Tighter mon­e­tary pol­icy would help stop spec­u­la­tion by SOEs

China Daily (Canada) - - LIFE -

the State-owned As­sets Su­per­vi­sion and Ad­min­is­tra­tion Com­mis­sion is­sued a doc­u­ment that re­quired the ma­jor­ity of State-owned en­ter­prises un­der the su­per­vi­sion of the cen­tral gov­ern­ment to exit from the real es­tate sec­tor. How­ever, seven years have passed and SOEs are in­creas­ingly ac­tive in the re­alty mar­ket. Bei­jing News com­ments:

Dur­ing 2016, real es­tate prices in me­trop­o­lises such as Bei­jing and Shang­hai con­tin­ued to rise. One af­ter an­other, new­plots of land fetched record prices at auc­tion. That in turn has pushed prop­erty prices in­creas­ingly higher be­cause the cost of the land ac­counts for a large pro­por­tion of a de­vel­op­ment’s price.

Some an­a­lysts have blamed cen­tral SOEs be­cause they pur­chased over half of the “land king” plots. That might have its own logic, but the job now is to an­a­lyze how it hap­pened. Why did the SOEs rush into the re­alty mar­ket to buy land de­spite be­ing re­stricted from do­ing so by the State-owned as­sets com­mis­sion?

The an­swer lies not in the real es­tate mar­ket, but in the fi­nan­cial sec­tor. As ZhongWei, a pro­fes­sor from Bei­jing Nor­mal Univer­sity, has pointed out, the ris­ing real es­tate prices have much to do with in­fla­tion. For years, eco­nomic schol­ars and ex­perts have been call­ing for stim­u­lus poli­cies and looser mon­e­tary poli­cies, which gave the mar­ket a sig­nal about in­fla­tion. When peo­ple

know large quan­ti­ties of new­ban­knotes are be­ing printed, they will nat­u­rally rush to the re­alty mar­ket. When en­ter­prises sense that, they nat­u­rally in­vest in real es­tate. SOEs have the most con­ve­nient ac­cess to mar­ket in­for­ma­tion and they get a large share of the newliq­uid­ity. As a re­sult, they are able to make high bids at land auc­tions and be­come “land kings”.

We do not mean to de­fend the SOEs that broke the SASAC rule. Our point is that the root prob­lem lies else­where. Even if the SOEs leave the re­alty sec­tor as the or­der re­quires, as long as in­fla­tion con­tin­ues and the re­alty mar­ket grows wildly, they will, like all other en­ter­prises, find other ways of in­vest­ing in it.

There­fore, in or­der to cool the fever in the re­alty mar­ket and pre­vent more “land kings” from emerg­ing, what the author­i­ties need to do is tighten the mon­e­tary pol­icy and bring in­fla­tion to a halt, so that both State-owned and pri­vate en­ter­prises will in­vest ra­tio­nally in other sec­tors.

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