Friday, August 14, 2009

Mr. Tao or Mr. Tan -- An Investigation of Corruption in Shanghai

这个处长收了29套房 全登记 在母亲名下 还说是经商所得

This Section Chief Took 29 Housing Units
All Were Registered in His Mother’s Name
He Said, Everything was Earned in Business Dealings

August 14, 2009
Oriental Morning Post, Page A2-3

[Mr. Tao -- reference is the name of the person under investigation;
Mr. Tan -- an invented reference to tanwu, the Chinese word for

Investigators accuse Tao Jianguo of using the advantage of his position from 1999 to 2008 to seek benefits for others, in total taking bribes of 1.06 million yuan and 29 units of property worth 13.79 million yuan from real estate developers. In court, Tao Jianguo admitted, he “took the stated money,” but he argued that all permits went through proper legal auditing, and the money he received was from business dealings.

OMP Reporters, Gu Wenjian and Jia Shuangshuang
Interns, Wang Liangchen and Xu Shaoming
The investigation into Section Chief Tao Jianguo, head of the planning and construction section of the Shanghai Waigaoqiao bonded area management committee, for taking bribes worth over 14.85 million yuan (including 29 units of housing) by the Pudong New Area people’s protectorate has come to an end. Yesterday, there was a hearing on the case at the No. 1 Intermediate People’s Court of the Municipality. In court, Tao Jianguo did not admit to “being bribed”, and instead alleged that the source of the bribery funds was “earnings from business dealings”. As for his behavior at his post before the case, Tao Jianguo emphasized that he “audited according to the law”, and that he “did not use his post to conduct business”. It is reported that the hearing will continue for another two days before a date is set for announcing the decision.

Accepted over 14.86 million yuan

Yesterday 9:45 am, No. 1 Intermediate People’s Court of the Shanghai Municipality

Tao Jianguo is wearing glasses while in the defendant’s dock, his expression is haggard.

From 1999 to 2008, Tao Jianguo successively held the positions of assistant to the section chief and vice-section chief, city and town construction management section (village and town planning section) of the Shanghai Pudong New Area bureau of rural development, and of responsible party and vice-section chief, planning construction and environmental management section of the Waigaiqiao functional regions management committee, Shanghai Pudong New Area. However, Tao Jianguo used the advantages of his post to seek benefits from others in his work as the examiner and approver of land construction planning certificates and construction engineering planning certificates in construction and engineering projects undertaken in his area of jurisdiction.

It is understood that Tao Jianguo accepted total bribes of 1.06 million yuan from a company representative surnamed. Hong of Shanghai Shen’gang Real Estate Company, Limited and Shanghai Xingdu Real Estate Development Company, Limited, as well as other companies’ representatives surnamed Xu, Lu, and Zhang. He also accepted 29 units of property as a bribe from a person surnamed Hong, with a value of over 13.79 million yuan. Because the bribery amount from people including the one surnamed Hong is large, this has been called “the biggest suspected bribery case in Shanghai for 2008” by investigators.

Property registered under mother’s name

In 4 actual instances of accepting bribes, the biggest amount came from a person surnamed Hong for 690,000 yuan and 29 units of property.

The indictment reads that from 2000 to 2008, Shanghai Shen’gang Real Estate Company, Limited and Shanghai Xingdu Real Estate Development Company, Limited developed projects including Shuguang Gardens, Shuguang North Gardens, and Shuguang East Gardens, as well as the Chuansha Town Wangqiao market for exchange of production materials and the Heqing Town petty commodity market. After receiving multiple bribes from a person surnamed Hong, Tao Jianguo provided assistance in the examination and approval of the Planning Permits for Land for Construction Use and of the Planning Permits for Construction Projects.

During the hearing Tao Jianguo revealed that among the 29 units of property there are townhouses, storefronts, and apartments. Besides the townhouse that is used as a residence, most of the property is rented out. All 29 units of property are registered under the name of Tao Jianguo’s mother. Tao Jianguo explained this by saying that, after 2003, because civil servants were not allowed to start companies or engage in related business activity, and because he worried about breaking principles, he transferred the titles to his mother’s name. “My mother didn’t know there was so much property under her name,” Tao Jianguo said.

On August 27, 2008, Tao Jianguo was accused of double designation by departments of the Commission for Inspecting Discipline. On September 3, Tao Jianguo was detained on the suspicion of accepting bribes by the Pudong prosecutor’s office, and he was arrested on the 12th of that month.

The “proceeds from business dealings” argument

Yesterday during the hearing, Tao Jianguo “objected” to most of the accusations.

Tao Jianguo said that he had participated all along with Shanghai Shen’gang Real Estate Company, Limited and Shanghai Xingdu Real Estate Development Company, Limited in business. The 690,000 yuan from someone surnamed Hong and the 29 units of housing were all “proceedings from business dealings”.

