万科托管“倒楼小区”未倒楼可按市价收购
Vanke Named Trustee for “Collapsed Building Apartment Complex”
Remaining Buildings Can be Sold Back at Market Price
http://epaper.dfdaily.com/dfzb/html/2009-08/01/content_149183.htm
OMP reporter Li Meng
August 1, 2009
This headline appeared on the front page of the Oriental Morning Post today. Vanke is one of the largest real estate companies in China, and its head, Wang Shi, is an entrepreneurial hero (see previous posts on him during Wenchuan earthquake) in China and has climbed Mount Everest. The article reports that Shanghai Vanke will take over as “third party trustee” for Lotus Riverside, the apartment complex where a building collapsed in the Minhang (not Minxing) District of Shanghai on June 27, 2009.
Note: I have noticed that people are referring to the Lotus Riverside apartments in “Minxing” district. Sorry, but the character can be read as both “xing” and “hang”. As anyone in Shanghai knows (or should), there is no such thing as Minxing district, only Minhang District. In fact Minhang District is one of the oldest areas of Shanghai. The majority of people moved to “central” Shanghai 150 years ago—Shanghai is a “new” city in China. However, several hundred years ago, the whole area belonged to Jiangsu Province, and the only two areas of human settlement were “Old Minhang” and Chongming Island. Just FYI – “Minxing” is major linguistic error. :-)
(See the original Chinese version for photograph of collapsed building).
The “Lotus Riverside” apartment complex, where an entire building collapsed in an accident, will be entrusted to a third party, the well-known Vanke Real Estate.
For the buildings that have not collapsed, Meidu Real Estate Company has outlined specific guidelines for three solutions to resolve the issue: owners can choose to have a 5% discount on price and continue with their contracts; they can cancel the contract and have all interest repaid; or they can have their apartment bought by Vanke for the market value on June 27, 2009.
Owners Must Decide Before August 15
Last night at 7:30, the Minhang District news office held its 13th news conference on the collapse of a building during construction of the “Lotus Riverside” apartment complex.
In addition to a complete listing of “Operating Guidelines for Outlined Solutions Concerning Buildings Sold in Advance that Did Not Collapse” issued by Meidu Real Estate Company, the news conference also clearly mentioned that Shanghai Vanke Real Estate Company, Limited would be the third party trustee for finishing construction of the apartment complex.
On July 20, Meidu Company announced “Outlined Solutions Concerning Buildings Sold in Advance that Did Not Collapse” to the public, giving three methods for carrying out contracts. But the solutions were clear at the time that the guidelines for the three solutions would be announced on July 31, and owners could make their decision between August 1 and August 15, 2009.
“Operating Guidelines” contains some additions and goes further in description for the three solutions already announced.
Vanke Will Hand Over Apartments Before May 31 of Next Year
As the third party trustee of “Lotus Riverside”, Shanghai Vanke Real Estate Company, Limited yesterday issued a “Notification”. It contained a guarantee that “apartments with quality up to standard will be handed over before May 31, 2009 as stated in the sold-in-advance contracts.”
Vanke mentioned that the company was invited by Meidi Company to be the third party trustee for the apartment complex construction of Lotus Riverside. Vanke will “assemble a competent team and use much effort and technique to ensure the continued construction of Lotus Riverside.” This company will also provide enthusiastic service to the public and customers, taking on all social responsibility.
Vanke thinks that the Lotus Riverside apartment complex is located in a superior site and has a nice environment. Because of this, Vanke is confident in its ability to ensure improvement of the apartment complex’s environment and construction quality. It will not fail to live up to the expectations of all its customers for a Vanke-quality apartment complex.
At the same time, Vanke expressed that it will work with Meidu Company in the appropriate handling of contracts for housing sold in advance as stated in “Operating Guidelines for Outlined Solutions Concerning Buildings Sold in Advance that Did Not Collapse”.
Solution 1: Return of 5%, Continued Fulfillment of the Sold in Advance Contract
Vanke guarantees that if an apartment cannot be handed over because its structure is not up to standards, the purchaser can cancel the sale-in-advance contract.
For those who choose solution one, Meidu Company will negotiate and sign a “Supplement to the Sale-in-Advance Contract”, and the supplemental agreement will include the following:
1. As a precondition to the purchaser continuing to fulfill their contract, Meidu Company will give up an appropriate amount of profit, that is, give a 5% discount on the total housing price specified in the “Sale-in-advance Contract”. Within 10 working days of signing, Meidu will pay the money into an account designated by the purchaser.
2. Meidu Company promises to continue to fulfill its tasks outlined in the “Sale-in-Advance Contract” according to specified time limits.
3. If the apartment cannot be handed over because its structure is not up to standards, the purchaser can cancel the sale-in-advance contract and their obligations based on entitlements specified in “Solutions for the Collapse of Lotus Riverside Building 7 Incident” and its “Operating Guidelines”.
4. If the above situation occurs, the purchaser has the right, according to “Solutions for the Collapse of Lotus Riverside Building 7 Incident” and its “Operating Guidelines”, to receive reimbursement for losses or compensation for contract violation. Meidu Company agrees to pay reimbursement or compensation, minus the 5% discount already paid, to the purchaser.
5. Because the purchaser choose and executed “Solutions for the Collapse of Lotus Riverside Building 7 Incident” and its “Operating Guidelines” which involve the market value of the apartment, government departments will decide on a organization for this evaluation.
When the “Supplement to the Sale-in-Advance Contract” is signed, Meidu Company will add Shanghai Vanke Real Estate Company, Limited who will also sign the “Supplement to the Sale-in-Advance Contract” and a “Letter of Commitment” with the purchaser. This guarantees that if the apartment cannot be handed over because its structure is not up to standards, the purchaser can choose to execute “Solutions for the Collapse of Lotus Riverside Building 7 Incident” and its “Operating Guidelines” allowing payback to purchaser within a specified time frame (from June 27, 2009 to the end of “Loan Contract” fulfillment date) of all bank interest and public accumulation fund interest on loans. If Meidu Company does not have the funds to pay, Vanke Company guarantees that it will pay.
Solution 2: Negotiate Cancellation of Sale-in-Advance Contract, Return Loan and Interest
Refunded amount = [the principal amount already paid by the purchaser (including paid by self and on loan) + bank deposit interest on amount of apartment price already paid] – loan principal and interest already paid on behalf of the purchaser by the Company to the loan bank and/or the public accumulation fund center.
1. For the purchaser who chooses solution two, Meidu Company will negotiate to cancel the “sale-in-advance contract” and “loan contract” with the loan bank, the public accumulation fund center, and (if necessary) the Shanghai Estate Guarantee Company, Limited [www.jiae.com.cn].
2. An agreement will be reached through negotiation with all parties and Meidu Company will sign an “Agreement to Cancel the Sale-in-Advance Contract” with the purchaser. Meidu Company will also sign an “Agreement to Cancel the Loan Contract” with the purchaser, the loan bank, the public accumulation fund center and (if necessary) the Shanghai Estate Guarantee Company, Limited.
3. After signing the “Agreement to Cancel the Sale-in-Advance Contract” and the “Agreement to Cancel the Loan Contract”, Meidu Company will pay all interest incurred by the purchaser that has not been paid as specified in the “Agreement to Cancel the Loan Contract”. Meidu Company will also directly pay funds into the loan bank and/or the public accumulation fund center accounts.
4. From the registration of the notice to cancel the “Sale-in-Advance Contract” and completion of the registration to cancel the mortgage in the “Loan Contract”, within 10 working days, Meidu Company will pay the “due sum of money” to the purchaser via the bank account indicated in the “Agreement to Cancel the Sale-in-Advance Contract”:
The “due sum of money” = [the principal amount already paid by the purchaser (including paid by self and on loan) + bank deposit interest on amount of apartment price already paid] – loan principal and interest already paid by the Company to the loan bank and/or the public accumulation fund center on behalf of the purchaser.
Solution 3: According to the Market Price on June 27, Vanke Purchases the Apartment
The market price differential = the market price as appraised on June 27, 2009 – the total price in the “Sale-in-Advance Contract”.
1. Government departments will appoint an appraiser with valid qualifications who, on August 15, 2009, will appraise the market value of the purchased apartment on June 27, 2009 for those who choose solution three, as well as issue an appraisal report.
2. After the above appraisal report comes out, Meidu Company will negotiate arrangements for the sale with Vanke Company who will return the money to the purchaser who choose solution three. In addition, Meidu Company will also negotiate the cancellation of the “Sale-in-Advance Contract” and the “Loan Contract” with the loan bank, the public accumulation fund center, and (if necessary) the Shanghai Estate Guarantee Company, Limited.
3. Once an agreement has been reached with all parties, Meidu Company will sign a “Third Party Agreement” with the purchaser and Vanke Company to pay back the money. Meidu will also sign an “Agreement to Cancel the Sale-in-Advance Contract” with the purchaser, and an “Agreement to Cancel the Loan Contract” with the purchaser, the loan bank, the public accumulation fund center and (if necessary) the Shanghai Estate Guarantee Company, Limited.
4. After the “Third Party Agreement”, the “Agreement to Cancel the Sale-in-Advance Contract”, and the “Agreement to Cancel the Loan Contract” are signed, Vanke Company pledges to pay any outstanding loans and interest directly to the bank accounts at loan bank and/or the public accumulation fund center as specified in the Third Party Agreement”, and the “Agreement to Cancel the Loan Contract”.
5. After the “Third Party Agreement”, the “Agreement to Cancel the Sale-in-Advance Contract”, and the “Agreement to Cancel the Loan Contract” are signed, and within ten working days of the completion of the condition below, Vanke Company guarantees to pay the “due sum of money” to the purchaser into the bank account specified in the “Third Party Agreement”.
The purchaser, the loan bank, the public accumulation fund center, and (if necessary) the Shanghai Estate Guarantee Company, Limited must complete the registration of notice to cancel the “Sale-in-Advance Contract” and registration of the cancellation of the mortgage in the “Loan Contract”.
