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Officials Offload Property
Summary: Luxury properties are being dumped on the market in Shanghai, Guangzhou and other cities as panicked officials try to cover their tracks ahead of the introduction of a new database that will store information on property holdings across the country.

By Chen Wenya (陈文雅) and Chen Yong (陈勇)
Issue 604, Jan 21, 2013
News, cover
Translated by Zhu Na
Original article: [Chinese]

This is a translation of the front page story from this week's edition of the Economic Observer. For more highlights from this week's paper, click here.

Update: Almost a week after the Economic Observer first published this article, a representative of the Central Commission for Discipline Inspection (CCDI) has come forward to comment on it. According to a report carried by China National Radio on Friday, an unnamed official from the CCDI said that the details contained in the EO report are untrue. The official said that no internal report discussing real estate issues had been passed on to central authorities by the CCDI. The official went on to criticize the report for containing many inaccuracies and being based on unreliable sources.

The dull slog of data entry work is the bane of bureaucrats worldwide, but in parts of China, officials are not willing to handle this "high-risk" task.

According to a university professor who has been helping a city government in Anhui Province set up a home ownership database, officials with a greater degree of political awareness are unwilling to deal with the new property register.

The professor didn't give a clear response when asked why anyone would refuse the simple task of entering data into a computer. Instead, he tactfully noted that "The best solution to the problem is to pass the work on to a university, get them to submit a report, and, once funds have been allocated, find some students to do the work. In this way, both research and work can be done, and they won't have to worry about the risk of leaking information."

Setting up a Housing Database

China's Ministry of Housing and Urban-Rural Development (MOHURD) pledged to establish a pilot home ownership database covering 40 cities in late 2011. However, progress has been slower than expected.

Once the proposed "individual home ownership information database" (个人住房信息系统) is set up, officials will be able to search for information about the number of properties a citizen owns along with more detailed information like addresses and floor space.

MOHURD held its annual work meeting on Dec 25 last year and reports emerged that the ministry had been given the green light from the State Council to release a notice expressing its intent to push ahead and strengthen its work in establishing such a property register. Word also spread that MOHURD was considering eventually expanding the scope of the database to include 500 cities.

A similar database had already been set up by officials working in China's anti-corruption agencies, though their system is specifically targeted at tracking the property holdings of officials above a certain level.

Beginning at the end of last year, just as progress was being made on the establishment of the database, there was a large-scale dumping of residential properties in various real estate markets around the country.

For example, according to information provided by a Beijing real estate agency, eight luxury properties in a residential complex near Wukesong (五棵松), in Beijing's Haidian District, were recently listed for sale. Each property was selling for close to 70,000 yuan per square meter, which meant a total price of over 10 million yuan for each. The real estate agent handling the properties said that current owners work for a nearby government agency.

A person in charge of a real estate agency told the Economic Observer that since November last year, the instances of officials hurriedly offloading their properties had increased around the country, and these properties are often luxury residences, sometimes worth more than 10 million yuan if they're located in first-tier cities.

Only a portion of these houses are being sold through real estate agents.

Some property owners prefer to let state-owned institutions or even professional agents handle the sale. In this way, they won't need to expose themselves during any part of the process.

According to statistics posted on the website of the Beijing Municipal Commission of Housing and Urban-Rural Development, 7,940 contracts for second-hand housing deals had been signed in the first half of January 2013, an increase of 360 percent over the number of transactions completed in the capital over the same period last year.

Offloading Property

The Economic Observer learned that the Central Commission for Discipline Inspection (CCDI) had recently sent a report to central authorities about "a new trend in the work of fighting against corruption," (反腐败斗争工作的新动向).

This report said that since mid-November last year, a trend of luxury properties and villas being hurriedly sold off had been detected in 45 large and medium-sized cities across mainland China. The report also noted that since December, the dumping of luxury housing on the market continued to expand. Some of the property owners who were dumping these houses were government officials or executives at state-owned enterprises.

This information has been confirmed by a source close to CCDI.

The source told the EO that the CCDI had passed on a report on the situation in relation to corruption in China to central authorities and had worked on drawing up plans for this year's work with them.

The internal report by the CCDI revealed that, according to statistics gathered by both MOHURD and the Ministry of Supervision, there are many irregularities surrounding these recent property sales. For instance, 60 percent of the property owners who are offloading luxury houses and villas do not use their own name when conducting the transaction, relying instead on pseudonyms, a company name or simply remaining anonymous. The majority of these properties are vacant or have been rented out to relatives and friends without rental contracts. Property owners also ask for payment in cash and are unwilling to go through financial institutions. These individuals will also rely on lawyers to handle all the matters related to the deal and they won't reveal themselves during the process.

In addition, the internal report also looked at the foreign currency withdrawals of middle and high-ranking party and government officials and their families in Beijing, Tianjin, Jiangsu, Shandong, Shanghai, Zhejiang, Guangdong, Fujian and Hubei. The southern coastal province of Guangdong recorded the most, with officials and their family members taking out 1.792 billion yuan in foreign currency.

According to information contained in a section of the internal report that was obtained by Economic Observer, the offloading of properties had been especially serious in Nanjing, Shanghai, Hangzhou, Tianjin, Shenyang, Xiamen, Fuzhou, Jinan, Guangzhou, Shenzhen and Chengdu. Guangzhou and Shanghai topped the list, with 4,880 and 4,755 properties sold off respectively over an unspecified time period.

