More signs have emerged this year that China’s government intends to let the market rule within the real estate sector as 75 state-run enterprises have already sold off property assets this year, as well as shares in property subsidiaries, with companies from the energy sector leading the way.
So far in 2014, government companies including China Petroleum and Chemical Corp, China National Chemical Corp, and China Resources Gas Group in the petrochemical sector have all sold off real estate assets.
The country’s electrical generation companies have also gotten involved, with the State Grid Corp of China, China Guodian Corp, China Huadian Corp, Power Construction Corp of China and Guangxi Water and Electric Power Construction Group all unloading some of their property holdings.
In total, according to statistics from asset exchanges in Beijing, Shanghai, Tianjin, and Chongqing reported in Beijing’s Economic Observer, as of March 27 this year more than 75 state-owned companies have put real estate assets up for sale, amounting to a market value of more than ten billion yuan.
Sinopec Sells Stake in Company at 10 Percent Discount
In one of the largest divestments of real estate interests by a state-run firm this year, China Petroleum and Chemical Corp — also known as Sinopec — put up its 25.17 percent stake in Henan Huacheng Real Estate for sale, along with RMB163 million (US$26.3 million) in creditor’s rights on sale. While market estimates put the price of the equities at RMB 164 million yuan (US$26.4 million), Sinopec eventually sold its interest for RMB 145 million, an effective discount of 10 percent.
Asked to explain the reason for the subpar pricing, a staff member of Henan Huacheng pointed out that, “This project was transferred quickly because the SASAC long ago issued a decision that non-real estate companies cannot be involved in the property industry, and a petrochemical company is certainly not a real estate firm.”
The SASAC, or State-owned Assets Supervision and Administration Commission, is the government body charged with overseeing China’s state-owned enterprises.
Vanke Eager to Profit from SOE Divestments
The forced asset sales by state-run companies appear to be welcome news for China’s largest real estate developer by sales. “We see opportunities from the reform and opening, SOEs selling their competitive business,” Vanke president Yu Liang told a real estate forum in Hong Kong on Wednesday.
The flurry of activity also represents a response to the a resolution at the third plenum of the 18th Central Committee of the Communist Party of China in November, which stipulated that capital investments must meet national strategic goals, and required that state-run firms focus on their core business, as well as on safe-guarding the national interests. meaning they must focus on business that is related to national security and vital to the nation’s economy.
If this trend toward non-real real estate state-run firms getting out of the property industry continues, then considering the size of China’s state run sector, there should be many opportunities for private firms to profit from buying cut-rate assets from government enterprises in China.