BEIJING (XFN-ASIA) – The nine regional land supervision offices to be set up by China’s Ministry of Land and Resources (MOL) will serve to monitor land deals more closely at the local level in order to discourage illegal land allocation and rein in investment, Deutsche Bank said.
In a statement, Deutsche Bank said the plan reflects Beijing’s determination to slow investment growth amid the current round of policy tightening.
‘This step reflects the growing recognition by top policy makers that the most important reason for the central government’s failure to control investment growth over the past few years was that most local governments ignored the land supply quotas set by the central authorities,’ it said.
‘If the central government is now able to cut illegal land deals by half via strengthened supervision and the ongoing anti-corruption campaign – which we believe it will – FAI (fixed asset investment) growth should easily slow to 20 pct by the end of this year,’ it said.
Stricter land supply rules would be much more effective than further government-initiated rate hikes, it added.
Since September 2004, the MOL said the number of illegal land deals in 15 major cities increased to between 60 pct and over 90 pct, compared to 64 pct in the preceding 11 months.
The MOL announced in April that China’s land supply quota in 2006 would be the same as the year before, which could lead to single-digit FAI growth, but Deutsche Bank said this also means that China’s actual year-to-date FAI growth of 31 pct could be attributed to largely to projects involving illegal land sales.
Deutsche Bank also said a proposed reform of budgetary processes that will include all land sales into the budget system would likewise curb investment.
Currently, proceeds from land sales are spent off-budget and are unsupervised by the central government and local legislature, which has led to local governments attempting to maximize land revenue.
‘If this proposed budgetary reform goes through, it will be the most significant contribution from the public finance system to the macro stabilization program, in our view,’ Deutsche Bank said.
Although it does not see mid- and low-end property land supply being affected, Deutsche Bank expects that projects involving high-end property, manufacturing, government offices and infrastructure in coastal provinces will slow as a consequence.
‘We expect the negative demand impact from these measures on construction materials and construction machinery to become visible within three to four months,’ the bank added.