6. The “due sum of money” mentioned in the previous item = [the amount already paid by the purchaser (including paid by self and on loan) + market price differential] – principal and interest paid by the Company on behalf of the purchaser to the loan bank and/or the public accumulation fund center.
7. The “market price differential” mentioned in the previous item = the appraised total market value of the apartment on June 27, 2009 – the total price of the apartment in the “Sale-in-Advance Contract”.
At the same time, Meidu Company announced that, as of yesterday, it had sent by mail copies of the “Guidelines” to purchasers. After purchasers receive the “Operating Guidelines”, they can fill out the “Solution Selection Form” and mail it back to “Riverside Lotus” Sales Center, 599 Luoyang Road, Shanghai (Zip: 201100) before August 15, 2009.
Friday, July 31, 2009
Wednesday, July 29, 2009
Shanghai Apartment Collapse: Investigation Results and Punishment
闵行倒楼：6人被拘 7人取 保候审 副区长遭行政警告
Minhang Collapsed Building: 6 arrested, 7 out on bail, vice district chief given administrative warning
http://epaper.dfdaily.com/dfzb/html/2009-07/29/content_148342.htm
In yesterday’s Oriental Morning Post, the results of a government investigation into the collapse of an apartment building in the Minhang district of Shanghai were unveiled. While earlier articles, including the English-language Shanghai Daily, reported that both the development company and the construction company were partially owned by officials of Minhang and of Meilong Town (a town within Minhang, located near the real estate development), yesterday’s investigation announced that those links did not exist (at least now).
Investigation of Developer Meidu Company Shareholder Situation
* Founded in 1995, was originally Minhang District Meilong Town Collective Enterprise
* In 2001, changed system to an enterprise run by individuals [minying] with 24 shareholders registered with Bureau of Industry and Commerce; it is an employee of the Meilong Town Land Requisition Service Office and Xun Hao Properties Limited
* From founding to present 6 shareholders have withdrawn
Shanghai Meidu Real Estate Company
* There are 18 actual shareholders currently
* The 8 shareholders who are town public service personnel have unhooked themselves from their original work unit
* The head of the Meilong Town Land Requisition Service Office, Zhang Jinliang, who is an enterprise employee has already unhooked himself from the town Land Requisition Service Office work. Recently, the organizational system of the Meilong Town Land Requisition Service Office was dissolved and it is in the process of auditing and liquidating assets
6 shareholders are employees of Xun Hao Company will either give up their shares or unhook themselves from Xun Hao Company
* The remaining 3 shareholders are an employee of Zhongxin Construction Company, a sole proprietor, and a retiree.
* The company’s former chairman, Que Jingde, is currently the second-largest shareholder with 15% of the shares
* The company’s former board member and current chairman, Zhang Zhiqin, is the top shareholder, and once was a top executive in Xun Hao Company, holds 64.275% of the shares
July 29, 2009
OMP reporter, Li Meng
At the city government news conference yesterday, the head of the group assigned to investigate the “6 [June] 27” accident and director general of the municipal safety supervisory bureau Xie Liming explained the actions to be taken after investigating the “6-27” accidental collapse of Lotus Riverside building 7. Six people from developer Meidu Real Estate Company and project contractor Zhongxin Construction Company who are suspected of negligence leading to a serious accident have been arrested and are in custody; seven people have been released on bail. The company responsible for the accident, Meidu Real Estate Company, has been fined 1.5 million yuan.
Xie Liming said that, because of his leadership responsibility in ensuring district construction engineering safety, Lian Zhenghua, vice warden of Minhang District, was given an administrative warning. The town chief of Meilong Town, Minhang District, Shi Baoqi and the vice-town chief, Zhou Liang, separately received an administrative demerit and a large administrative demerit.
Xie Liming expressed that the collapse of the Shanghai “Lotus Riverside” building during apartment construction has had a bad effect on society and it is of a very serious nature—an accident with major responsibility by those involved. Currently, the certifications of the developer of the collapsed building, Meidu Real Estate Company, the project contractor, Zhongxin Construction Company, and the supervisory unit, Guangqi Inspection Company, have all been revoked.
According to sources, after the collapse of building 7 of “Lotus Riverside” on June 27, member of the Political Bureau of the CPC Central Committee and Shanghai Municipal Party Secretary Yu Zhengsheng and mayor Han Zheng immediately demanded a full investigation of the reasons for the accident and an accounting of the parties responsible—they pledged to use this as a experiential guide, make it a precedent, and clarify responsibility.
The accident investigation team looked at 21 crucial sections of the engineering process and engineering activities, using surveys of the scene, technical appraisals, investigation of approval process, and close research and analysis.
The investigative team was in Minhang District of over 20 days, interviewed 293 people, and produced close to 300 records. Analysis of the investigation made clear the direct and indirect reasons for the accident, identified the nature and responsibility for the accident, advanced opinions on how to dispose of those responsible for the accident, and improvement guidelines on how to avoid the accident.
The investigative group made clear that the second-largest shareholder of the Meidu Real Estate Company, Que Jingde, is not a civil servant of a state organ, and his role as assistant to the town chief of Meilong Town is the result of Meilong Town party secretary Cai Jianzhong overstepping his authority and instituted after an irregular nomination, nor was it reported to the District Organization Department. The Minhang District Committee has now certified that the institution of Que Jingde as assistant to the town chief was invalid and relevant departments are investigating whether to indict Que Jingde. Cai Jianzhong has been suspended from his duties pending the group’s investigation into overstepping authority and irregular nomination of Que Jingde as assistant to the town chief.
After the investigation and identification of responsibility by the investigative group, it was found that 7 people including Meidu Real Estate legal representative Zhang Zhiqin and Zhongxin Construction Company legal representative Zhang Yaojie have direct responsibility for the accident. They are suspected of committing the crime of negligence leading to a serious accident and the determination of criminal responsibility will be decided by the court. Six of the people are in custody. Eight others have been determined to be negligent, including supervisory unit Guangqi Inspection Company legal representative Wang Jinquan, and they will be fined and lose their labor contracts. Finally, the engineering supervisory unit Xieli Survey Company had a nonzero responsibility in causing the accident, and will be publicly criticized.
Xie Liming expressed at the news conference that other problems and leads related to the collapse of building are valued by the Shanghai municipal council and the municipal government, and will be investigated by the relevant city departments and the Minhang District council and government. After investigation, the results will be evaluated and made public through legal means.
Minhang Collapsed Building: 6 arrested, 7 out on bail, vice district chief given administrative warning
http://epaper.dfdaily.com/dfzb/html/2009-07/29/content_148342.htm
In yesterday’s Oriental Morning Post, the results of a government investigation into the collapse of an apartment building in the Minhang district of Shanghai were unveiled. While earlier articles, including the English-language Shanghai Daily, reported that both the development company and the construction company were partially owned by officials of Minhang and of Meilong Town (a town within Minhang, located near the real estate development), yesterday’s investigation announced that those links did not exist (at least now).
Investigation of Developer Meidu Company Shareholder Situation
* Founded in 1995, was originally Minhang District Meilong Town Collective Enterprise
* In 2001, changed system to an enterprise run by individuals [minying] with 24 shareholders registered with Bureau of Industry and Commerce; it is an employee of the Meilong Town Land Requisition Service Office and Xun Hao Properties Limited
* From founding to present 6 shareholders have withdrawn
Shanghai Meidu Real Estate Company
* There are 18 actual shareholders currently
* The 8 shareholders who are town public service personnel have unhooked themselves from their original work unit
* The head of the Meilong Town Land Requisition Service Office, Zhang Jinliang, who is an enterprise employee has already unhooked himself from the town Land Requisition Service Office work. Recently, the organizational system of the Meilong Town Land Requisition Service Office was dissolved and it is in the process of auditing and liquidating assets
6 shareholders are employees of Xun Hao Company will either give up their shares or unhook themselves from Xun Hao Company
* The remaining 3 shareholders are an employee of Zhongxin Construction Company, a sole proprietor, and a retiree.
* The company’s former chairman, Que Jingde, is currently the second-largest shareholder with 15% of the shares
* The company’s former board member and current chairman, Zhang Zhiqin, is the top shareholder, and once was a top executive in Xun Hao Company, holds 64.275% of the shares
July 29, 2009
OMP reporter, Li Meng
At the city government news conference yesterday, the head of the group assigned to investigate the “6 [June] 27” accident and director general of the municipal safety supervisory bureau Xie Liming explained the actions to be taken after investigating the “6-27” accidental collapse of Lotus Riverside building 7. Six people from developer Meidu Real Estate Company and project contractor Zhongxin Construction Company who are suspected of negligence leading to a serious accident have been arrested and are in custody; seven people have been released on bail. The company responsible for the accident, Meidu Real Estate Company, has been fined 1.5 million yuan.
Xie Liming said that, because of his leadership responsibility in ensuring district construction engineering safety, Lian Zhenghua, vice warden of Minhang District, was given an administrative warning. The town chief of Meilong Town, Minhang District, Shi Baoqi and the vice-town chief, Zhou Liang, separately received an administrative demerit and a large administrative demerit.
Xie Liming expressed that the collapse of the Shanghai “Lotus Riverside” building during apartment construction has had a bad effect on society and it is of a very serious nature—an accident with major responsibility by those involved. Currently, the certifications of the developer of the collapsed building, Meidu Real Estate Company, the project contractor, Zhongxin Construction Company, and the supervisory unit, Guangqi Inspection Company, have all been revoked.
According to sources, after the collapse of building 7 of “Lotus Riverside” on June 27, member of the Political Bureau of the CPC Central Committee and Shanghai Municipal Party Secretary Yu Zhengsheng and mayor Han Zheng immediately demanded a full investigation of the reasons for the accident and an accounting of the parties responsible—they pledged to use this as a experiential guide, make it a precedent, and clarify responsibility.
The accident investigation team looked at 21 crucial sections of the engineering process and engineering activities, using surveys of the scene, technical appraisals, investigation of approval process, and close research and analysis.
The investigative team was in Minhang District of over 20 days, interviewed 293 people, and produced close to 300 records. Analysis of the investigation made clear the direct and indirect reasons for the accident, identified the nature and responsibility for the accident, advanced opinions on how to dispose of those responsible for the accident, and improvement guidelines on how to avoid the accident.
