Issue Wrap No. 492, Nov 1, 2010

Highlights from the EO print edition, Issue Wrap No. 492, Nov 1

Policy-based Housing Hindered by a Severe Shortage of Money
Cover
~ Although China's property market has recently witnessed some gloomy days, local governments are continuing to construct policy-based housing in an effort to meet the national goal of completing over seven million government-subsidized houses this year.
~ However, the issue of how to finance this construction spree has become a problem for both the central government and local subsidiaries, but especially the latter. The Ministry of Finance only provides around 30 percent of the total money needed. While eastern provinces say that "money is not a problem", their central and western counterparts are facing serious challenges.
~ Many local governments expect that the central government will raise the subsidy offered to construct policy-based housing, but they're likely to be disappointed. 
~ The EO has learned that, during the past few years, the central government has required their local subsidiaries to put at least 10 percent of their annual land revenue to constructing government-subsidized houses. However, local governments have actually only put an average of between 2 to 5 percent of their land revenue aside for policy-based housing projects.
Original article: [Chinese]

Deadline of Investigation into Local Financing Platforms Extended
News, cover
~ The central government has decided to extend the original October 31 deadline it had set for local governments to report on the results of their investigations into local financing platforms.
~ Many local financial bureaus began collecting the required material at the beginning of October, but given the large amount of information that had to be collected and anaylzed, many claimed that it was impossible for the bureaus to finish their task within the month.
~ On October 10, the China Banking Regulatory Commission reported that the loans of local financing platforms amounted to 7.66 trillion yuan, among which nearly two trillion yuan were defined as "problematic loans".
~ An official with a local financial bureau predicts that local governments will be ready to hand in their reports to the Ministry of Finance by the middle of November.
Original article: [Chinese]

FDI in Real Estate Sector Grows 56%
News, page 3
~  The EO has learned, based on statistics from the Department of Commerce, from January to September, foreign investment in real estate has grown 56 percent.
~ In September, the number of foreign businesses which invested in China's real estate market reached 95; 43 of which were business that expanded their investment, 31 of which were new investors, and 6 of which were involved in mergers and aquisitions. These figures surpass the average numbers of the past three years.
~ A person close to the Department of Commerce stated, "Foreign investment in the real estate sector is accelerating and is one of the reasons housing prices continue to increase.  This is international investors gambling on a strengthening RMB and on property prices."
~ A person with the State Administration of Foreign Exchange acknowledged, "During the first half of this year, Chinese real estate enterprises found it difficult to procure domestic financing due to macro-control policies so they began looking for financing outside of China's borders. This is one of the main reasons for the increase of foreign investment in China over the past three quarters."
Original article: [Chinese]

Public Investment in Rural Farmland Water Management to be Focus of 12th Five-Year Plan
News, page 4
~ October 26, the Standing Committee of the National People's Congress (NPC), in a study on the implementation of major public investment projects, found that despite large central government subsidies, issues obstructing the distribution of irrigation water have still not been resolved.
~ Urban development in the east has made heavy use of water conservation facilities and investment funds. As a result, the grain producers in the central part of the country are facing financial difficulties.
~ Despite having just received an annual award for being a top grain-producing county, local officials in Hua County, Anyang are worried that delays in the construction of water facilities will greatly decrease the production capacity of local farmers. Decreasing water table levels and poor maintenance of existing facilities have also raised concern.
~ In parts of Anhui province, despite reservoirs being visible from the fields, water is not reaching many farmers because distribution ditches have not been built.
~ The Standing Committee's research group believes that six consecutive years of bumper harvests helped conceal these shortfalls in farmland irrigation investment.
~ Farmers are also facing rising production costs. For example, in 2007 and 2008, fertilizer costs increased by more than 50 percent. It also estimated that roughly 45 percent of farmers do not have electricity and must rely on much more expensive diesel engines to irrigate their fields.
~ Several officials in Hua Country have suggested that central, provincial, and major grain-producing county governments not only increase financial support for construction of water facilities, but also support agricultural produce processing enterprises through investment funds, discounted loans, and other policy preferences.
Original article: [Chinese]

The Fourth Quarter Forecasts of Leading Chinese Economists
News, page 6
~ According to our newspaper survey of 33 leading economists, 70 percent of top economists believe that the CPI growth will exceed the official 3 percent target for the year, instead reaching somewhere between 3-4 percent. Half of those surveyed believed that we will see the adjustment effects of the monetary policy in the fourth quarter.
~ 53 percent believe that higher food prices will be the main factor driving up the CPI.
~ 90 percent believe that property prices will fall slightly in the first quarter, and half believe that government regulations on real estate will continue to tighten.
~ 72 percent surveyed believed the GDP growth rate will continue to decline, hovering at about 8 to 9 percent at the end of the fourth quarter.
~ 90 percent believe the economy will not experience a double dip. 
~ 42 percent expect commodity prices to fluctuate significantly in the near future; 39 percent expect slight fluctuations.
Original article: [Chinese]

Did the Shanghai Expo Make Any Money?
Nation, page 11
~ Whether or not the Shanghai Expo will be able to earn money has been a controversial topic ever since Shanghai won the World Expo bid in 2002.
~ The Mayor of Shanghai, Han Zheng, previously announced that 18 billion yuan would be spent on construction for the expo, including infrastructure, the Expo Village, pavillions, transportation and electricity. Additionally, the government forecast that 10.6 billion yuan would be spent during the 180 days of the Expo.
~ Construction costs would be covered by the local Shanghai government, loans and other financing platforms and subsidies. Costs incurred during the actual event would be covered by ticket sales, fees paid by global partners, and expo product sales.
~ Income from sponsorship and ticket sales more or less met expectations. However, profit from merchandise sales greatly exceeded predictions. After the first 2 months of the expo, merchandise sales targets had already been met.
~ According to statistics from the Shanghai Municipal Statistics Bureau, during the four months of the expo, 254.8 billion yuan worth of retail goods were sold, an 18 percent growth from the same period last year.
~ According to a New York Times report, in order to prepare for the expo, the local Shanghai government invested over 300 billion yuan in the city's subway system, roads, airport, environment and other improvements.
~ One of the benefits of the expo that is often overlooked is the great increase in property value it has brought to Shanghai.
~ If an economic assesment of the Shanghai Expo was made a few years from now we could see how the expo has increased the value of property and improved transportation and other infrastructure. Without a doubt, in the future the expo will bring Shanghai even more development opportunities.
Original article: [Chinese]

Why China Railway Construction Corporation Lost Money on the Mecca Light Railway
Market, page 17
~ The Mecca light railway link, constructed by the China Railway Construction Corporation Limited (CRC) for Saudi Arabia, will become operational on November 13. However, CRC has suffered 4.15 billion yuan in losses on this project.
~ There are several factors that contributed to the loss. The core of the problems lies in CRC's lack of experience with international projects. The company did a poor job in understanding the local culture and customs. It also paid inadequate attention to reducing risks by drafting contracts.
~ Additionally, the Saudi Arabian government regularly changed its construction designs and the approval process of the local government was unreasonably long.
Original article: [Chinese]