The central government is considering setting up an ultralarge state-owned real estate group that would be one of the world’s leaders in terms of assets. The State-owned Assets Supervision and Administration Commission (SASAC) says that it would be organized by restructuring existing enterprises.

The move is intended to optimize state-owned real estate resources, enhance the competitiveness of major property developers and peel off non-key businesses of existing enterprises to sharpen their focus on primary operations.

The combined assets of the group would reach 100 billion yuan (US$12.1 billion), according to a SASAC official, who requested anonymity.

He said that Yang Shen, president of the China Real Estate Association, and Gao Shangquan, president of the China Enterprise Reform and Development Research Society, submitted the proposal for the plan. It is currently being studied.

SASAC declined to disclose the details of the proposal or any schedule for action.

The real estate megagroup, if formed, will be a part of the central government’s efforts to consolidate the state-owned real estate sector.

In June, SASAC announced that central government-level SOEs whose key businesses are not real estate should transfer their real estate business assets to the Big Five state-owned real estate developers.

The five giants are the China State Construction Engineering Corporation, China Merchants Group, China Real Estate Development Group (CRED), China Poly Group Corporation and Overseas Chinese Town Group Corporation.

Companies subject to the directive are free to negotiate their own deals and are permitted to choose which of the Big Five they wish to transfer their properties.

In addition to the Big Five, most of the 191 central-level SOEs are currently operating property businesses.

The real estate assets to be transferred are estimated to be worth 180 billion yuan (US$21.7 billion).

Industry watchers say that CRED is likely to be marked as the controlling firm of the new group. Set up in 1981, CRED is the only state-owned property group supervised by SASAC.

CRED spokesman Han Xusheng said in August that the corporation’s target was to realize assets of 100 billion yuan (US$12.1 billion) through mergers and acquisitions.

Combined assets are expected to exceed 200 billion yuan (US$24.1 billion) through international cooperation with overseas developers.

“We have unique advantages, involving nationwide business networks, flexible operating mechanisms and extensive experience in real estate development,” said Han.

Huaneng Group, one of China’s five largest power companies, has now transferred its real estate assets to CRED.

(China Daily September 28, 2004)