Understanding China, One Blog at a Time

An American in China

Stealing from Them in China

Posted by w_thames_the_d on April 14, 2010

Land developers in China are rich, rich and corrupt, in fact, over half of the corruption cases in China relate to that of land. The other day, the communist party allowed for land to be auctioned off to build residential apartments. The apartments were to sell for 20,000 RMB (about U$3000) per square meter, but the day that bidding started, the prices were actually 24,000 per square meter, the citizens revolted, let me explain why.
In China, the communist party members usually get the first shot at buying property. Before property goes up for sale, the SOE’s or state owned enterprises, are the first to know and are offered a ‘discount’ on the properties- usually 5 to 10%, on half of the properties, for instance. The impact is that even before the bidding starts, the communists are relatively sure that they will make money no matter what, so they buy more, distorting the market price. Thus, when the property is offered to the citizenry, the price has already been impacted by non-free market forces.
For example, property A will be developed. Property A is schedulded to sell for 20000 per square meter. The communists will pay 18000 , for instance, so that portion will be sold off before the property goes public. Then, there are fewer properties for the rest of China, so the bidding will be more fierce. So, as in the example above, when the market opens, due to an increase in the buying pressure, the houses open at a price of 24,000 per meter. Thus, the communists who have purchased the houses now have made 24,000-18,000 or 6,000 per square meter, on the first day of the sale of said houses. Now converting to dollars so it is easier to understand, it means that on the first day of selling the houses, the communists have already make about U$900 per square meter, so if they buy a house with 150 square meters, they have already made about U$135,000!!! And this amount is without ever seeing or touching the property.
It is no wonder the communists are worried about upheaval, this sort of behavior is so, turn of the millennium.

One Response to “Stealing from Them in China”

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