A new blow was dealt to the real estate industry last week when Beijing Capital Land announced that its Chairman Liu Xiaoguang was busy "assisting" the authorities in their investigation of the city's former Vice-Mayor Liu Zhihua. The ousting of the vice-mayor was announced three weeks ago on the grounds of his impermissible decadence. Both men carry considerable weight in local business circles: Former Vice-Mayor Liu was once in charge of Beijing's land development, and Liu the businessman is head of the city's largest State-owned developer. These developments could take some of the heat out of the city's real estate market, where prices have risen sharply over the past few years. For a while, the market may come to a halt, while business is at a low ebb. The Hong Kong Stock Exchange has already suspended trading in the shares of Beijing Capital Land. Meanwhile, business on the city's real estate market is also likely to witness a slowdown. However, it may be premature, and indeed wishful thinking, for many of those leaving comments on Chinese Internet forums to welcome the investigation into the affairs of the two men as a sign of a healthier economy. A commentator on the website of a well- known Beijing-based newspaper even went so far as to suggest: "It seems that the central government is now making a real effort in its crackdown on housing prices. And if no more accidents happen, the supply of cheap housing will reach us in due course." How can there be a crackdown on prices, as on crimes? I wondered. No doubt, something has to be done to round up the law-breakers in land development, especially corrupt city planning officials and their collaborators in big corporations. And in many cases, their mindless pursuit of private gains has interfered with market prices. But law enforcement is one thing, and the trend of price movement is another. Locking up a few bad officials and their business collaborators may lead the market to a temporary halt, but cannot in itself make good business practices more widespread, let alone bring along supplies of cheaper housing. Indeed, if officials can become corrupt so easily as is seen from so many cases of those in charge of major building projects, and if business can be so murky in terms of price-setting, the problem cannot go away after putting a few individuals behind bars. It is the system that has loopholes. And until a systemic solution is available, the market will still be unable to ensure adequate supplies of high-quality housing. At this point, it may be helpful to learn from the experiences of industries with similar problems. In mining, also a kind of land-based monopoly, giving full rein to competition has resulted in nightmarish workplace hazards and human costs. This was the case until recently, when some large State-owned companies were set up to modify the mode of competition placing a greater emphasis on safety and guaranteeing supplies to large power stations. Letting local officials oversee private merchants fighting in monopolistic industries has never been a wise move while it has always been a hotbed for unlawful profits. So Beijing may start considering setting up some large national-level development companies (also possibly with public boards chaired by central government appointees) to build houses for the largest cities, those which are the main picks by immigrants from the countryside and from overseas. To begin with, land development companies launched by local officials, such as the powerful Beijing Capital Land, should all be taken over by the central government. The ability of city officials to interfere in the local real estate market should be strictly curtailed. Email: younuo@chinadaily.com.cn (China Daily 06/26/2006 page4)
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