In explaining his participation in the business activities of the two above companies, Tao Jianguo said that although he did not have a position in either of the two companies, he did participate in the operations of the board of directors, and engaged in “establishing of company projects” and “establishing of land and property sales companies”, as well as the work of founding and disbanding companies. In addition, Tao Jianguo described in his own words how he adopted a method of “real estate mortgage” and infused financing into Xingdu Company that had yet to be founded.

Tao Jianguo argues that of the 690,000 yuan that the person surnamed Hong gave him, 490,000 yuan was severance pay from Shen’gang Company, and the other 100,000 yuan was a subsidy from the yearly meeting of the board of directors. As for the 29 units of property under suspicion, they were dividends of 5 shareholders resulting from business operations, and are the result of investment. “The townhouse is one unit of the shareholder’s portfolio, and the geographic positions are all in one place,” Tao Jianguo said. “Many of my family have participated in the finance and sales company operations of Shen’gang Company.”

Tao Jianguo thinks that while planning permits for land for construction use and for construction projects are under his jurisdiction, he all projects were examined and approved according to the law and he did not use “the advantage of his post”, and his income is from “proceedings from business dealings”.

He said that in course of the examination and approval, from the submission of application materials to the auditing, and then to the approval and issue of permits, the entire process takes 10 working days. He was only responsible for providing opinions on the auditing and had no relationship with real estate developers.

Investigators think that Tao Jianguo, as an employee of the state, used the advantages of his post to gain benefits for others and received illegal financial gains of over 14.85 million yuan, a violation of the law.

His lawyer argues:

There is no reason for him to take bribes.

According to the indictment, a person surnamed Hong is the biggest briber in the bribery case against Tao Jianguo. It is understood that the two met in 1997. Tao Jianguo argues that he did not accept bribes, and instead he was a shareholder of two real estate companies and the money was the legal outcome of business dealings. Because state civil servants and their immediate families cannot be shareholders in companies, they use the names of their relatives to invest. But the person surnamed Hong denied the above facts when testifying to the authorities. He said that he doesn’t know “Tao Jianguo’s relatives”.

Tao Jianguo’s lawyer thinks that Tao Jianguo is an invisible shareholder, and that he used his relatives’ names to hold shares in the companies. As for the “generosity” of the person surnamed Hong, the defendant’s lawyer said that Tao Jianguo is only one of many section-level officials responsible for the chain of examination and approval of planned real estate projects. His grade is not high. Hence, he lacks sufficient decision-making authority. So he has no reason to “wantonly accept bribes”.

The defendant’s lawyer thinks that, while Tao Jianguo had a large amount of property, it was not “bribery”, and in fact this precisely corroborates that Tao Jianguo participated in the business operations of the companies. And for this reason, he was entitled to receive property and cash. But according to the testimony of the person surnamed Hong, Tao Jianguo not only accepted bribes, he actively “sought bribes”.

Pudong Commission for Inspecting Discipline:

Because of the property the case was brought

Yesterday, a reporter sent a telegram to the construction planning and environmental management section of the Waigaoqiao Functional Regions Management Committee. A worker at this section said they were “not clear” about this issue. Nor did they leak any details about related particulars.

A worker in the Pudong New Area Commission for Inspecting Discipline said that the Tao Jianguo case began because of a “property” problem, and the “relationship” with Shanghai Shen’gang Real Estate Company, Limited and Shanghai Xingdu Real Estate Development Company, Limited. But after the investigation, the Commission for Inspecting Discipline thinks that Tao Jianguo was not a “shareholder” of either of the companies.

Tuesday, August 11, 2009

Pan Shiyi, Land Kings, and Drunk Driving


Pan Shiyi: Central SOEs Becoming Land Kings is Like Driving Under the Influence

Couldn’t resist translating this one. Today’s Oriential Morning Post, August 11, 2009. Pan Shiyi is prolific blogger and commenter on real estate industry (as well as being Chairman of Soho China (Hong Kong listed, code 00410)). BTW, here is link to Pan’s blog:
Unfortunately, only in Chinese. Very interesting cartoon posted today related to government departments conducting land auctions above the table and “behind closed doors business” under the table. (See

OMP Reporter Liu Xiuhao

Having just returned from an observation trip, the chairman of SOHO China (HK 00410) yesterday renewed his regular Internet chats. In regards to the recent appearance of multiple land kings, Pan Shiyi again said something amazing, that these companies are “creating a bubble for short-term benefit.”