The investigative group made clear that the second-largest shareholder of the Meidu Real Estate Company, Que Jingde, is not a civil servant of a state organ, and his role as assistant to the town chief of Meilong Town is the result of Meilong Town party secretary Cai Jianzhong overstepping his authority and instituted after an irregular nomination, nor was it reported to the District Organization Department. The Minhang District Committee has now certified that the institution of Que Jingde as assistant to the town chief was invalid and relevant departments are investigating whether to indict Que Jingde. Cai Jianzhong has been suspended from his duties pending the group’s investigation into overstepping authority and irregular nomination of Que Jingde as assistant to the town chief.
After the investigation and identification of responsibility by the investigative group, it was found that 7 people including Meidu Real Estate legal representative Zhang Zhiqin and Zhongxin Construction Company legal representative Zhang Yaojie have direct responsibility for the accident. They are suspected of committing the crime of negligence leading to a serious accident and the determination of criminal responsibility will be decided by the court. Six of the people are in custody. Eight others have been determined to be negligent, including supervisory unit Guangqi Inspection Company legal representative Wang Jinquan, and they will be fined and lose their labor contracts. Finally, the engineering supervisory unit Xieli Survey Company had a nonzero responsibility in causing the accident, and will be publicly criticized.
Xie Liming expressed at the news conference that other problems and leads related to the collapse of building are valued by the Shanghai municipal council and the municipal government, and will be investigated by the relevant city departments and the Minhang District council and government. After investigation, the results will be evaluated and made public through legal means.
Tuesday, July 28, 2009
China: Hot Money Blowing Bubbles
滚滚热钱豪赌楼市泡沫
Surging Hot Money Makes Big Bets on Property Bubble
100 Billion in Foreign Capital “Wheels Around and Strikes Back” in the Second Quarter
Wan Jing
2009-07-29
China Securities Journal, July 29, 2009
http://www.cs.com.cn/fc/03/200907/t20090729_2164954.htm
Apologies for the long article. It is quite interesting look at the surge in “hot money” into China this year, and its effect on the real estate market. Worth the time it takes to read (and a look at the illustration through the link – sorry, can’t upload pictures).
Illustration (by Han Jingfeng): House, “Domestic Housing Market”, Man in house, “Quick, come in out for some shelter”, Traveler, “Overseas Funds” (See http://paper.cs.com.cn/page/17/2009-07/29/B02/20090729B02_pdf.pdf)
“Ever since the lifting of the ban ‘limiting outside commands’ in the Shenzhen housing market in April, there has been a proliferation of property transactions at various ports and the number of Hong Kongers buying property has increased by 20 to 30 percent,” the manager of Shenzhen Futian Port Intermediary told a China Securities Journal reporter. After the steep decline in property prices last year, beaten Hong Kong investors have staged a comeback; meanwhile several high-end housing developments in Beijing have also made sharp allegations that in the most recent period the ratio of foreign funds purchasing housing has risen sharply, of which there is no lack of wealthy Euro-American and middle Eastern investors; and in June, 306 units of luxurious housing were transacted in Shanghai with a price of over 40,000 yuan/square meter, exceeding the total transactions from May, and over 20 percent of the buyers were from overseas…
With the sharp recovery in the housing and stock markets, the hot money from abroad that once momentarily left last year, has now in the second quarter come surging back in carrying 100’s of billions. According to statistics, at the end of June China’s total foreign exchange reserves totaled 2.13 trillion USD, of which a 177.9 billion USD increase came from the second quarter—the trade imbalance accounting for 43.7 billion USD and FDI (foreign direct investment) increasing 21.2 billion USD. According to the current way of calculating hot money, subtracting the increases in trade imbalance and FDI from the increase in foreign exchange reserves, yields an estimate of 122.0 billion USD increase in hot money.
Hot Money Surges in New Attack
According to China Academy of Social Sciences (CASS) Institute of World Economics and Politics researcher Zhang Meng’s analysis, if one deducts the estimated effect of Euro and dollar appreciation, it will explain 33.9 billion USD of the increase in foreign reserves leaving 90.0 billion USD of increase in foreign reserves that lacks a logical explanation—hence the only explanation is that it is the short-term inflow of international capital. According to statistics, from the start of the global financial crisis in October of last year to March of this year, there was a negative value to the inflow of international capital. But in February and March, there was a gradual reduction in the negative value, while in April it suddenly turned position, increasing 32.5 billion USD. May and June continue to increase at high rates.
Of especial importance is that in June the trade imbalance was only 8.26 billion USD, and actually used foreign direct investment was 8.96 billion USD, meaning that in that month the increase of 42.1 billion USD in foreign reserves there is potentially 24.9 billion USD that is entering as hot money. Bank of Communications department of development researcher E Yongjian thinks that there is evidence that hot money from abroad is entering with increasing speed and the liabilities ledger for the central bank is also showing the same trends—short-term international capital has started to increase in the speed of its return.
According to estimates from United Securities, over 120 billion USD in hot money streamed into China in the second quarter, exceeding the previous high point of 73.2 billion USD in the first quarter of 2007. Analysts point out that since March of this year, foreign reserves have been increasing nonstop but the trade imbalance and FDI increases have not clearly improved. The increase in foreign reserves is much faster than the growth in the trade imbalance or FDI meaning that outside funds are flowing in at high levels. United Securities analyst Liu Xiangning thinks the surge in hot money into China is mainly flowing into the property and stock markets—in the first quarter short-term international capital was flowing in at a negative number, and in the second quarter is has become a massive amount, meaning that the sensitivity of these funds is very high.
The poles towards which hot money from abroad flows are concealed. According to this reporter’s understanding, hot money often flows through multiple channels including individual layers and company layers. Individual layers mainly go through private conversion of foreign exchange—in Hong Kong, every individual can change 20,000 yuan (HKD change to RMB) and can remit 80,000 yuan RMB to the mainland. It often happens between Hong Kong and Shenzhen that, because many people are friends and family, there are special groups that convert foreign exchange like ants moving house such that a massive amount of hot money can move in very quickly.
In terms of company layers, the traditional channels for hot money such as “overstating export, understating import, and engaging in fake direct domestic investment” are gradually becoming marginalized. The new, emerging channels for entering the domestic area are technological service trade, importing of luxury items, trading in currencies, individual purchase of foreign currency, FDI capital projects, and underground money lenders [qianzhuang]. Experts point out that the operations of technological service trade and import of luxury items are secret and very difficult to regulate so they are a frequent choice when a large amount of hot money moves in. Currency trading is even more hidden from regulation and can allow hot money to move in both directions, and usually involves a large-scale multinational group that moves funds between its subsidiaries so it can move even faster.
In addition, the FDI approval rights issued by MOFCOM [Ministry of Commerce] might become a bigger and wider channel for the entrance of hot money. In March of this year, MOFCOM decentralized the approval and modification of companies started by foreign investors with registered capital of less than 100 million USD to the provincial level commerce regulators at the location of the company registration. The convenience provided to foreign capital will also provide a more convenient and lucrative operating channel for overseas hot money.
Lurking in the Housing Market
The specter of hot money started appearing in the first quarter in the housing market, and its momentum has intensified in the second quarter. Starting from March, property prices in first-level cities have increased across the board, increasing four consecutive months compared with a quarter earlier and surpassing the peaks of 2007. Part of the push raising property prices in first-level cities is investors from abroad. In addition to that of individuals investing in real estate, hot money also goes through different types of property investment companies and private organizations to enter the housing market.
A long-term study conducted by Centaline (China) Property Research Center shows that: from April of this year, of the three large groups of housing purchasers in Shanghai, namely Shanghaiese, people from outside provinces and cities, and people from HMT [Hong Kong, Macau, and Taiwan] and overseas, the proportion of Shanghaiese has decreased, falling a total of about 5% in April and May with Shanghaiese housing purchasers falling to 85% in May. At the same time, HMT people have taken over to become the nuclear force of the high-end property housing market in Shanghai. Starting from March, HMT housing purchasers increased 25%, 40%, and 43% over three months compared to the previous quarter, matching historical high points from former years.
Centraline property analyst Zhuang Wei expressed that while the market share occupied by people from overseas and HMT is not large, it is much more focused on high-end housing complexes, and places where they invest are sometimes “big money” transactions largely increasing the activity level in the housing market.
After the cancellation of “limiting outside commands”, the Shenzhen housing market has also started to be inundated with Hong Kong investors. According to an introduction by a representative of the Luohu port branch of Shi-Hua Real Estate, compared to April there has been an increase of 20 percent in purchases by Hong Kongers of Luohu port area properties, especially small- and medium-sized layouts of less than 70 square meters near Luohu port. At the Futian port, Futian central area, and Honey Lake [Xiangmihu] luxury residence area, Hong Kongers coming to invest in property have also increased. A China Securities Journal reporter recently visited multiple high-end housing complexes in Nanshan district and discovered that more than a few groups of people touring properties had Hong Kong accents, mostly focusing investment on areas and complexes with future potential to increase in value.
The general manager at the Shenzhen business department of Midland Realty, Jiang Shaojie, expressed that there are low interest rates at Hong Kong banks so funds are looking for roads to invest in the housing market, while at the same time there is a deluge of international hot money, making economically-sensitive Hong Kongers anxious over inflation. After the experience of the financial crisis, many Hong Kongers had severe losses from investment in financial securities hence real estate and gold investment are more in their good graces. But compared to 2007 when it buyers were unstrained with respect to properties, currently Hong Kongers in Shenzhen are reasonable and cautious in their purchases.
The development of the high-end residence market in Guangzhou has also felt the force of funds from abroad. Hopefluent market research department determined that, after 3 successive months in 2009 when the Guangzhou high-end market had approximately 10% growth, in May it sprand 18%. Conducting research on 46 mainstream housing complexes in the central area of Guangzhou, they found that 75% had already returned to 2007 levels. And among investors in these housing complexes, HMT and overseas buyers made up 30 percent and are growing.
