MARKET WATCH

This is an edited excerpt of a report by Anbound, a Beijing-based research company, published on the website of Caijing magazine

yushujun@bjreview.com

OPINION

High Property Prices Hinder Urbanization

Since last year and on several occasions,Vice Premier Li Keqiang has highlighted the importance of urbanization in China’s economic development. How to achieve further urbanization is a big issue. At the recently concluded Central Economic Work Conference, top leaders highlighted urbanization as a focal point of economic work in 2013, stressing that urbanization should be carried forward in an active and prudent way with a focus on quality expansion.

Without a doubt, urbanization will become a great engine of economic growth. However, the current high housing prices, to a large degree, are restraining this process.

The quality of urbanization was emphasized at the conference. So what is quality?The prosperity of the business and service industries should be an indicator. But commercial property rentals have become increasingly expensive and enterprises in many industries are overwhelmed by rising costs, which has severely restrained economic activities.

In the last two years, rental costs for commercial properties have been skyrocketing,especially for properties located in central business districts, and are shooting up at double-digit rates. According to a report by DTZ, one of the world’s top five real estate advisors, rents for high-quality office space in Beijing rose by 46.8 percent year on year in the first half of 2012, the highest in the country, and rent levels in Shenyang, capital of northeast China’s Liaoning Province, and southwest China’s Chongqing soared by 20 percent year on year during the same period.

It has also been reported that rents for commercial properties in Guangzhou, capital of south China’s Guangdong Province, have risen by 5-10 percent in the past two years,and the figure can be more than 15 percent for hot properties. High rents have forced many restaurants to move or even shut down.

High rental prices have also placed China’s cinemas in a tough spot. When considering the total population and the number of screens in a country, the rate is 8,000 people per screen on average in the United States, and in Japan and South Korea, the figure is 20,000. But in China,it’s as many as 300,000 people per screen, indicating a severe shortage in cinemas.

An investment boom may not yield high pro fits either, for rising rents have greatly prolonged cost recovery.

“In the past, the cost recovery period was three to five years, but now it is commonly five to eight years,” an industry watcher revealed.

Urbanization also lays stress on helping the country’s migrant population become urban residents. A steady income is a must. But as mentioned, the rising cost of commercial space is a burden for businesses and cuts into profits, which will certainly lead to job cuts and wage drops. Furthermore, higher housing prices and rents will raise living costs and reduce the consumption capacity of residents, a barricade for rural residents to become members of urban society.

High housing prices will not only undermine economic vigor, but also aggravate the employment environment and raise living costs. All of these are obstacles to urbanization. ■

$14.05billion

The transaction value of domestic mergers and acquisitions (M&As) by Chinese companies from January to November.

$29.75billion

The transaction value of overseas M&As by Chinese companies from January to November.

$19.45billion

The transaction value of M&As in the

energy and mineral resources sector from 2006 to November 2012.

(Source: Zero2IPO)

THE MARKETS

Android Smartphone

ZTE, a Chinese telecom equipment and network solutions provider, unveiled its latest Grand X Android smartphone in Indonesia on December 18, in a bid to further enhance its commitment to Indonesian customers.

“The launch of Grand X with Jelly Bean is important for Indonesia and ZTE, and it shows the commitment of ZTE’s R&D and manufacturing in the country,” said Susanto Sosilo, Director of ZTE Indonesia’s Terminal Division.

Mei Zhonghua, President Director for ZTE Indonesia, said that the Indonesian market is very important for ZTE as Indonesia is the world’s fourth most populous nation and home to a growing middle class.

Dairy Expansion

Inner Mongolia Yili Industrial Group Co.Ltd., a Chinese dairy giant, announced plans on December 18 to produce 47,000 tons of baby milk powder annually in New Zealand after buying all of the shares of a dairy company in that country.

According to the company, the total investment of the proposed project in South Canterbury, New Zealand, will be more than NZ$214 million ($174 million), while production is expected to begin in June 2014.

The project is part of Yili’s global expansion strategy, and the announcement comes after the company purchased all of the shares of Oceania Dairy, a New Zealand company.

The import tariff on New Zealand dairy products will be reduced to zero by 2020,based on the free trade agreement between China and New Zealand. ■