Pan Shiyi expressed that the main reason for the appearance of land kings is that for some large SOEs, in the current background, it is easy to obtain financing and their costs are low. But, turning land into sales revenue and profit requires specialized knowledge and experience, requires a grasp and understanding of the market. These large, state-owned enterprises that have suddenly entered the real estate industry must be very careful about this to avoid an enormous waste of social wealth.

In comparing this phenomenon to the recent tragedies from car accidents, Pan Shiyi commented, “there are a large portion of car accidents that are caused by drinking and driving. Some people will disregard their health and other people’s lives in order to gain a moment of happiness. This is the same principle as the market.” “Some enterprises will create a bubble in order to gain short-term benefit. In the long-term, this bubble will certainly pop.”

While Pan Shiyi was abroad, the news of SOHO China acquiring Shanghai Donghai Plaza, owned by Morgan Stanley, was repeatedly hyped. The latest version was a lawyer’s letter that said Donghai Plaza has many problems so its sales has hit at an impasse.

But Pan Shiyi’s answer to this news twisted around the issues. He said: “At present I have not received any lawyer’s letter. I have only seen a public letter and some complaint files to the government departments of SMDRC [Shanghai Municipal Development and Reform Commission] addressing my company through media outlets. I only have four characters [two words] to respond to this issue: No comment.”

Central Shanghai: Land Cost is 70% of Housing Price

Shanghai Land Price Reaches 70% of Housing Price Inside Inner Ring Road

OMP Reporter Liu Xiuhao

Brief article from today (August 11, 2009) about the proportion of the price of land to the price of housing (land is acquired from local state government in tender, auction, and listing that are open to all). Read previous posts about the report by the MoLaR on the constitution of current real estate housing prices and the proportion accounted for by the cost of acquiring land. Their survey was discussed in pervious posts.

Despite the announcement on July 23 by Ministry of Land and Resources that a special investigation shows land prices only make up a 23.2% proportion of housing prices, the Eastern China region and especially the Shanghai area has a rapid rise in the ratio of land price to housing price with the recent dramatic climb of land prices. Fangfang Land Consulting released the most recent quarterly “Long Silver Land Prices, East China Report” yesterday. It showed that of the 16 major urban land markets in the Eastern China region, the proportion of land prices to housing prices is in the range of 30%-50%. Of these, inside the inner ring road of Shanghai the range is 70%. In addition, Greenland Group made a triumphant advance in the land market for the first half of this year, passing Vanke in one sweep to become the new “land king”.

Small and Medium Developers are Even More Radical

Fangfang Property’s land price survey showed that, in July, the urban land price in cities such as Shanghai, Hangzhou, and Nanjing was 40% of housing prices, with certain areas surpassing a ratio of 60 percent. The level of land prices in Suzhou and Wuxi was slightly lower, accounting for approximately 30 percent of city housing prices.

Among these cities, recent land parcels leased by Hangzhou are mostly in the central city, and land price accounts for over 50% of housing price; Shanghai land prices are in the proportion range of 35%-50% of housing prices, but there is wide variation based on the land locations, with those near the inner ring line having a land price proportion of 70% of housing price. This shows the extreme shortage of land resources there. For the outer ring and outside areas of Shanghai, the land price proportion falls to only 40 percent or so.

With continued explosion in commodity housing market transactions, the sales returns for companies are higher across the board than their payments for acquiring land, so there is no financing pressure. Meanwhile, the issue of new land banks is far behind sales turnover rate, so the strong inclination to acquire land affects the predictions for the price of land. A comprehensive look at the companies competing for land in the market in Shanghai shows that large enterprises were relative cautious while small and medium developers were radical, daring to pay high prices.

Vanke is First in Land Acquisition Quantity

In the first half of the hear, Greenland acquired four land parcels on the open market, including office and commercial land in the city center and residential land in the suburbs. The characteristic of different districts and counties in the land bank is very vivid.

While Greenland was wantonly storing up, Dahua and Vanke increased their sales and reduced their land banking speed. Greenland became the new Shanghai “land king” with a total 3.41 million square meters of land bank area. Dahua is second with 2.65 million square meters. And Vanke has fallen to third with total banked areas of 2.32 million square meters.

Nationally, 15 brand-name real estate development companies (Vanke [Wanke], Poly [Baoli], Gemdale [Jindi], China Merchants, Greenland, Dahua, Forte [Fudi], China Overseas [Zhonghai], Jiangsu Xincheng, Greentown, Yanlord [Renheng], Sun Hung Kai [Xinhongji], CITIC Pacific, Hutchinson Whampoa, and Hopson) increased their land banks by 9.40 million square meters in area, with most of the land parcels bought for under 2,500 yuan/square meter. Of these, 5 companies increased their land banks by over 1 million square meters, with Vanke and Poly being first and second in total amounts, acquiring 3.48 million square meters and 1.96 million square meters respectively.