Even in the realm of real estate development, restrictions on the entry of overseas capital are starting to being slackened. In May, the Beijing Municipal Land Reserve allowed guaranteed funds in foreign exchange to be used to land transactions, relaxing restrictions on the participation of overseas capital in land bidding.
The Future Might be More Rapid
The argument over whether, behind the dramatic climb in the domestic housing and stock markets, there lies the helping push of a large amount of hot money is currently ongoing. Professor Li Youhuan of the Guangdong Academy of Social Sciences thinks that hot money now is mainly concentrated in Hong Kong and Taiwan, and whether or not a large amount has entered the domestic market requires continued investigation. From April and May of this year, the dramatic climbs in Hong Kong and Taiwan stock markets and housing assets is related to a large influx of hot money, and Professor Li estimates that the scale of the inflow will grow in July.
Haitong Securities financial industry analyst She Minhua also expressed that the recent jump in global stock markets and commodities is mainly because of the strong predictions of economic recovery, along with predictions of inflation. “This is a relatively reasonable reaction. The gains in the domestic stock and property markets are not strongly related to speculative hot money.”
As the first stop in the build-up of international hot money, Hong Kong has relatively clear evidence of overseas funds flooding in. The newest research report from Citibank pointed out that, in the past two months, on average every week the funds flowing into Asian and especially flowing into Hong Kong have already reached the level of funds entering during the peak of the 2007 bull market. Sinolink Securities predicts that approximately 342.0 billion HKD of “hot money” has entered Hong Kong since September of last year, making up 50% of Hong Kong’s base currency, and vastly surpassing historical levels—and Hong Kong’s stock market has during this time recovered markedly.
Hot money has become a wave in Hong Kong and Taiwan, quickly raising the anxiety of whether a large amount of hot money will enter domestic areas. “Today, the eruption in the housing and stock markets has already being going on for some time, but from our inspections of flows in underground channels for overseas hot money, it has only been in June when a real turning point was reached, ending a span from October of last year to June of this year when net flows were outward—they have now turned net inward.” Guangdong Academy of Social Sciences Professor Li Youhuan expressed that in the last three months hot money mainly has been coming from the savings funds and some investment funds of HMT areas. Some overseas Chinese savings funds and a small amount of investment funds have started to enter the domestic market but currently there is no large-scale investment from international investment funds.
Li Youhuan thinks that, as far as the inspection of underground money channels, from April to June, every 10 days the amount of hot money flowing in shows a growing trend—and this has increased even further recently. Using the domestic and international economic development trends to predict, hot money flowing in will speed up in the second half of the year.
Different from the caution of domestic scholars, amidst the large-scale increase in the domestic stock and housing markets, large overseas banks emphasize that further development will become even more ferocious. A chief economic officer at a large overseas bank expressed that China’s housing market has already entered a period of growth, and the second half of the year will be auspicious for the real estate market. With excess liquidity and without a full recovery of the real economy, it is impossible for the government to mop up liquidity in the short term, so domestic housing prices will continue to rise. Unlike the first half of the year when rigid demand provided the impetus, the second half of the year operations from hot money will provide the key driving force in the increase of housing prices.
Zhang Meng, researcher at the CASS Institute of World Economics and Politics, thinks that in the second half of the year China will face an even greater surge in inflow of short-term international capital. With 7.37 trillion in new credit and loans supplied in the first half of 2009, if even more short-term international capital flows in, China’s asset market will be sandwiched between domestic and overseas excess liquidity making it very difficult to avoid a new bubble in asset prices. Of this we should be especially on guard.
Surging Hot Money Makes Big Bets on Property Bubble
100 Billion in Foreign Capital “Wheels Around and Strikes Back” in the Second Quarter
Wan Jing
2009-07-29
China Securities Journal, July 29, 2009
http://www.cs.com.cn/fc/03/200907/t20090729_2164954.htm
Apologies for the long article. It is quite interesting look at the surge in “hot money” into China this year, and its effect on the real estate market. Worth the time it takes to read (and a look at the illustration through the link – sorry, can’t upload pictures).
Illustration (by Han Jingfeng): House, “Domestic Housing Market”, Man in house, “Quick, come in out for some shelter”, Traveler, “Overseas Funds” (See http://paper.cs.com.cn/page/17/2009-07/29/B02/20090729B02_pdf.pdf)
“Ever since the lifting of the ban ‘limiting outside commands’ in the Shenzhen housing market in April, there has been a proliferation of property transactions at various ports and the number of Hong Kongers buying property has increased by 20 to 30 percent,” the manager of Shenzhen Futian Port Intermediary told a China Securities Journal reporter. After the steep decline in property prices last year, beaten Hong Kong investors have staged a comeback; meanwhile several high-end housing developments in Beijing have also made sharp allegations that in the most recent period the ratio of foreign funds purchasing housing has risen sharply, of which there is no lack of wealthy Euro-American and middle Eastern investors; and in June, 306 units of luxurious housing were transacted in Shanghai with a price of over 40,000 yuan/square meter, exceeding the total transactions from May, and over 20 percent of the buyers were from overseas…
With the sharp recovery in the housing and stock markets, the hot money from abroad that once momentarily left last year, has now in the second quarter come surging back in carrying 100’s of billions. According to statistics, at the end of June China’s total foreign exchange reserves totaled 2.13 trillion USD, of which a 177.9 billion USD increase came from the second quarter—the trade imbalance accounting for 43.7 billion USD and FDI (foreign direct investment) increasing 21.2 billion USD. According to the current way of calculating hot money, subtracting the increases in trade imbalance and FDI from the increase in foreign exchange reserves, yields an estimate of 122.0 billion USD increase in hot money.
Hot Money Surges in New Attack
According to China Academy of Social Sciences (CASS) Institute of World Economics and Politics researcher Zhang Meng’s analysis, if one deducts the estimated effect of Euro and dollar appreciation, it will explain 33.9 billion USD of the increase in foreign reserves leaving 90.0 billion USD of increase in foreign reserves that lacks a logical explanation—hence the only explanation is that it is the short-term inflow of international capital. According to statistics, from the start of the global financial crisis in October of last year to March of this year, there was a negative value to the inflow of international capital. But in February and March, there was a gradual reduction in the negative value, while in April it suddenly turned position, increasing 32.5 billion USD. May and June continue to increase at high rates.
Of especial importance is that in June the trade imbalance was only 8.26 billion USD, and actually used foreign direct investment was 8.96 billion USD, meaning that in that month the increase of 42.1 billion USD in foreign reserves there is potentially 24.9 billion USD that is entering as hot money. Bank of Communications department of development researcher E Yongjian thinks that there is evidence that hot money from abroad is entering with increasing speed and the liabilities ledger for the central bank is also showing the same trends—short-term international capital has started to increase in the speed of its return.
According to estimates from United Securities, over 120 billion USD in hot money streamed into China in the second quarter, exceeding the previous high point of 73.2 billion USD in the first quarter of 2007. Analysts point out that since March of this year, foreign reserves have been increasing nonstop but the trade imbalance and FDI increases have not clearly improved. The increase in foreign reserves is much faster than the growth in the trade imbalance or FDI meaning that outside funds are flowing in at high levels. United Securities analyst Liu Xiangning thinks the surge in hot money into China is mainly flowing into the property and stock markets—in the first quarter short-term international capital was flowing in at a negative number, and in the second quarter is has become a massive amount, meaning that the sensitivity of these funds is very high.
The poles towards which hot money from abroad flows are concealed. According to this reporter’s understanding, hot money often flows through multiple channels including individual layers and company layers. Individual layers mainly go through private conversion of foreign exchange—in Hong Kong, every individual can change 20,000 yuan (HKD change to RMB) and can remit 80,000 yuan RMB to the mainland. It often happens between Hong Kong and Shenzhen that, because many people are friends and family, there are special groups that convert foreign exchange like ants moving house such that a massive amount of hot money can move in very quickly.
In terms of company layers, the traditional channels for hot money such as “overstating export, understating import, and engaging in fake direct domestic investment” are gradually becoming marginalized. The new, emerging channels for entering the domestic area are technological service trade, importing of luxury items, trading in currencies, individual purchase of foreign currency, FDI capital projects, and underground money lenders [qianzhuang]. Experts point out that the operations of technological service trade and import of luxury items are secret and very difficult to regulate so they are a frequent choice when a large amount of hot money moves in. Currency trading is even more hidden from regulation and can allow hot money to move in both directions, and usually involves a large-scale multinational group that moves funds between its subsidiaries so it can move even faster.
In addition, the FDI approval rights issued by MOFCOM [Ministry of Commerce] might become a bigger and wider channel for the entrance of hot money. In March of this year, MOFCOM decentralized the approval and modification of companies started by foreign investors with registered capital of less than 100 million USD to the provincial level commerce regulators at the location of the company registration. The convenience provided to foreign capital will also provide a more convenient and lucrative operating channel for overseas hot money.
Lurking in the Housing Market
The specter of hot money started appearing in the first quarter in the housing market, and its momentum has intensified in the second quarter. Starting from March, property prices in first-level cities have increased across the board, increasing four consecutive months compared with a quarter earlier and surpassing the peaks of 2007. Part of the push raising property prices in first-level cities is investors from abroad. In addition to that of individuals investing in real estate, hot money also goes through different types of property investment companies and private organizations to enter the housing market.
A long-term study conducted by Centaline (China) Property Research Center shows that: from April of this year, of the three large groups of housing purchasers in Shanghai, namely Shanghaiese, people from outside provinces and cities, and people from HMT [Hong Kong, Macau, and Taiwan] and overseas, the proportion of Shanghaiese has decreased, falling a total of about 5% in April and May with Shanghaiese housing purchasers falling to 85% in May. At the same time, HMT people have taken over to become the nuclear force of the high-end property housing market in Shanghai. Starting from March, HMT housing purchasers increased 25%, 40%, and 43% over three months compared to the previous quarter, matching historical high points from former years.
Centraline property analyst Zhuang Wei expressed that while the market share occupied by people from overseas and HMT is not large, it is much more focused on high-end housing complexes, and places where they invest are sometimes “big money” transactions largely increasing the activity level in the housing market.
