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Chinese Researcher: 70 Percent of Housing Price Goes to Local Government

Fu Guangjun, a Researcher at the State Administration of Taxation, reported that the local government takes away the majority of the proceeds from housing sales.

In Beijing, the land cost is 60 percent of the housing price. The business taxes on the real estate developers along with the house transaction fees account for another 10 percent. The Beijing government claims 70 percent of the housing price. Thus the developer’s is left with a profit of only 10 percent. Therefore, the key to reducing the housing price is to reduce the cost of the land.

Fu also pointed out a problem with the deed. In China, the deed has two parts: the certificate of ownership of the property and the certificate of the right to use the land. The land belongs to the state and the property owner only has a right to use the land for 70 years. This has created a conflict: the property ownership is a permanent ownership, but in reality the property can’t be used in perpetuity as the land right is fixed at 70 years, even though, in reality the land lasts forever.

Source:, May 10, 2017

Chinese Economist: China’s Economy Loses Steam

In a speech he gave on May 5, Chinese economist Xu Xiaonian stated that the growth of China’s economy had reached its peak.

Xu pointed out that there are two ways to generate economic growth. One is by increasing the amount of input and the other is by a more efficient use of inputs. China’s model is based on the former one and has reached its limit. However much stimulation the government puts into the market, there will not be much result.

Statistics show that, a decade ago, an investment of one dollar in China could generate forty to fifty cents of return. Now it only generates seven cents. The marginal return is approaching zero.

Since 2012 and through 2016, China’s Producer Price Index (PPI) has been decreasing. The price of a product out of the factory continues to drop. This shows that China has an over-capacity problem. Companies keep lowering their prices to keep their sales and market share. It means that any new investment will only generate a negative return.

Xu suggested switching to an innovation based economy. He gave four ways to encourage innovation: protect private property rights, reduce (the size of) the state-owned economy, loosen and remove controls, and reduce taxes.

Source: Sohu, May 8, 2017

Xinhua: China-Russia Oil Pipeline Reached Oil Delivery of 100 Million Tons

Xinhua recently reported that, as of May 19, the volume of oil China acquired from Russia via the China-Russia pipeline had reached 100 million tons. The Pipeline started running on January 1, 2011. The China-Russia pipeline originated at Russia’s Far East Pipeline Skovorodino Distribution Station and entered China at the Xing’an First Station in Muohe, Heilongjiang Province. The Pipeline ends in Daqing, Heilongjiang Province, with a total length of 1,000 kilometers. This pipeline completely changed the history of importing Russian oil via railway. Chinese Customs is responsible for monitoring and managing the acceptance of the imported oil, checking the personnel involved in the maintenance work, as well as coordinating communications with the importing companies. The China-Russia pipeline has so far generated an import trade volume worth of US$62.5 billion. It has also garnered import tariffs of RMB 65.7 billion (around US$9.54 billion).

Source: Xinhua, May 20, 2017

China News: For Three Years, China Has Had the Largest Number of Investment Projects in Germany

China News recently announced that, according to the latest report that Germany Trade and Invest (GTAI) released, in 2016, China had 281 investment projects in Germany. This number made China the country with the largest number of investment projects in Germany. China has held that title for three years in a row. The 2016 projects were expected to create 3,900 jobs in Germany, which was the highest number of jobs China has created in Germany. Chinese investments mainly concentrate in the field of business services and financial services, which took 27 percent of the projects. Machinery and equipment manufacturing held 11 percent. Electronics and the semiconductor industry held 10 percent, and the automobile industry also took 10 percent. Most of the Chinese investments were spent on sales and market support, which consumed 44 percent of the investments. According to the GTAI report, in 2016, a total of 1,944 foreign investment projects landed in Germany. The statistics do not include mergers. In 2016, Chinese investors were followed by investors from the United States (242 projects), Switzerland (194 projects), Great Britain (125 projects) and the Netherlands (105 projects).

Source: China News, May 19, 2017

Caixin News: China Railway Relies on Government Subsidies to Keep its Books in the Black

On April 29, Caixin News disclosed that China Railway Corporation receives subsidized funding in Q4 of each year, which helps to turn its net profit from red to black. According to the article, by the end of the third quarter in 2016, China Railway had lost 5.577 billion yuan (US$810 million), but for the full year of 2016, it reported total revenue of 907.4 billion yuan (US$131 billion), down 0.96 percent from 2015 while the company’s net profit was 1.076 billion yuan (USD$160 million) an increase of 58 percent from 681 million yuan (USD$99 million) in 2015. Meanwhile, the report said that China Railway Corporation carries total debt of 4.72 trillion yuan (US$680 million) up 15.12 percent from 4.10 trillion yuan (US$590 million) with a debt ratio that increased to 65.1 percent.

The following were among the posted comments on the article:
“Can the bottom line count as being profitable?”
“They are the only railway company in the country and still lose money. Who is paying for the loss?”
“A State Owned Enterprise relies on government subsidies. How can it be competitive in the global market?”
“China Shipping Company is the same. They receive subsidized funding from the government. They never show a financial loss”.

Source: Caixin, April 29, 2017

1,846 Top Executives of Publicly Traded Companies Resigned within One Month

Sina published an article which reported that from April 3 to May 3, 1,846 top executives in publicly traded companies in Shanghai and Shen Zheng resigned. Among those 649 left due to restructuring, term limits, health, or retirement reasons and 36 left due to illegal activities. Meanwhile 169 of those who resigned had an annual salary over 1 million yuan (US$140,000). The article quoted comments from a security law expert from the Central University of Finance and Economics who expressed concern over this phenomenon. “When a significant number of top executives resign from publicly traded companies, the stock market fluctuates because of it. Some of those executives sell the stock they own when they leave. This has had a direct effect on the secondary market.”

Source: Sina, May 4, 2017

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