Real estate and SOES

Ensuring stable long-lasting development of the real estate market is also among reform priorities in 2017. Currently, housing prices in major cities like Beijing and Shanghai remain high, whereas the property market in small cities is grappling with excess inventories.

“To address the high price bubble and liquidate excess inventories, we must adjust the urbanization layout. Functions and industries of overpopulated megacities should be relocated to surrounding small cities,” said Yang Weimin, Vice Minister of the Office of the of the Central Leading Group on Finance and Economic Affairs.

Yao echoed Yang’s views and suggested that a good way for local governments to deal with excess real estate inventory would be to introduce measures to incite rural residents to purchase properties in small cities.

“Real estate is facing a problem of high leverage. By introducing stimulus measures, excessive inventories can be liquidated and debts can be settled with real estate developers’ sales revenues,” said Yao.

In regard to deleveraging, the Report on the Work of the Government also noted that corporate debt leverage should be brought down in 2017. Huang Zhilong, Economist with the Suning Institute of Finance, thinks the focus will be on reducing the debt leverage of state-owned enterprises (SOES).

“The way to do this is to minimize indebtedness and maximize assets,” said Huang.

Yao also suggested combining the efforts in addressing SOES’ high leverage with mixed ownership reforms of SOES. “Through debt-for-equity swaps, private capital can bring real management changes to SOES so that their powerful technologies and human resources can be fully utilized,” he said.

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