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Vantone Chief Weighs in on China Property Bubble

May 24, 2010

The chairman of Vantone, one of China’s top private-sector real estate developers, has some interesting things to say about the country’s property market.  Feng Lun has long profited from his position as a party insider, but in an interview with the Wall Street Journal published yesterday:

He says that officials have made such a mess of the market that he’s planning to move parts of his business offshore—he’s looked at Japan and the U.S.—to get beyond their reach. “The government didn’t do its job, and now it’s trying to cover up its mistake by blaming the market,” he says.

Here’s how Feng sees the situation:

In Mr. Feng’s view, a major factor behind China’s high housing prices is the stimulus money that flooded the market during the financial crisis . . . he blames state-owned real-estate companies for driving up land prices because they can take on loans regardless of financial returns. Several state firms bid the highest prices for land sales in the past year, leaving many private developers to stand on the sidelines at auctions.

It’s an example of “the state advances, the private sector retreats,” says Mr. Feng, referring to the recent trend for state capital to play a larger role in China’s economy at the expense of the private sector. “It’s a setback in China’s market reform.”

Feng likes to draw colorful analogies to illustrate his points, comparing government-developer relations to a love affair (and not, he says, a client going to a prostitute), new land-hording restrictions to divorcing your wife if she doesn’t produce a child, and the role of the state sector to an ectopic pregnancy.  Even if I don’t quite follow all of them, they’re certainly memorable.

Whatever metaphor he’s mixing, Feng is a skeptic of recent government moves to rein in the property sector.  He says the policies haven’t been thought through and debated properly, and won’t have the effect that’s intended:

The real game won’t start until after the policy is out when everybody tries to find the loopholes, he says, eroding the credibility of both the policy and the government.

I suppose you can interpret Feng’s comments in several ways.  It could be the dispassionate analysis of someone who knows China’s property market inside and out.  Or it could be Feng is simply frustrated at his inability to compete with cash-rich state firms that have soft budget constraints.  He could be seeking to divert public anger over high housing prices away from developers onto officials.  Or you could take his remarks about shifting his activities to Japan and the U.S. as evidence that the rats are starting to flee a sinking ship.  Any of these possibilities make it useful food for thought.  [UPDATE:  It’s well worth contrasting Feng’s current views with his rather bullish outlook just a few years ago].

In related news, I read today that the National Development and Reform Commission (NDRC), China’s top economic policy-making body (formerly the State Planning Commission) announced that they will not be promulgating any residential property tax for the next three years.  Rumors have been swirling in the Chinese media that some form of new property tax may be in the works.  To the contrary, one official told China Times rumors that the NDRC plans to impose tougher property policies are “nonsense.”  A researcher from the People’s Bank of China (PBOC) also said real estate policies would be “quite” in the coming months.

4 Comments leave one →
  1. prchovanec permalink*
    May 25, 2010 7:55 am

    This post generated some rather colorful comments that wondered why I was quoting “a clown like Feng Lun” and went on to accuse him of bribing officials and other corrupt practices (and me of not knowing the slightest bit about China). In my post, I noted that his comments can be interpreted in various ways. I submit them here as yet another data point on the market — make of it what you will. Whatever one thinks of Feng — and clearly some readers have strong opinions on the matter — his firm is one of the most high-profile, (and well-connected) property developers in China. As such, the Wall Street Journal found his viewpoint newsworthy, and so do I.

    In particular, it’s worth contrasting Feng’s recent remarks with his very bullish outlook just a few years ago:

  2. Jay permalink
    May 26, 2010 2:14 am

    Yes, to quote a real estate developer in China is pathetic. Ask any Chinese people, ANY, they’ll tell you the same thing as I said. You tend to think of people like Feng as Robert Toll, NO, they are completely different, Feng and other folks in China thrived on bribery and other illegal activities, it’s the worst kept secret in China, everybody knows it.
    I’d rather see something of some quality from someone living in China and doing research on the Chinese economy than that. I’ll stop coming.

    • prchovanec permalink*
      May 26, 2010 6:13 am

      This is silly. I’m not citing him as a role model, but as an indicator of market sentiment. Personally, I find it vital to hear what the people most active in any market are saying about it. In this case, I think it’s revealing that some of those who have been the property market’s biggest boosters have turned into critics. Whether that’s self-serving or hypocritical on their part, I’ll leave the reader to judge. (Of course I’m aware of practices in the real estate market in China, and what many Chinese people think about it — how could I not be?)

  3. Ma Bole permalink
    May 26, 2010 10:13 am

    First Zhang Xin of SOHO and now Feng Lun of Vanatone. Corrupt or not, I wonder how representative their opinions are of developer sentiment.

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