After the cancellation of “limiting outside commands”, the Shenzhen housing market has also started to be inundated with Hong Kong investors. According to an introduction by a representative of the Luohu port branch of Shi-Hua Real Estate, compared to April there has been an increase of 20 percent in purchases by Hong Kongers of Luohu port area properties, especially small- and medium-sized layouts of less than 70 square meters near Luohu port. At the Futian port, Futian central area, and Honey Lake [Xiangmihu] luxury residence area, Hong Kongers coming to invest in property have also increased. A China Securities Journal reporter recently visited multiple high-end housing complexes in Nanshan district and discovered that more than a few groups of people touring properties had Hong Kong accents, mostly focusing investment on areas and complexes with future potential to increase in value.
The general manager at the Shenzhen business department of Midland Realty, Jiang Shaojie, expressed that there are low interest rates at Hong Kong banks so funds are looking for roads to invest in the housing market, while at the same time there is a deluge of international hot money, making economically-sensitive Hong Kongers anxious over inflation. After the experience of the financial crisis, many Hong Kongers had severe losses from investment in financial securities hence real estate and gold investment are more in their good graces. But compared to 2007 when it buyers were unstrained with respect to properties, currently Hong Kongers in Shenzhen are reasonable and cautious in their purchases.
The development of the high-end residence market in Guangzhou has also felt the force of funds from abroad. Hopefluent market research department determined that, after 3 successive months in 2009 when the Guangzhou high-end market had approximately 10% growth, in May it sprand 18%. Conducting research on 46 mainstream housing complexes in the central area of Guangzhou, they found that 75% had already returned to 2007 levels. And among investors in these housing complexes, HMT and overseas buyers made up 30 percent and are growing.
Even in the realm of real estate development, restrictions on the entry of overseas capital are starting to being slackened. In May, the Beijing Municipal Land Reserve allowed guaranteed funds in foreign exchange to be used to land transactions, relaxing restrictions on the participation of overseas capital in land bidding.
The Future Might be More Rapid
The argument over whether, behind the dramatic climb in the domestic housing and stock markets, there lies the helping push of a large amount of hot money is currently ongoing. Professor Li Youhuan of the Guangdong Academy of Social Sciences thinks that hot money now is mainly concentrated in Hong Kong and Taiwan, and whether or not a large amount has entered the domestic market requires continued investigation. From April and May of this year, the dramatic climbs in Hong Kong and Taiwan stock markets and housing assets is related to a large influx of hot money, and Professor Li estimates that the scale of the inflow will grow in July.
Haitong Securities financial industry analyst She Minhua also expressed that the recent jump in global stock markets and commodities is mainly because of the strong predictions of economic recovery, along with predictions of inflation. “This is a relatively reasonable reaction. The gains in the domestic stock and property markets are not strongly related to speculative hot money.”
As the first stop in the build-up of international hot money, Hong Kong has relatively clear evidence of overseas funds flooding in. The newest research report from Citibank pointed out that, in the past two months, on average every week the funds flowing into Asian and especially flowing into Hong Kong have already reached the level of funds entering during the peak of the 2007 bull market. Sinolink Securities predicts that approximately 342.0 billion HKD of “hot money” has entered Hong Kong since September of last year, making up 50% of Hong Kong’s base currency, and vastly surpassing historical levels—and Hong Kong’s stock market has during this time recovered markedly.
Hot money has become a wave in Hong Kong and Taiwan, quickly raising the anxiety of whether a large amount of hot money will enter domestic areas. “Today, the eruption in the housing and stock markets has already being going on for some time, but from our inspections of flows in underground channels for overseas hot money, it has only been in June when a real turning point was reached, ending a span from October of last year to June of this year when net flows were outward—they have now turned net inward.” Guangdong Academy of Social Sciences Professor Li Youhuan expressed that in the last three months hot money mainly has been coming from the savings funds and some investment funds of HMT areas. Some overseas Chinese savings funds and a small amount of investment funds have started to enter the domestic market but currently there is no large-scale investment from international investment funds.
Li Youhuan thinks that, as far as the inspection of underground money channels, from April to June, every 10 days the amount of hot money flowing in shows a growing trend—and this has increased even further recently. Using the domestic and international economic development trends to predict, hot money flowing in will speed up in the second half of the year.
Different from the caution of domestic scholars, amidst the large-scale increase in the domestic stock and housing markets, large overseas banks emphasize that further development will become even more ferocious. A chief economic officer at a large overseas bank expressed that China’s housing market has already entered a period of growth, and the second half of the year will be auspicious for the real estate market. With excess liquidity and without a full recovery of the real economy, it is impossible for the government to mop up liquidity in the short term, so domestic housing prices will continue to rise. Unlike the first half of the year when rigid demand provided the impetus, the second half of the year operations from hot money will provide the key driving force in the increase of housing prices.
Zhang Meng, researcher at the CASS Institute of World Economics and Politics, thinks that in the second half of the year China will face an even greater surge in inflow of short-term international capital. With 7.37 trillion in new credit and loans supplied in the first half of 2009, if even more short-term international capital flows in, China’s asset market will be sandwiched between domestic and overseas excess liquidity making it very difficult to avoid a new bubble in asset prices. Of this we should be especially on guard.
Monday, July 27, 2009
Housing Stir-Frying Groups
谁推高了房价：购房主力是炒房团？
Who is Pushing Up Housing Prices?
Is the Impetus Housing Stir-Frying Groups [chaofang tuan]?
China Securities Journal article from about the origins of rise in urban housing prices. Housing “stir-frying” groups (chaofang tuan, or 炒房团 ) refer to groups of investors, usually believed to be from outside the city where housing is purchased, who come in and scoop up all the apartments for sale, usually before the public is given a chance to buy, and in collusion with the property developer. The lack of supply drives up prices, after which the group sells out making a quick profit. The most infamous “stir-frying” group comes from Wenzhou and is believed to be responsible for Shanghai’s high real estate prices.
Note: “stir-frying” (chao, 炒) is a word in Chinese that applies not only to housing but to stocks, stamps, and other goods (like chaohuo or flipping goods between stores in Zhongguancun). It is sometimes related, in English, to “cornering the market” where a good or commodity of limited amount is bought up and made scarce, raising the price, and then sold back to turn a quick investment. Hence one could argue “stir-frying” is a way to turn a quick profit by quickly “heating” a scarce thing. The link with quick frying in cooking is definitely a component of the meaning. The awkwardness of translation is compensated by richness from the centrality of food to China and the meaning of the word in Chinese.
Original article from CSJ: http://www.cs.com.cn/fc/03/200907/t20090727_2162953.htm
Illustration: Person is “Housing Purchaser”, house reads “Housing Price”, wok reads “real estate market”.
Recently, there have been reports stating “the impetus of housing purchases is still housing stir-frying groups” instilling more than a little surprise in people. The reports refer to an investigation organized by a certain university college: researchers directly surveyed 2,000 consumers in 40 cities by phone and found that 32.1% felt that the next 3 months was a good opportunity for buying housing while 32.7% felt it was a bad opportunity. Using this they come to a conclusion: statistically, since positive and negative views balance, “basically it can be certified that the impetus for buying housing is not from direct consumers but from investors”.
Beginning in September of last year, central and local governments issued multiple control and regulation policies aimed at the housing market, lowing transaction taxes and supporting the purchase of housing by residents. In February the market began to warm and by May and June it became white-hot. According to data released from the Bureau of Statistics two days ago, in the first half of 2009, 14.43 million square meters of commercial residences were sold in Shanghai, an increase of 34.8% over the same period from a year earlier, with a total sales revenue of 168.773 billion yuan, an increase of 88.5%. Sales of housing in stock registered 10.6241 million square meters, an increase of 35.3%. Because real and improved living demand has been unleashed with housing needed for weddings and by students, sales volume has clearly increased and pushed up housing prices. The phenomenon of standing in line to buy housing has appeared at some hot properties. Here, whether it is from the figures of agents or middlemen, it is the end-user buying to live in the property who is the vast majority. Government department spokespeople have also said that it is not investors who are in the majority.
Of course, demand is made up both of consumption by end-user livers and of investment. Mature housing markets are inseparable from these two types of demand. The situation in Shanghai these days results from investment demand that was clearly unleashed in May, while April was the month when real and improved living demands held up the market triggering movement from investors. In the second-hand [used; most housing in China is new] market, investors have either sold out or entered the market. According to statistics from intermediary organizations, in the central areas of certain cities, nine-tenths of owners who sell out originally were investors and they plan to move cash into other investment channels. Meanwhile, long-term property investment at the two levels of 5-6 million yuan and 8-10 million yuan are undertaken by investors entering the market, and their number made up 30% of total transactions of high-end housing in May.
Besides long-term investment, there is also short-term investment. Short-term investors are usually thought of as speculating through stir-frying housing, for example stir-frying apartment patterns [chao louhua; apartment pattern refers to “off-the-plan” property, property that is under construction] or short-term changing hands. Stir-frying apartment patterns means transactions in housing that is not finished, and was once in fashion but is now forbidden by government policy; short-term changing hands means buying and selling quickly when the price of housing is rising rapidly, or buying in a future house and selling once it is finished to reap the price differential.
It is undeniable that over-investment is more likely to create a housing price bubble. Relevant departments have pointed out that an investment proportion restricted to less than 20% is crucial to avoiding risk. Also, it is key to control investors using bank loans to stir-fry housing. This type of behavior has been amply documented, for instance in Shenzhen in 2007 there was a craze in the housing market and statistics show that investors made up 38% of the market.
Ending the sale of unfinished housing, collecting taxes on the sale of second-hand housing, and tightening loans for second apartments are the measures adopted by the government to control investment and attack speculation. But Shanghai annual statistics show that investment in housing accounts for less than 20% of all transactions, and even for some high-level properties it accounts for less than 40%. Some apartment complexes have more than half that are investors but these are individual cases.
The key drivers and majority for housing purchases are the decisive operators of the changes in housing prices. In the housing market of today that has been heating up for less than half a year, saying “currently the impetus of the market is housing stir-frying groups” is an exaggeration.
