Breakingviews - China applies broken mop to housing mess
Since May last year, Beijing has rolled out a raft of measures to stop what is now a five-year housing slump. These include mobilising local governments to acquire unsold homes from distressed developers and convert them into public housing. Progress has been slow. The size of completed but unsold residential properties rose 6.5% in the year to the end of June to 408 million square metres, per government data. And that may not mark the final extent of it: residential properties under construction amounted to 441 million square metres in the same period.
Regulators are now mulling whether to wield yet another little mop. Citing people familiar with the matter, Bloomberg reported, opens new tab on August 14 that Beijing is considering asking some of the biggest state-owned enterprises, as well as managers of problem assets such as Cinda Asset Management (1359.HK), opens new tab, to join the clean-up.
The move almost sounds like a reversal of a directive announced in 2010 to bar most of the 100 or so central government-owned SOEs from taking on real estate businesses. These state behemoths, from financial conglomerate China Resources to telecom operator China Mobile (600941.SS), opens new tab, are financially much stronger than most cash-strapped local governments. They sit on over 90 trillion yuan ($12.5 trillion) of assets, and their combined net profit topped 2.6 trillion last year, according to state asset manager Sasac. It is unlikely that Beijing will allow its most important firms to take on too much property risk.
The central bank last year set up a 300 billion yuan ($42 billion) facility to help local governments acquire unoccupied apartments. Only 6% has been drawn so far, per Bloomberg. That indicates that the bulk of the inventory is financially unattractive. Allowing state firms to come to the same conclusion will do little, if anything, to help tidy up.
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