The Economic Observer contacted the Central Commission for Discipline Inspection for confirmation about the details of the internal report referred to above, but they declined to comment.

Setting Up a Property Register

The MOHURD has been working on setting up an individual home ownership database that covers 40 cities for many years now.

The original idea behind establishing the property register was that it would allow MOHURD to quickly monitor property transactions and changes to ownership across the country in real-time. As the data in the system would be constantly updated, the ministry would also be able to formulate more appropriate macroeconomic policies to deal with any problems in the real estate market.

The ministry originally aimed to have the database come online at the end of 2011 but that was later changed to the end of June 2012. However, until now, the housing ministry still hasn't even announced the 40 cities that will be included in the pilot database.

The EO understands that there are still some cities that haven't completed the process of upgrading their archives of historical housing data.

Aside from the tedious nature of the data entry work, a major reason why progress on establishing the database is slow, is the invisible resistance being put up by local governments. In order to make sure that work on the database went ahead smoothly, higher levels of government have made a variety of concessions to the lower levels. For example, Guangdong promised that housing information data will only be used for collating statistics, analysis and summarizing. The provincial authorities also said that they would strictly enforce the rules limiting who has authority to access the information and encouraged all regions to "get over their misgivings and positively complete the assigned task of collating the data."

Jiang Weixin (姜伟新), the head of MOHURD, also once told senior local officials that, "Only when the party secretary, mayor and head of the local housing department agree, and input simultaneously, can an individual's housing information be pulled [from the system]."

Qi Ji (齐骥), one of the vice-ministers of the Ministry of Housing, also once said that "data collated by departments and provinces will only be used for collating statistics, analysis and summarizing and won't be searchable, any searches will still only be conducted in keeping with existing provisions." Qi also emphasized that officials in all cities and counties should get on with the task.

Jiang Wanrong (姜万荣), deputy director of MOHURD's real estate market supervision office, also once said that when it came to the collection of individual housing data we should "insist on safety first," and said that a system ensuring the security of information needed to be established.

Despite all of these assurances, the misgivings of local officials did not abate, and officials from the housing ministry were frequently asked questions like "Just what exactly will this system be used for?"

A Database Already Exists

The intention to continuously expand the scope of the home ownership database system to cover more cities has no doubt created a degree of panic among officials across the country, resulting in the phenomenon of properties being offloaded in many cities.

"What does the sell-off reveal?" asked a source close to CCDI, "That they heard some signal or message in the wind." 

The source went on to say that central leaders are currently considering a plan to make officials' assets public. In the current context of heightened social tensions, this plan may ease social discontent to some extent.

A number of officials working in local offices of the Commission of Discipline Inspection told the EO that a similar home ownership database had long ago been established by those working in anti-corruption agencies. The central discipline inspection agencies hold a complete set of information regarding the property holdings and assets of officials at the vice-provincial level, it's just that this information isn't made public.

A source close to the CCDI told the EO that in 2000 the Office of the CCDI (中纪委办公厅) had issued two documents outlining their intent to monitor the employment situation of the children and spouses of cadres at the provincial and department level, but the effect was small.

"Government has repeatedly issued orders that prohibit the children or spouses of leaders from running businesses or working at [foreign] enterprises, but in China matters can always be handled pragmatically," the above source said. The source also said that despite the repeatedly enacted rules on employment, the practice still goes on through the use of pseudonyms.

In addition, the source also revealed that of all the government officials who went abroad during the combined Mid-Autumn Festival and National Day holidays in 2012, more than 1,100 of them failed to return on time. It's been confirmed that 714 fled abroad.

It's been established practice within the Chinese Communist party that only officials at a deputy-provincial level could be considered senior cadres within the party, and their names would be included on a list of outstanding personnel that can be asked to fill senior positions (优秀候补人才序列). The Ministry of Supervision, the Central Commission for Discipline Inspection and the Central Organization Department have all maintained extensive files on these people for an extended period of time.

A source close to the National Bureau of Corruption Prevention told the EO that on Jan 31 every year, cadres at the provincial level (省部干部) and prefecture level (地厅干部) are required to report details about their health and the income and employment situation of their children and spouses to authorities. According to the current requirements, even those who have resigned or are retired have to continue reporting these details

An NPC official told the EO that in mid-December 2012, the CCDI, the General Office of the CPC Central Committee and the Central Organization Department spoke to over 120 senior officials about the need to stop their family members offloading property and to cancel any accounts not held in their name.

Economist Wang Xiaolu (王小鲁) believes that the comparatively high price of housing in China is closely related to "gray income" (灰色收入). A report on gray income and national income distribution authored by Wang estimated that unreported income of 5.4 trillion yuan was earned in 2008, of which "63 percent of the unreported income went to the richest 10 percent of urban households."

The internal CCDI report also estimates the amount of funds that had been illegally smuggled out of China in recent years. According to the report, $412 billion left China in 2010 and in 2011 that number rose to $600 billion. The report stated that over $1 trillion was illegally moved out of China in 2012 and forecast that this figure could grow to $1.5 trillion in 2013.


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