On July 17, at the Work Meeting to Encourage the Healthy Development of Shanghai Real Estate, the city government emphasized that the supply of land should be increased, with a special emphasis on the supply of land to be used for ordinary commercial residences. Focus should be on encouragement of starting work and making sales while being firm in investigating illegal and out of line behaviors such as holding back on development for increased price and fake transactions. It is clear that the goal is to increase the amount of supply and the speed it is made available. If the current impetus for housing purchases is housing stir-frying groups, that should control demand and restrict the purchase of housing for investment.
There are many problems to research in the housing market but analysis must use practical reality. Reaching foregone conclusions will only mislead consumers and interfere in the implementation of government control and regulation policies.
Who is Pushing Up Housing Prices?
Is the Impetus Housing Stir-Frying Groups [chaofang tuan]?
China Securities Journal article from about the origins of rise in urban housing prices. Housing “stir-frying” groups (chaofang tuan, or 炒房团 ) refer to groups of investors, usually believed to be from outside the city where housing is purchased, who come in and scoop up all the apartments for sale, usually before the public is given a chance to buy, and in collusion with the property developer. The lack of supply drives up prices, after which the group sells out making a quick profit. The most infamous “stir-frying” group comes from Wenzhou and is believed to be responsible for Shanghai’s high real estate prices.
Note: “stir-frying” (chao, 炒) is a word in Chinese that applies not only to housing but to stocks, stamps, and other goods (like chaohuo or flipping goods between stores in Zhongguancun). It is sometimes related, in English, to “cornering the market” where a good or commodity of limited amount is bought up and made scarce, raising the price, and then sold back to turn a quick investment. Hence one could argue “stir-frying” is a way to turn a quick profit by quickly “heating” a scarce thing. The link with quick frying in cooking is definitely a component of the meaning. The awkwardness of translation is compensated by richness from the centrality of food to China and the meaning of the word in Chinese.
Original article from CSJ: http://www.cs.com.cn/fc/03/200907/t20090727_2162953.htm
Illustration: Person is “Housing Purchaser”, house reads “Housing Price”, wok reads “real estate market”.
Recently, there have been reports stating “the impetus of housing purchases is still housing stir-frying groups” instilling more than a little surprise in people. The reports refer to an investigation organized by a certain university college: researchers directly surveyed 2,000 consumers in 40 cities by phone and found that 32.1% felt that the next 3 months was a good opportunity for buying housing while 32.7% felt it was a bad opportunity. Using this they come to a conclusion: statistically, since positive and negative views balance, “basically it can be certified that the impetus for buying housing is not from direct consumers but from investors”.
Beginning in September of last year, central and local governments issued multiple control and regulation policies aimed at the housing market, lowing transaction taxes and supporting the purchase of housing by residents. In February the market began to warm and by May and June it became white-hot. According to data released from the Bureau of Statistics two days ago, in the first half of 2009, 14.43 million square meters of commercial residences were sold in Shanghai, an increase of 34.8% over the same period from a year earlier, with a total sales revenue of 168.773 billion yuan, an increase of 88.5%. Sales of housing in stock registered 10.6241 million square meters, an increase of 35.3%. Because real and improved living demand has been unleashed with housing needed for weddings and by students, sales volume has clearly increased and pushed up housing prices. The phenomenon of standing in line to buy housing has appeared at some hot properties. Here, whether it is from the figures of agents or middlemen, it is the end-user buying to live in the property who is the vast majority. Government department spokespeople have also said that it is not investors who are in the majority.
Of course, demand is made up both of consumption by end-user livers and of investment. Mature housing markets are inseparable from these two types of demand. The situation in Shanghai these days results from investment demand that was clearly unleashed in May, while April was the month when real and improved living demands held up the market triggering movement from investors. In the second-hand [used; most housing in China is new] market, investors have either sold out or entered the market. According to statistics from intermediary organizations, in the central areas of certain cities, nine-tenths of owners who sell out originally were investors and they plan to move cash into other investment channels. Meanwhile, long-term property investment at the two levels of 5-6 million yuan and 8-10 million yuan are undertaken by investors entering the market, and their number made up 30% of total transactions of high-end housing in May.
Besides long-term investment, there is also short-term investment. Short-term investors are usually thought of as speculating through stir-frying housing, for example stir-frying apartment patterns [chao louhua; apartment pattern refers to “off-the-plan” property, property that is under construction] or short-term changing hands. Stir-frying apartment patterns means transactions in housing that is not finished, and was once in fashion but is now forbidden by government policy; short-term changing hands means buying and selling quickly when the price of housing is rising rapidly, or buying in a future house and selling once it is finished to reap the price differential.
It is undeniable that over-investment is more likely to create a housing price bubble. Relevant departments have pointed out that an investment proportion restricted to less than 20% is crucial to avoiding risk. Also, it is key to control investors using bank loans to stir-fry housing. This type of behavior has been amply documented, for instance in Shenzhen in 2007 there was a craze in the housing market and statistics show that investors made up 38% of the market.
Ending the sale of unfinished housing, collecting taxes on the sale of second-hand housing, and tightening loans for second apartments are the measures adopted by the government to control investment and attack speculation. But Shanghai annual statistics show that investment in housing accounts for less than 20% of all transactions, and even for some high-level properties it accounts for less than 40%. Some apartment complexes have more than half that are investors but these are individual cases.
The key drivers and majority for housing purchases are the decisive operators of the changes in housing prices. In the housing market of today that has been heating up for less than half a year, saying “currently the impetus of the market is housing stir-frying groups” is an exaggeration.
On July 17, at the Work Meeting to Encourage the Healthy Development of Shanghai Real Estate, the city government emphasized that the supply of land should be increased, with a special emphasis on the supply of land to be used for ordinary commercial residences. Focus should be on encouragement of starting work and making sales while being firm in investigating illegal and out of line behaviors such as holding back on development for increased price and fake transactions. It is clear that the goal is to increase the amount of supply and the speed it is made available. If the current impetus for housing purchases is housing stir-frying groups, that should control demand and restrict the purchase of housing for investment.
There are many problems to research in the housing market but analysis must use practical reality. Reaching foregone conclusions will only mislead consumers and interfere in the implementation of government control and regulation policies.
Sunday, July 26, 2009
Ratio of Land Price to Price of Final Housing
国土资源部：地价占房价比平均23%
Ministry of Land and Resources: Land is only 23% of the Price of Housing
The China Securities Journal (CSJ) and Shanghai’s Oriental Morning Post (OMP) are reporting today (July 27, 2009) on a report by the Ministry of Land and Resources – though the only report I could find on the Ministry website was dated July 3 on “Re-evaluating the link between housing and land prices.” The translation of the OMP article is below.
CSJ article: http://www.cs.com.cn/xwzx/05/200907/t20090727_2162686.htm
OMP e-article: http://epaper.dfdaily.com/dfzb/html/2009-07/26/content_147644.htm
MoLaR July 3 report: http://www.mlr.gov.cn/xwdt/jrxw/200907/t20090703_122457.htm
Basically the report from MoLaR is trying to dispel the myth that rising land prices, as in the price developers pay to local governments for land-use rights, is causing the rise (this year, for the past few months) in real estate and housing prices.
OMP reporter Liu Xiuhao
Since MoLaR announced the fact that “on average 23.2% of real estate prices come from the price of land”, people from multiple circles have raised objections. Two days ago, MoLaR publicly released the data from a national survey of 620 projects to answer the doubts.
The OMP discovered that, of the 620 projects that were investigated, one of Shanghai’s “land kings”, who emerged at the end of 2006, loomed large among them. These parcels of apartments that were once thought to be minimally profitable have, two years later, achieved land price to apartment price average ratio of 28.86%.
Last weekend, the newest residential land king was born in the far suburbs of Qingpu where the floor price reached an unbelievable 14,500 yuan/square meter. People looking back on the old days will discover that, after Shanghai housing prices rose, “land kings” successfully make hefty profits for real estate developers.
Shanghai Index is Slightly Lower than Other Core Cities
MoLaR commented: “the question of what proportion land prices make up of housing prices has been a universally hot topic for a long time. We have always been of the opinion that revealing the actual data and situation is a transparent way to provide understanding of relevant information to society. It is the best method of answering doubts and clearing up debate.”
Over the weekend, MoLaR publicly released a detailed catalog of its national investigation into housing and land price ratios. Among the 620 cases studied, the highest priced housing was 45,000 yuan/square meter and the lowest priced was 1,130 yuan/square meter; land-housing price ratios ranged from a low of 5.3% to a high of 58.6%.
The subject of this investigation was mainly commercial real estate development projects that obtained land and sold housing (including those that have already sold out) since 2006. The housing price investigated was the average sales price at the time the apartment complexes went on sale, and the land price was the price of the land for the apartment complex at the time of the land transaction.
Dividing the results by region in which the real estate project is located, the eastern region [of China] had 316 cases, with a land to housing price average ratio of 27%; the middle region had 158 cases, with a land to housing price average ratio of 21%; and the western region had 146 cases, with a land to housing price average ratio of 18%.
This time, Shanghai had 6 apartment complexes located in Baoshan, Fengxian, Yangpu, and Qingpu. Of them, the lowest land to housing price ratio was 15.19% and the highest was 31.95%, while the average was 26.7%. Compared to the national average, Shanghai has a slightly higher percentage for land price but compared to other core cities like Shenzhen, Hangzhou, and Nanjing, Shanghai still has a slightly lower ratio—making it one of most money-making cities for apartment complex development.
Housing Prices Sour, “Land Kings” of That Year Make Large Profits
Actually, one of the six apartment complexes under investigation was a “land king” born that year. On November 26, 2006, after 176 rounds of fierce contest, central state enterprise China Resources [Huarun] Group’s subsidiary China Resources [Huarun] Land broke free from the stubborn circle of five magnates and raised the final bidding paddle with a price of 1.541 billion yuan for area C2 of New Jiangwan City—becoming a land king.
At the time, a large number of industry representatives were anxious over the future of profits for developers. An estimate at the time was that only with a price of 15,000 yuan/square meter would a modest profit be had, while the price of housing in this area at the time was under 10,000 yuan/square meter.
