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 PART
1
Investing
in
misery
By Miao
Ye
HONG KONG -
Homeowners in the supposedly upscale Guangdi Garden
property development complex in Guangzhou recently
discovered to their dismay that, rather than "living
forever in spring", as they had been led to believe by
the project's developers, they are caught in a
real-estate nightmare.
At the end of 2002,
Guangdi Garden lured customers by providing what it said
was a vast garden area and golf course, calling itself
the first eco-community in the area. Attracted by the
low prices and the hype, residents began snapping up the
as-yet uncompleted houses. The developer promised
lump-sum buyers that their property ownership
certificates, the official documents necessary to move
into their new homes, would be available by this
November.
However, on the morning of November
23, several hundred Guangdi residents staged a bloody
clash with project security guards after they discovered
that 112 of their homes, secretly mortgaged to banks
even before they were sold, were to be sequestered by
local people's courts at the behest of local banks -
creditors owed more than 200 million yuan (US$24
million). Guangdi Garden's board director has fled. Far
from being 2,200 mu (1 mu equals 666
square meters), the community is composed of only 500
mu.
Most of the land
beneath the golf course and the park was secretly rented
from an adjacent village, which is demanding unpaid rent
from the developers.
The fall of Guangdi Garden
is emblematic of abuses across the country as China's
burgeoning real-estate property market runs into
increasing problems. It is very much the product of
China's growing prosperity, compounded by the decision
by former Prime Minister Zhu Rongji and other leaders to
mandate the privatization of state-owned housing
although clearly defined and enforced private property
rights remain a myth.
There are obviously fabled
riches in property development. On the list of China's
richest 100, released by Forbes Magazine, almost half
are connected to real estate in one form or another.
They include Liu Yonghao, chairman of New Hope Group, a
leading animal feed producer and one of the largest
private companies in China and Hui Wing Mau, a major
player in high-end property development.
However, the fall of the Guangdi development is
China's third major property fiasco this year, including
a case of massive fraud by Shanghai realty tycoon Zhou
Zhengyi, who was implicated in an array of illegitimate
loans coupled with default on statutory compensation for
relocatees whose abodes were improperly demolished for
redevelopment projects. A second case involved a
development called Xiangzhu Garden in Shenzhen, in which
the developer repeatedly sold or mortgaged 247 flats and
swindled installment buyers out of more than 200 million
yuan.
The fact is that China's property industry
is a hotbed of corruption. In 2003 alone, two senior
officials were ousted for malpractices, such as
accepting huge bribes from real-estate developers. They
are the former minister of Land and Resources, Tian
Fengshan, and former vice director of Zhejiang Project
Construction Department, Yang Xiuzhu. The latter is now
reportedly a fugitive in the United States. Several
major developers have been arrested, including Yang Bin,
founder of listed Euro-Asia Agriculture, China's largest
florist company; and Zhou Zhengyi, Shanghai's property
tycoon. Analysts say developers are entangled in
state-owned assets worth US$3.01 trillion, that's more
than the country's annual gross domestic product (GDP)
of $1.23 trillion.
The general public is
becoming increasingly discontented as realty-related
crimes keep increasing every year, according to a
November survey by Sohu.com, one of the three most
popular Internet portals in China. Another survey shows
that nearly 70 percent of interviewees attribute the
property market scandals to absence of proper
regulation. As a result, the overheated realty market
has engendered disillusion with a booming economy.
Property speculation is rampant across the
country as scalpers from Hong Kong, Taiwan and rich
inland cities like Wenzhou in Zhejiang province drive up
property prices even though the general public can
hardly afford even inexpensive homes. Some domestic
reports indicate that unoccupied housing now has reached
a record 120 million square meters, an increase of 30
plus million over three years ago. The national vacancy
rate has jumped to 26 percent, quadruple the American
figure, 8 times Hong Kong's and 2.5 times the
international norm.
The Chinese government has
been resisting enormous pressure from the US and Japan
to revalue the yuan. Andy Xie, Asia-Pacific chief
economist in Hong Kong for Morgan Stanley, believes that
once the currency is finally revalued, more capital will
flow into China, escalating an already overheated
real-estate bubble and triggering more property
speculation. The bubble will inevitably burst, creating
more bad loans for domestic banks, which are the main
financing source of property developers.
According to statistics from Securities Times, a
Chinese economic publication, non-performing loans in
the banking system totaled US$1.6 trillion through
October 2002, 10 percent of which are in the property
sector. To be specific, some $60 billion is loaned to
developers, $90 billion to home buyers.
However,
the property industry is crucial to economic
development, as the government is well aware. It has
continuously stressed the significance of the sector to
the national economy and made efforts to stimulate,
while at the same time trying to regulate it. On August
31, the State Council issued formal regulations
recognizing the sector for the first time as one of the
economy's pillars and including several key measures to
protect buyers. Authorities have also strengthened
enforcement of various regulations in a bid to maintain
healthy development, lower prices, reduce vacancies and
guard against a bubble.
The government is also
trying to fix the problem of non-performing loans in the
banking system. According to an informed source, the
People's Bank of China (PBOC) issued a large amount of
notes earlier for this purpose, which drove up prices of
some agricultural products in China. Analysts also say
the government is actively involved in land purchases,
marketing and even internal management of developers in
an attempt to rationalize the property market and reduce
the potential for chaos.
However, according to
an industry insider, developers must "liaise with as
many as 20-plus government divisions. They include the
Housing and Land Resources Administration, Urban
Planning Bureau, Construction Committee, Housing Bureau,
Development Planning Commission, Office of Civil Air
Defense, Economic Commission, Administration of Quality
and Technology Supervision, Bureau of Parks and Woods,
Fire Protection Department, Police Station,
Environmental Protection Department, Education Bureau,
Meteorology Bureau, Industry & Commerce Bureau, etc.
At virtually every office, hands are out for
bribes. To conceal their acts of bribery, various
"liaison" terms have been elaborately designed, such as
assessment fees, instruction fees and accident
investigation fees. On top of that, "liaisons"
established through deals under the table are common.
Numerous Communist Party officials have been
ousted for accepting bribes. Former CCP general
secretary of Guizhou province, Liu Fangren, and former
CCP general secretary of Hebei province, Cheng Weigao,
along with Tian Fengshan all were ousted this year for
property graft. Earlier dismissals more or less
involving graft in the housing estate industry include a
former vice mayor of Shenzhen City as well as the former
mayor and a vice mayor of Shenyang City.
And
corruption cases are rising. From 1998 until 2002,
Zhejiang province registered more than 100 cases of
corruption, involving 116 people - including 38 and 78
from realty departments and enterprises respectively.
Official statistics show that bribery cases account for
54.31 percent of the total. Some local officials reckon
that the situation may get worse, since the realty
market continues to boom.
In fact, realty and
banking, which are closely linked, are the most corrupt
industries in China. As Wei Jie, a prominent economist
points out, property corruption has escalated the banks'
financial risk, further weakening the state's
debt-ridden financial system. The situation has aroused
continued concern from the central government, which
launches regular bank auditing.
However, Beijing actually has been
rather timid in cracking down on realty-related
corruption. Although Shanghai tycoon Zhou Zhengyi was
arrested for illicit property trading and financial
crimes, the widely-reported case remains unresolved,
allegedly due to the involvement of leaders in the
central government. It spotlights the fact that many
developers are closely interwoven with or shielded by
government officials.
Next: Crooks line their pockets
(Copyright 2003 Asia
Times Online Co, Ltd. All rights reserved. Please
contact content@atimes.com for
information on our sales and syndication policies.)
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