very difficult for a COE's headquarters to master the number of idle land its subsidiaries manage.

Take the China National Chemical Corporation (ChemChina) for example, people familiar with the matter told the EO, ChemChina set up an asset management company to take full charge of the development of land resources originally managed by its daughter firms at the end of 2009. However, most of its daughter firms failed to obey the order and, up until now, only two land plots have been handed over to the asset management company.

Wang Zhigang, a researcher with the SASAC raised his concern, "What if these COES involved in the real estate market are already listed on the stock exchange?"

He stated, "If they are listed companies, their investments should be decided by their board of directors, so the decision to retreat from the real estate market should also be made by the board and should not damage the interests of investors."

Statistics provided by SASAC revealed that the property assets of the 16 COEs whose main business is related to property development, accounted for 85 percent of the total value of all property assets owned by COEs in 2008.

Of the three companies that broke land sale records at public auctions held after this years “two sessions,” only one - China North Industries Group Corporation - is officially under the control of SASAC. The majority shareholders of the other two, Sino-Ocean Land and Citic Real Estate Company, are China Life Insurance Company and CITIC Group respectively.

A manager at the CITIC Real Estate said the SASAC's withdrawal order has no bearing on their company.

We will have to wait until April 9th to see what kind of exit strategies these 78 COEs will submit to the SASAC.

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