One year later, housing prices soared. The housing price in the area of New Jiangwan is already twice what it was that year. The apartment complex that was once thought to have only minimal profit now sells for 23,139 yuan/square meter, and the ratio of land to housing price is only 28.86%. A land price thought once to be “astronomical” has already been surpassed by multiple others in the suburbs.
From this public issue of the project information it can be seen that the highest proportion of land price to housing price is found in the Noble Diamond Mansions [Shengshi Baodi] on South Changjiang Road, while the lowest proportion of land price to housing price is found in the Industrial Comprehensive Development Area project of Fengxian district.
Market Supply and Demand are the Ultimate Factors in Determining Land Prices
In issuing the investigation catalogue alongside “Several Issues Concerning the Interpretation of Land Prices” MoLaR made clear that market supply and demand are the factors in determining land prices.
The practice of the land market in China shows that the determining factor on high or low land prices is the ultimate influence the relations of market supply and demand. Land needs are directly influenced by the future predictions of housing price by development companies. In the tendering, auctioning, and listing for state-owned land sales, the different quoted prices from development companies are based on their predictions of future housing prices and expected profits, such that the development company quotes a price based on predicted housing price minus construction prices and profit. Universally good predictions yields fierce bidding and “the highest price wins”, whereas low prices frequently lead to no bidders or no tenders. In addition to factors from predictions, the “astronomical land price” phenomenon, where certain apartment complexes have much higher prices than other apartments in the surrounding area, has appeared over the past few years in certain cities. This is related to multiple factors including the inherent position of the land, the entry of funds from other industries and enterprise financing from listing, and the movement of capital. Of these, the rule that “the better the area, the easier to sell the apartment” is the most important reason that leads to fierce competition between development companies.
Ministry of Land and Resources: Land is only 23% of the Price of Housing
The China Securities Journal (CSJ) and Shanghai’s Oriental Morning Post (OMP) are reporting today (July 27, 2009) on a report by the Ministry of Land and Resources – though the only report I could find on the Ministry website was dated July 3 on “Re-evaluating the link between housing and land prices.” The translation of the OMP article is below.
CSJ article: http://www.cs.com.cn/xwzx/05/200907/t20090727_2162686.htm
OMP e-article: http://epaper.dfdaily.com/dfzb/html/2009-07/26/content_147644.htm
MoLaR July 3 report: http://www.mlr.gov.cn/xwdt/jrxw/200907/t20090703_122457.htm
Basically the report from MoLaR is trying to dispel the myth that rising land prices, as in the price developers pay to local governments for land-use rights, is causing the rise (this year, for the past few months) in real estate and housing prices.
OMP reporter Liu Xiuhao
Since MoLaR announced the fact that “on average 23.2% of real estate prices come from the price of land”, people from multiple circles have raised objections. Two days ago, MoLaR publicly released the data from a national survey of 620 projects to answer the doubts.
The OMP discovered that, of the 620 projects that were investigated, one of Shanghai’s “land kings”, who emerged at the end of 2006, loomed large among them. These parcels of apartments that were once thought to be minimally profitable have, two years later, achieved land price to apartment price average ratio of 28.86%.
Last weekend, the newest residential land king was born in the far suburbs of Qingpu where the floor price reached an unbelievable 14,500 yuan/square meter. People looking back on the old days will discover that, after Shanghai housing prices rose, “land kings” successfully make hefty profits for real estate developers.
Shanghai Index is Slightly Lower than Other Core Cities
MoLaR commented: “the question of what proportion land prices make up of housing prices has been a universally hot topic for a long time. We have always been of the opinion that revealing the actual data and situation is a transparent way to provide understanding of relevant information to society. It is the best method of answering doubts and clearing up debate.”
Over the weekend, MoLaR publicly released a detailed catalog of its national investigation into housing and land price ratios. Among the 620 cases studied, the highest priced housing was 45,000 yuan/square meter and the lowest priced was 1,130 yuan/square meter; land-housing price ratios ranged from a low of 5.3% to a high of 58.6%.
The subject of this investigation was mainly commercial real estate development projects that obtained land and sold housing (including those that have already sold out) since 2006. The housing price investigated was the average sales price at the time the apartment complexes went on sale, and the land price was the price of the land for the apartment complex at the time of the land transaction.
Dividing the results by region in which the real estate project is located, the eastern region [of China] had 316 cases, with a land to housing price average ratio of 27%; the middle region had 158 cases, with a land to housing price average ratio of 21%; and the western region had 146 cases, with a land to housing price average ratio of 18%.
This time, Shanghai had 6 apartment complexes located in Baoshan, Fengxian, Yangpu, and Qingpu. Of them, the lowest land to housing price ratio was 15.19% and the highest was 31.95%, while the average was 26.7%. Compared to the national average, Shanghai has a slightly higher percentage for land price but compared to other core cities like Shenzhen, Hangzhou, and Nanjing, Shanghai still has a slightly lower ratio—making it one of most money-making cities for apartment complex development.
Housing Prices Sour, “Land Kings” of That Year Make Large Profits
Actually, one of the six apartment complexes under investigation was a “land king” born that year. On November 26, 2006, after 176 rounds of fierce contest, central state enterprise China Resources [Huarun] Group’s subsidiary China Resources [Huarun] Land broke free from the stubborn circle of five magnates and raised the final bidding paddle with a price of 1.541 billion yuan for area C2 of New Jiangwan City—becoming a land king.
At the time, a large number of industry representatives were anxious over the future of profits for developers. An estimate at the time was that only with a price of 15,000 yuan/square meter would a modest profit be had, while the price of housing in this area at the time was under 10,000 yuan/square meter.
One year later, housing prices soared. The housing price in the area of New Jiangwan is already twice what it was that year. The apartment complex that was once thought to have only minimal profit now sells for 23,139 yuan/square meter, and the ratio of land to housing price is only 28.86%. A land price thought once to be “astronomical” has already been surpassed by multiple others in the suburbs.
From this public issue of the project information it can be seen that the highest proportion of land price to housing price is found in the Noble Diamond Mansions [Shengshi Baodi] on South Changjiang Road, while the lowest proportion of land price to housing price is found in the Industrial Comprehensive Development Area project of Fengxian district.
Market Supply and Demand are the Ultimate Factors in Determining Land Prices
In issuing the investigation catalogue alongside “Several Issues Concerning the Interpretation of Land Prices” MoLaR made clear that market supply and demand are the factors in determining land prices.
The practice of the land market in China shows that the determining factor on high or low land prices is the ultimate influence the relations of market supply and demand. Land needs are directly influenced by the future predictions of housing price by development companies. In the tendering, auctioning, and listing for state-owned land sales, the different quoted prices from development companies are based on their predictions of future housing prices and expected profits, such that the development company quotes a price based on predicted housing price minus construction prices and profit. Universally good predictions yields fierce bidding and “the highest price wins”, whereas low prices frequently lead to no bidders or no tenders. In addition to factors from predictions, the “astronomical land price” phenomenon, where certain apartment complexes have much higher prices than other apartments in the surrounding area, has appeared over the past few years in certain cities. This is related to multiple factors including the inherent position of the land, the entry of funds from other industries and enterprise financing from listing, and the movement of capital. Of these, the rule that “the better the area, the easier to sell the apartment” is the most important reason that leads to fierce competition between development companies.
Tuesday, July 14, 2009
Liu Ren Arrested
Vice President Liu Ren of Oak Pacific (Qian Xiang) Interactive Arrested
Lawyer Estimates He will Squat for 10 Years
Vice President Liu Ren of Oak Pacific (Qian Xiang) Interactive Arrested
Lawyer Estimates He will Squat for 10 Years
Liu Ren in his younger years
http://news.xinhuanet.com/legal/2008-11/21/content_10391510.htm
http://www.morningpost.com.cn/article.asp?articleid=153504#top
November 21, 2008 Beijing Morning Post
Oak Pacific Interactive Technology Development Company, Limited vice president Liu Ren is a well-known figure in the IT industry. One would never have thought that he would become involved in criminal activity—being accused of seeking a “shut-up fee” to delete negative articles about a company. Quickly, the police arrested Liu Ren and two others. Yesterday, this correspondent learned that Liu Ren and the others have been arraigned for the crime of suspected racketeering by the Xicheng (District of Beijing) People’s District Attorney.
The 38-year-old Liu Ren became a reported after graduation from university, arriving at Oak Pacific Interactive in 2005 and becoming a vice-president there. The well-known DoNews (www.donews.com, also written in Chinese as “bullfighter” or 斗牛士) and Mop (www.mop.com, “cat attack” or 猫扑网) are both websites under the Oak Pacific umbrella. The two people arraigned along with Liu Ren are his employee, editor Xu Xinshi, and part-time editor of 17tech (www.17tech.com) website You Yang.
In July, 2008, Liu Ren sent emails to Xu Xinshi and You Yang to post and repost a large number of articles critical of the “Qihoo 360 Security Defender” software product developed by Beijing Sanji Wuxian Network Technology Co., Ltd., as well as articles critical of the president of this company, Zhou Mou. No specific reason was given for this action and Xu Xinshi and You Yang complied. In order to avoid harmful influence, Qi Mou of Sanji contacted Xu Xinshi in early August and asked that the negative articles be deleted from the website. Liu Ren and his two partners asked Qi Mou for a shut-up fee of a certain amount. The two parties negotiated over this issue several times.
On August 23, Liu Ren, Xu Xinshi and Qi Mou meet at a teahouse near the financial district in Xicheng district. They agreed on a fee of 230,000 yuan for deletion of the negative articles. Qi Mou transferred 50,000 yuan into an account supplied by Xu Xinshi on September 19. Liu Ren and others split the 50,000 and deleted the negative articles from the website.
But before long, the negative article reappeared since Qi Mou had not transferred the balance of payments. With no alternative, Qi Mou called the police on September 24. When Qi Mou made an appointment at a Haidian district teahouse to pay another 80,000 yuan to Liu Ren and his two partners, the police arrested the three.
Jaded? A more mature Liu Ren.
