On the eve of state-owned property firms' pay reform and salary caps: Executives nervously await critical decisions.
Release date:
Apr 28,2015
On November 19, Song Yanqing, President of RAND Consulting, attended a meeting at a central state-owned enterprise. The company had recently merged its real estate business with another firm to form a single entity. Interestingly, both companies had previously engaged RAND Consulting for advisory services. State-owned enterprise reforms, which have sparked significant excitement in the capital markets, seem to be facing considerable challenges in the real estate sector. "It’s incredibly difficult to recreate a Vanke through reform," Song Yanqing told a reporter from 21st Century Business Herald. Meanwhile, a senior executive from a Beijing-based state-owned real estate company revealed to a reporter from 21st Century Business Herald that the Beijing State-owned Assets Supervision and Administration Commission (SASAC) visited the company for a调研 (research and inspection) back in June—but as of today, there has been no tangible progress. "The company hasn’t taken any pioneering or pilot initiatives yet," the executive added, noting the lingering wait for state-backed support.
On February 18, Gree Electric Appliances (000651.SZ) announced that Gree Group will spin off Gree Real Estate. According to the reform plan unveiled by Gree Group, the Zhuhai State-owned Assets Supervision and Administration Commission plans to inject assets—including the 51.94% stake in Gree Real Estate Co., Ltd. held by Gree Group—into a newly established, wholly-owned subsidiary of the Zhuhai SASAC. Subsequently, the Zhuhai SASAC intends to attract strategic investors by offering up to 49% of the company’s equity for public auction through an open挂牌 process.
State-owned enterprise reforms, which have sparked immense imagination in the capital markets, seem to be facing significant challenges in the real estate sector. "It's incredibly difficult to recreate Vanke through reform," Song Yanqing told a reporter from 21st Century Business Herald.
A senior executive from a state-owned real estate company in Beijing revealed to a reporter from the 21st Century Business Herald that the Beijing State-owned Assets Supervision and Administration Commission (SASAC) visited the company for a research visit back in June of this year—but to date, there has been no new progress. "The company hasn’t taken any pilot or experimental steps yet, and we’re simply waiting for further guidance from the SASAC," he added. He also heard rumors about potential salary caps being imposed on state-owned enterprises.
Local Pilot Programs
Some companies and regions have already taken the lead in exploration.
On February 18, Gree Electric Appliances (000651.SZ) announced that Gree Group will spin off Gree Real Estate. According to the reform plan released by Gree Group, Zhuhai State-owned Assets Supervision and Administration Commission plans to inject assets—including the 51.94% stake in Gree Real Estate Co., Ltd. held by Gree Group—into a newly established wholly-owned subsidiary of the Zhuhai SASAC. Subsequently, Zhuhai SASAC intends to introduce strategic investors by offering up to 49% of the company’s equity for public auction through an open挂牌 process.
On October 30, Nanjing High-Tech (600064.SH) received notice from its major shareholder, requesting a gradual exit from the real estate and municipal sectors to facilitate a strategic transformation.
On August 31, 2013, the "Implementation Opinions on the Exit of Nanjing State-Owned Real Estate Enterprises from General Residential Development" were released, stating that equity in general residential development projects held by municipally-owned wholly-owned, controlling, and minority-stake real estate enterprises must be fully divested by the end of 2013. Meanwhile, district-level and functional-zone state-owned real estate enterprises were required to complete their exit from general residential development by June 30, 2014.
Among major property developers, Poly Real Estate (600048.SH) announced at its earnings conference held in April 2014 that there is a possibility of cooperation or even a merger between Poly Real Estate [Weibo] and Poly Property. Song Guangju, Chairman of Poly Real Estate, emphasized that this aligns with one of the strategic goals and objectives of the Poly Group. Meanwhile, OCT Group (000069.SZ) also stated at its shareholder meeting that the company is eager to attract strategic investors through the capital market—and potentially even tap into international capital.
Additionally, Song Yanqing learned that many companies in Shandong are also engaging in asset consolidation. Li Pinko, an analyst at Guotai Junan, summarized that resource integration and incentive mechanisms are the two key pathways for reform.
Obstacles and Contradictions
The significant importance of state-owned enterprise reform lies in clarifying property rights.
Wang Shi, Chairman of the Board of Vanke Group (000002.SZ), previously stated publicly that the 1988 shareholding reform was profoundly significant for Vanke, as it clarified property rights. In Vanke's early development history, it was precisely the reforms that laid the foundation for the company's success.
Both Liu Xiaoguang, Chairman of Shouchuang Real Estate, and Ren Zhiqiang, Chairman of Huayuan Real Estate, told reporters from the 21st Century Business Herald that, constrained by systemic limitations, they historically missed several major growth opportunities.
Liu Xiaoguang stated that back in 2004, he proposed allocating 15 billion yuan and sending 150 teams—each consisting of 150 people—to 150 cities, with the goal of securing 150 prime land parcels. Had this ambitious plan been implemented at the time, the value of those land plots alone would have appreciated by roughly 30 times by now. However, during the decision-making process, some objections were raised—particularly since it involved a state-owned enterprise. After a thorough collective discussion, opposition emerged, ultimately making it impossible to move forward.
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