China Real Estate Market

Introduction

To some foreign companies, doing business in China is very difficult. Besides the language and cultural difference, the concerns facing foreign businesses may range from the not-so-transparent laws and regulations, the bureaucratic agencies, to the complicated taxation system. Despite these problems, China has made a huge progress forward since it opened its door to the outside world in late 1970's and embraced a market-oriented economy after being ruled under the central controlled system for almost 30 years. Few people in China would have thought about owing their homes ten years ago. Now, with a private home ownership approaching to 60 percent in urban area, China is perhaps the most successful country in the world to have developed a private housing market in such a short period of time. This article is intended to help foreign-based real estate practitioners better understand China and the Chinese market. Issues such as China's economic development, WTO's accession, laws/regulations, mortgages/loans, business forms, government agencies, and taxation system, etc. are addressed along with some statistical data from various resources.

Economic Development

Shortly after the new government was founded in 1949, almost all of China's private or individual-owned farms were collectivized into large communes. Private ownership of housing in the urban areas was nearly extinguished. In order to support the fast industrialization, the central government invested heavily in the 1960s and 1970s. A large share of the country's economic output was arranged and controlled by the government. It set production goals, controlled prices, and allocated resources throughout most of the economy. As a result, by 1978 nearly three-fourths of industrial production was manufactured by state-owned enterprises (SOEs) based on centrally planned output targets. Private enterprises and foreign invested firms were nearly non--existent. One of the central government's major goals was to make China's economy self-sufficient.

Foreign trade was generally limited to obtaining only those goods that could not be made or found in China. Only a handful of countries that had good relationship with China could participate in foreign trade. Though China's real GDP grew at an estimated average annual rate of about 5.3% from 1960 to 1978, the economy was almost inactive due to the huge population base and absent competition. In addition, the economy was inefficient since there were few profit incentives for enterprises and workers. Price and production controls also caused widespread distortions in China's economy.

Source: China Statistical Yearbook and other resource. 2001 figure is for the first 6 months.

In late 1970s, the government under the late Deng Xiaoping's leadership hoped that gradual opening-up the market and implementing economic reform would significantly increase economic growth and raise Chinese people's living standards. Since then, the size of China's economy has grown more than tenfold.1 Between 1979 and 1999, China's GDP grew at an average annual rate of 9.7%.2 The real GDP total in 2000 has passed one trillion U.S. dollars ($8.8 trillion RMB) the first time in history. Two main attributing factors supporting much of China's rapid economic growth are: large-scale capital investment (financed by large domestic savings and foreign investment) and rapid productivity growth. Economic reforms led to higher efficiency in the economy, which boosted output and increased resources for additional investment in the economy. In addition, the private sector, consisting of semi-private township and village enterprises, and private companies and farmers should be credited for the speedy development of China's economy. The private enterprises account for 60% of China's GDP, up from nearly zero in 1979. At a meeting held in August 1999, the government leaders promised to make that figure 75% by 2002. Today, 177 million of China's working population (ages 18 to 60) works at a private, or partly private, company, versus 122 million in the state-owned industries.3 Based on the GDP PPP statistics, China's GDP has passed Japan's and China has already become the world's second largest economy after U.S.

China and Japan's GDP Growth Comparison 1990-2000
In percentage


Source: EDC Economics: Japan Economic Outlook, 2000

In spite of the fast development, the future growth will likely depend on the ability and willingness of the government to deal with many challenges