Lawyers Explanation
Ma Guohua, lawyer at the Beijing law firm Youtian, told this correspondent that, according to penal code regulations, racketeering for public or private property with for relatively large amount carries a penalty of less than three years in prison, detention, or house arrest; for a massive amount or involving extenuating circumstances carries a prison term of three to ten years. “A ‘relatively large amount’ is one to three thousand yuan; racketeering involving a ‘massive amount’ is at least ten to thirty thousand yuan.” Ma Guohua said that Liu Ren and his partners, if proven to demand 230,000 yuan, will be judged according to the ‘massive amount’ standard, and will be imprisoned for 10 years. Of course, part of the amount not successfully received can be viewed lightly in sentencing.
Liu Ren in his younger years
http://news.xinhuanet.com/legal/2008-11/21/content_10391510.htm
http://www.morningpost.com.cn/article.asp?articleid=153504#top
November 21, 2008 Beijing Morning Post
Oak Pacific Interactive Technology Development Company, Limited vice president Liu Ren is a well-known figure in the IT industry. One would never have thought that he would become involved in criminal activity—being accused of seeking a “shut-up fee” to delete negative articles about a company. Quickly, the police arrested Liu Ren and two others. Yesterday, this correspondent learned that Liu Ren and the others have been arraigned for the crime of suspected racketeering by the Xicheng (District of Beijing) People’s District Attorney.
The 38-year-old Liu Ren became a reported after graduation from university, arriving at Oak Pacific Interactive in 2005 and becoming a vice-president there. The well-known DoNews (www.donews.com, also written in Chinese as “bullfighter” or 斗牛士) and Mop (www.mop.com, “cat attack” or 猫扑网) are both websites under the Oak Pacific umbrella. The two people arraigned along with Liu Ren are his employee, editor Xu Xinshi, and part-time editor of 17tech (www.17tech.com) website You Yang.
In July, 2008, Liu Ren sent emails to Xu Xinshi and You Yang to post and repost a large number of articles critical of the “Qihoo 360 Security Defender” software product developed by Beijing Sanji Wuxian Network Technology Co., Ltd., as well as articles critical of the president of this company, Zhou Mou. No specific reason was given for this action and Xu Xinshi and You Yang complied. In order to avoid harmful influence, Qi Mou of Sanji contacted Xu Xinshi in early August and asked that the negative articles be deleted from the website. Liu Ren and his two partners asked Qi Mou for a shut-up fee of a certain amount. The two parties negotiated over this issue several times.
On August 23, Liu Ren, Xu Xinshi and Qi Mou meet at a teahouse near the financial district in Xicheng district. They agreed on a fee of 230,000 yuan for deletion of the negative articles. Qi Mou transferred 50,000 yuan into an account supplied by Xu Xinshi on September 19. Liu Ren and others split the 50,000 and deleted the negative articles from the website.
But before long, the negative article reappeared since Qi Mou had not transferred the balance of payments. With no alternative, Qi Mou called the police on September 24. When Qi Mou made an appointment at a Haidian district teahouse to pay another 80,000 yuan to Liu Ren and his two partners, the police arrested the three.
Jaded? A more mature Liu Ren.
Lawyers Explanation
Ma Guohua, lawyer at the Beijing law firm Youtian, told this correspondent that, according to penal code regulations, racketeering for public or private property with for relatively large amount carries a penalty of less than three years in prison, detention, or house arrest; for a massive amount or involving extenuating circumstances carries a prison term of three to ten years. “A ‘relatively large amount’ is one to three thousand yuan; racketeering involving a ‘massive amount’ is at least ten to thirty thousand yuan.” Ma Guohua said that Liu Ren and his partners, if proven to demand 230,000 yuan, will be judged according to the ‘massive amount’ standard, and will be imprisoned for 10 years. Of course, part of the amount not successfully received can be viewed lightly in sentencing.
Lawyer Estimates He will Squat for 10 Years
Vice President Liu Ren of Oak Pacific (Qian Xiang) Interactive Arrested
Lawyer Estimates He will Squat for 10 Years
Liu Ren in his younger years
http://news.xinhuanet.com/legal/2008-11/21/content_10391510.htm
http://www.morningpost.com.cn/article.asp?articleid=153504#top
November 21, 2008 Beijing Morning Post
Oak Pacific Interactive Technology Development Company, Limited vice president Liu Ren is a well-known figure in the IT industry. One would never have thought that he would become involved in criminal activity—being accused of seeking a “shut-up fee” to delete negative articles about a company. Quickly, the police arrested Liu Ren and two others. Yesterday, this correspondent learned that Liu Ren and the others have been arraigned for the crime of suspected racketeering by the Xicheng (District of Beijing) People’s District Attorney.
The 38-year-old Liu Ren became a reported after graduation from university, arriving at Oak Pacific Interactive in 2005 and becoming a vice-president there. The well-known DoNews (www.donews.com, also written in Chinese as “bullfighter” or 斗牛士) and Mop (www.mop.com, “cat attack” or 猫扑网) are both websites under the Oak Pacific umbrella. The two people arraigned along with Liu Ren are his employee, editor Xu Xinshi, and part-time editor of 17tech (www.17tech.com) website You Yang.
In July, 2008, Liu Ren sent emails to Xu Xinshi and You Yang to post and repost a large number of articles critical of the “Qihoo 360 Security Defender” software product developed by Beijing Sanji Wuxian Network Technology Co., Ltd., as well as articles critical of the president of this company, Zhou Mou. No specific reason was given for this action and Xu Xinshi and You Yang complied. In order to avoid harmful influence, Qi Mou of Sanji contacted Xu Xinshi in early August and asked that the negative articles be deleted from the website. Liu Ren and his two partners asked Qi Mou for a shut-up fee of a certain amount. The two parties negotiated over this issue several times.
On August 23, Liu Ren, Xu Xinshi and Qi Mou meet at a teahouse near the financial district in Xicheng district. They agreed on a fee of 230,000 yuan for deletion of the negative articles. Qi Mou transferred 50,000 yuan into an account supplied by Xu Xinshi on September 19. Liu Ren and others split the 50,000 and deleted the negative articles from the website.
But before long, the negative article reappeared since Qi Mou had not transferred the balance of payments. With no alternative, Qi Mou called the police on September 24. When Qi Mou made an appointment at a Haidian district teahouse to pay another 80,000 yuan to Liu Ren and his two partners, the police arrested the three.
Jaded? A more mature Liu Ren.
Lawyers Explanation
Ma Guohua, lawyer at the Beijing law firm Youtian, told this correspondent that, according to penal code regulations, racketeering for public or private property with for relatively large amount carries a penalty of less than three years in prison, detention, or house arrest; for a massive amount or involving extenuating circumstances carries a prison term of three to ten years. “A ‘relatively large amount’ is one to three thousand yuan; racketeering involving a ‘massive amount’ is at least ten to thirty thousand yuan.” Ma Guohua said that Liu Ren and his partners, if proven to demand 230,000 yuan, will be judged according to the ‘massive amount’ standard, and will be imprisoned for 10 years. Of course, part of the amount not successfully received can be viewed lightly in sentencing.
Liu Ren in his younger years
http://news.xinhuanet.com/legal/2008-11/21/content_10391510.htm
http://www.morningpost.com.cn/article.asp?articleid=153504#top
November 21, 2008 Beijing Morning Post
Oak Pacific Interactive Technology Development Company, Limited vice president Liu Ren is a well-known figure in the IT industry. One would never have thought that he would become involved in criminal activity—being accused of seeking a “shut-up fee” to delete negative articles about a company. Quickly, the police arrested Liu Ren and two others. Yesterday, this correspondent learned that Liu Ren and the others have been arraigned for the crime of suspected racketeering by the Xicheng (District of Beijing) People’s District Attorney.
The 38-year-old Liu Ren became a reported after graduation from university, arriving at Oak Pacific Interactive in 2005 and becoming a vice-president there. The well-known DoNews (www.donews.com, also written in Chinese as “bullfighter” or 斗牛士) and Mop (www.mop.com, “cat attack” or 猫扑网) are both websites under the Oak Pacific umbrella. The two people arraigned along with Liu Ren are his employee, editor Xu Xinshi, and part-time editor of 17tech (www.17tech.com) website You Yang.
In July, 2008, Liu Ren sent emails to Xu Xinshi and You Yang to post and repost a large number of articles critical of the “Qihoo 360 Security Defender” software product developed by Beijing Sanji Wuxian Network Technology Co., Ltd., as well as articles critical of the president of this company, Zhou Mou. No specific reason was given for this action and Xu Xinshi and You Yang complied. In order to avoid harmful influence, Qi Mou of Sanji contacted Xu Xinshi in early August and asked that the negative articles be deleted from the website. Liu Ren and his two partners asked Qi Mou for a shut-up fee of a certain amount. The two parties negotiated over this issue several times.
On August 23, Liu Ren, Xu Xinshi and Qi Mou meet at a teahouse near the financial district in Xicheng district. They agreed on a fee of 230,000 yuan for deletion of the negative articles. Qi Mou transferred 50,000 yuan into an account supplied by Xu Xinshi on September 19. Liu Ren and others split the 50,000 and deleted the negative articles from the website.
But before long, the negative article reappeared since Qi Mou had not transferred the balance of payments. With no alternative, Qi Mou called the police on September 24. When Qi Mou made an appointment at a Haidian district teahouse to pay another 80,000 yuan to Liu Ren and his two partners, the police arrested the three.
Jaded? A more mature Liu Ren.
Lawyers Explanation
Ma Guohua, lawyer at the Beijing law firm Youtian, told this correspondent that, according to penal code regulations, racketeering for public or private property with for relatively large amount carries a penalty of less than three years in prison, detention, or house arrest; for a massive amount or involving extenuating circumstances carries a prison term of three to ten years. “A ‘relatively large amount’ is one to three thousand yuan; racketeering involving a ‘massive amount’ is at least ten to thirty thousand yuan.” Ma Guohua said that Liu Ren and his partners, if proven to demand 230,000 yuan, will be judged according to the ‘massive amount’ standard, and will be imprisoned for 10 years. Of course, part of the amount not successfully received can be viewed lightly in sentencing.
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