China's property market and the global economy

Beijing's attempts to offload SOE property related debt to comply with the State-owned Assets Supervision and Administration Commission edict, face the challenge of maintaining values of degrading vacant property in a declining and oversupplied market.

Property development alternative

Local governments are now prioritising metro development in their budgets to replace falling revenues from land sales and property development.

This reflects CCP plans for a 300% expansion of city rail networks to 3,000 kms by 2015, under the slogan "A city without subway is an incomplete one".

Beijing and Shanghai will double their existing networks by 2010.

Metros consume major capital investment, land, electricity, road transport, heavy equipment, and especially labour. They are also the exclusive domain of SOEs in construction and material and equipment supplies.

Metro rail line component averages US$80M/km.

The current 11 major city metro operations are government subsidized.

33 lesser cities are constructing or planning new metro systems that will rely more heavily on government subsidies.

The problem for these capital-intensive projects may be one of debt ridden local governments raising loans from debt-laden banks by for systems that will require ongoing government subsidies.

China's property market and the global economy 2011

Throughout 2010, Beijing's rhetoric has become more urgent in attempts to present an image of economic stability.

Moves to cool the property market, reduce bank debt risk, effectively manage inflation, and maintain foreign investment confidence in China only raises the level of urgency.

Approaching the end of 2010, China's property market and linkages have the potential to trigger economic chaos.