Cablegate: China/Real Estate: Six Ministries Issue

VZCZCXRO3571
RR RUEHCN RUEHGH
DE RUEHBJ #5592/01 2090650
ZNR UUUUU ZZH
R 280650Z JUL 06
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC 2563
INFO RUEHGH/AMCONSUL SHANGHAI 5387
RUEHSH/AMCONSUL SHENYANG 6634
RUEHGZ/AMCONSUL GUANGZHOU 1156
RUEHCN/AMCONSUL CHENGDU 6865
RUEHHK/AMCONSUL HONG KONG 7903
RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 BEIJING 015592

SIPDIS

SIPDIS

STATE PASS USTR FOR
USDOC FOR 4420/ITA/MAC/
TREASURY FOR OASIA/INA - DOHNER/KOEPKE

E.O. 12958: N/A
TAGS: ECON EIND CH
SUBJECT: CHINA/REAL ESTATE: SIX MINISTRIES ISSUE
MEASURE RESTRICTING FOREIGN INVESTMENT INTO REAL
ESTATE

1. (U) SUMMARY: On July 24, the Ministry of
Construction (MCon), Ministry of Commerce (MOFCOM),
National Development and Reform Commission (NDRC),
People's Bank of China (PBOC), State Administration of
Industry and Commerce (SAIC), and State Administration
of Foreign Exchange (SAFE) jointly issued their
"Opinions on Regulation of Approval and Administration
of Foreign Investment in the Real Estate Market." The
objective of this measure is to strengthen regulatory
and administrative controls on foreign individuals and
institutions that operate and develop real estate (RE)
in China. The real estate measure consists of four
parts: regulation of approval of foreign investment;
strengthening the administration of FIE development
and operation; strict administration of purchases by
foreign individuals and institutions; and strict
adherence to monitoring regulations. End Summary.

--------------------
New Measure, Part 1
--------------------

2. (U) The measure's first part regulates approval of
foreign investment in the RE sector. The requirements
are:

-- To invest in non-private property, one must
establish a foreign invested enterprise (FIE).
-- For projects over USD 10 million, one must have 50
percent registered capital; for projects under USD 10
million, adhere existing provisions.
-- Before starting business operations, one must
obtain proper government certificates and licenses
from all relevant government offices.
-- For all transfers of equity in RE, one must get
approval from relevant government offices.
-- When making equity transfers from other FIE's or
Chinese companies to a FIE, the FIE is responsible for
all debts and payments from the transfers, and must
pay in one lump sum.

---------------------
New measure, Part 2
---------------------

3. (U) The measure's second part strengthens
administration of how FIEs develop and operate in the
RE sector. The requirements are:

-- FIEs must have all proper certificates and licenses
to conduct activity in RE.
-- FIEs may not borrow domestic or foreign loans if
either: they do not get necessary licenses and
certificates, or they do not have 35 percent of the
total capital needed for construction.
-- There can be no contractual guarantees of fixed
returns on investment.
-- FIEs must adhere strictly to all relevant RE
regulations.
-- All relevant authorities must strengthen monitoring
of real estate FIEs.

--------------------
New measure, Part 3
--------------------

4. (U) The measure's third part calls for strict
administration of RE purchases by foreign individuals
and institutions. The requirements are:

-- Institutions and individuals with one year of
residency may purchase property for private use.
Overseas Chinese and residents of Hong Kong, Macau,
and Taiwan are exempt from this stipulation for
property within a certain size.
-- Relevant authorities must authorize and register
property for private use.
-- The foreign exchange administration authority must
verify all formalities and requirements for RE funds

BEIJING 00015592 002 OF 002

entering and exiting China.

--------------------
New measure, Part 4
--------------------

5. (U) The measure's fourth part requires all levels
of government to adhere strictly to monitoring RE
regulations. All levels of government must:

-- Closely monitor RE investment.
-- Not give preferential policy to real estate FIEs.
-- Review previously issued preferential policies.

--------------------------------------------
Comment: The meaning behind the new measure
--------------------------------------------

6. (U) This measure is one in a series of measures
directed at controlling what many view as an
overheating RE market. Prior measures also dealt with
macroeconomic controls, but this one specifically
targets foreign investment. In the media and official
public statement, the "overheating" of the RE market
is frequently blamed on foreign investment. Embassy
will track this development and provide subsequent
reporting.
RANDT

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