TV attacks hint that Beijing has knife out for property sector – Simon Rabinovitch

Financial Times Jan 8    —>

Unlike lightning, China’s state broadcaster most certainly strikes twice. Property developers have the burn marks to prove it.

Last week, China Central Television doubled down on its attacks on real estate companies for owing billions in unpaid land taxes, training its guns on no less a target than the country’s biggest listed developer, Vanke. The report marked the second time in little more than a month that the broadcaster had made these accusations. Developers have denied them both times.

What might seem like an obscure tussle between CCTV and the property companies could turn out to be one of the most serious risks facing the global economy this year.

CCTV’s claims, though seen as dubious by analysts, are significant because the state broadcaster’s reports rarely emerge from thin air. Especially when repeated at length and in prime time – as has now happened with the land tax reports – they are likely to reflect an important strain of government thinking.

It is hard to overstate the wider significance of Beijing’s thinking about property. As former UBS economist Jonathan Anderson has argued, Chinese real estate may well be the “single most important sector in the entire global economy” as the biggest driver of China’s growth and global commodity demand.

So what has CCTV said? It launched its first fusillade in November, saying that 45 real estate companies owed Rmb3.8tn ($628bn) in land taxes. It alleged they had regularly flouted a law requiring that land appreciation tax be paid when they sell 85 per cent of homes in any new development. Officials across the country “have to seriously study and solve this problem”, the CCTV anchor intoned.

This first attack was roundly criticised. Gemdale, Beijing Capital Development and Vantone Real Estate, some of the country’s biggest developers, denied the accusations. Fitch Ratings said it was “normal and consistent” for there to be a timing gap between the sale of property and payment of land taxes.

Even the Chinese tax authority rubbished the report. “This is a misunderstanding and misreading of tax policies and the way taxes are levied,” the state administration of taxation said.

But if CCTV was chastened, it has a funny way of showing it. Last week it renewed its attacks, devoting nearly 20 minutes of the evening broadcast on its news channel to alleging that Vanke, the sales leader in the property market in China, owed more than Rmb4bn in land taxes. Vanke denied the allegations.

More colourful was Ren Zhiqiang, chairman of Hua Yuan Real Estate and one of China’s most outspoken business leaders, who noted that the state broadcaster had apparently failed to interview accountants. “There’s no pig on this entire earth dumber than CCTV,” Mr Ren wrote on his microblog account.

But the problem for Chinese developers is that the issue may not simply be a question of true or false. There are growing suspicions that CCTV is preparing the ground for an official assault on the property sector. “It is self-evident that the government is getting its knife ready,” said an opinion piece on the website of China Securities Journal, a state-run business newspaper.

It is vital to note that the CCTV attacks have focused only partly on developers. The broadcaster has spent nearly as much time criticising – and shaming – local tax authorities. With hidden cameras in tow, its journalists have visited local officials to ask why they have failed to collect land appreciation taxes. Their angry and frustrated responses have made for uncomfortable viewing.

Over the past five years, Beijing has focused its property policies on controlling price rises through administrative measures such as purchase restrictions. The CCTV reports could be a precursor to a change of tack, signalling that Xi Jinping’s year-old administration wants to put an end to the cosy relationship that has developed between property companies and local governments. To sell more land, a critical source of revenue, local governments have given developers breaks on tax payments. But this has led to ever-higher land and property prices, and has also created more opportunities for official corruption.

Mr Xi’s campaigns against bribery and wasteful spending have already cut into the fortunes of global companies from watchmakers to drugmakers. If the CCTV reports are indeed a sign that his next target is the Chinese property sector, the consequences for the global economy will be even farther reaching.

Simon Rabinovitch is the Financial Times’ Shanghai correspondent


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