News Analysis: China looks to central SOEs to back low-income housing projects

China is looking to its state-owned enterprises under the central government to take the lead in building low-income housing, a call seen by analysts for more "moral blood" from government property developers.
China's State-owned Assets Supervision and Administration Commission (SASAC) said Tuesday that centrally administered SOEs should actively participate in the nation's massive low-income housing projects through various channels.
The authority, which oversees 121 central government firms, also called on those which specialize in surveying, designing or engineering construction to share responsibilities in these projects.
Many Chinese citizens voiced their confusion as the SASAC' s new order seems to contradict its earlier request made in March last year for 78 central SOEs, whose core business is not real estate, to pull out of the property sector.
"The new requirement is made mainly for the 16 central SOEs whose core business is real estate," the 21st Century Business Herald reported Thursday, citing an unnamed SASAC official. "The SASAC is considering investing part of the dividends of central SOEs to support low-income housing projects," the official said.
Ye Tan, an economist and commentator, was skeptical of the move, writing in her blog that "it is better for central SOEs to stay far away from low-income housing projects."
She doubted whether central SOEs are low-income-home builders or owners. "It's not a good thing for central SOEs to be involved in low-income housing projects if no clear line is drawn," she said. She also had concerns that central SOES might take the opportunity to expand their share in the overall property market and threaten private firms.
However, the SASAC saw the task as a key role in fulfilling corporate social responsibilities for the central SOEs, and urged them to ramp up investment.
In an online chat in February, Chinese Premier Wen Jiabao urged Chinese entrepreneurs to have "moral blood" , and said those that cross the line for their own short-term interests hurt the interests of the entire society.
In China, home prices have been climbing sharply in recent years, beyond what many families can afford. Home prices rose 0.4 percent in April from March and climbed in 77 of 100 cities tracked by Soufun Holdings Ltd., defying government steps to cool prices.
The government is now pinning its hopes on low-income housing as its top leaders have reiterated the significance of such projects. The government pledged to build 10 million units of low-income housing this year and 36 million within five years by 2015.
Premier Wen Jiabao said on May 1, during his visit to a construction site in Beijing, that the government is determined to bring down soaring home prices in some cities to a reasonable level.
"Our determination is unswerving that special care by given to the needy and low-income families to make sure they can afford housing," he said.
Wen's comments echoed President Hu Jintao's remarks during a three-day trip ending May 1. Hu underscored the development of public rental housing for low-income citizens and urged local governments to increase capital investment and prioritize the allocation of land for these projects.
"The SASAC order shows the central government is pressed by the urgency to increase low-income housing to help stabilize home prices," said Wang Pei, a property analyst with CEBM Group Ltd., an independent investment advisory firm.
However, he saw the move as an expedient measure which aims to buy time for the government to set up a sustainable and profitable operational mode for developers and establish a fair market for both government and private firms to build low-income homes.
The reason why low-income housing projects proceed slowly is that developers are not enthusiastic due to low profit margins and even the possibility of losing money, Ye Tan said.
This year's 10 million units of low-income housing require an estimated investment of 1.3 trillion yuan (about 200 billion U.S. dollars). The central and local governments will provide 500 billion yuan, which means the remaining 800 billion yuan will come from companies and institutions.
"It is time for central SOEs to make their contribution," said Yang Hongxu, analyst with the Shanghai-based E-house China Research and Development Institute.
The massive construction and enormous demand for land and capital need enterprises with "moral blood", and government firms should show assume more of the responsibilities, he said.
Generally, central SOEs have advantages over private properties, Wang said, referring to more cash flow and easier access to bank loans because of their corporate credit.
Risks would also be controllable if loans are given to central SOEs, he said.
Moreover, central SOES normally have complete industrial chains, including material supplies, transportation, designing, construction and more, which more easily ensures profitability, he said.
However, both Wang and Yang are not certain how effective the new move will be and noted that the government should formulate detailed rules and enhance supervision against irregularities.
The Chinese government is "crossing the river by feeling the stones" in terms of regulations on the runaway property market, as the country has never confronted such a challenging problem before.
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