VZCZCXRO2326
RR RUEHCN RUEHGH
DE RUEHGH #0064/01 0350435
ZNR UUUUU ZZH
R 040435Z FEB 09
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7605
INFO RUEHBJ/AMEMBASSY BEIJING 2485
RUEHCN/AMCONSUL CHENGDU 1724
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHGZ/AMCONSUL GUANGZHOU 0180
RUEHML/AMEMBASSY MANILA 0047
RUEHUL/AMEMBASSY SEOUL 0359
RUEHGH/AMCONSUL SHANGHAI 8235
RUEHSH/AMCONSUL SHENYANG 1713
RUEHGP/AMEMBASSY SINGAPORE 0221
RUEHIN/AIT TAIPEI 1514
RUEHKO/AMEMBASSY TOKYO 0529

UNCLAS SECTION 01 OF 03 SHANGHAI 000064 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM, DAS DAVIES 
TREASURY FOR AMB HOLMER/WRIGHT/TSMITH 
TREASURY FOR OASIA/INA -- DOHNER/HAARSAGER/WINSHIP/CUSHMAN 
TREASURY FOR IMFP -- SOBEL/MOGHTADER 
USDOC FOR ITA DAS KASOFF, MELCHER, MAC/OCEA 
NSC FOR WILDER/LOI 
STATE PASS CEA FOR BLOCK 
STATE PASS USTR FOR STRATFORD/WINTER/MCCARTIN/KATZ/MAIN 
STATE PASS CFTC FOR OIA/GORLICK 
 
E.O. 12958: N/A 
TAGS: CH ECON EFIN EINV PGOV PREL
SUBJECT: (SBU) GOVERNMENT HOUSING STIMULUS PLANS FOCUSED ON 
LOW-INCOME FAMILIES 
 
REF: 08 SHANGHAI 558 
 
¶1.  (SBU) Summary.  Chinese government plans to expand 
subsidized housing have been designed to limit the benefits to 
property developers, according to a new contact who works with 
one of China's main real estate market indexes -- in fact, the 
government is not opposed to housing prices falling farther. 
The government is focused on steering benefits to low-income 
families, and also hopes to provide jobs for migrant 
construction workers.  Local governments and private investors 
will join the Central Government in funding the program, and 
individuals will kick in money from employee savings plans, said 
our contact.  The contact offered a pessimistic outlook for the 
real estate sector, saying the downturn could last for three 
years.  The contact also provided some details on reports real 
estate web portal Soufun.com will send a group of potential 
property investors to the United States.  End summary. 
 
¶2.  (U) This is a second in a series of Shanghai cables on the 
real estate market in East China. 
 
============================ 
Poor Families to Benefit from Housing Stimulus 
============================ 
 
¶3.  (SBU) Chinese government plans to expand low-income housing 
have been designed to limit the benefits to property developers, 
according to Sheng Cheng, vice director of the China Real Estate 
Index System.  (Note:  The Central Government, as part of the 
overall economic stimulus plan rolled out on October 9, said 
China will spend RMB900 billion (approximately US$132 billion) 
on low-income housing during 2009-11, providing homes for 7.5 
million families.  End note.)  Speaking with Econoff on February 
3, 2009, Sheng repeatedly emphasized that, based on his 
understanding from top-level meetings in Beijing, the low-income 
housing plan would allow property developers a return of just 2 
percent to 4 percent, far lower than the strong double-digit 
returns they were used to during the property boom in recent 
years.  Sheng said two key meetings have been held in Beijing to 
set the outline of the low-income housing plan, both of which he 
attended:  the first on July 7, and the second in January. 
 
¶4.  (SBU) Property developers will continue to feel the squeeze 
of the current downturn, said Sheng, and should not expect 
government bailouts.  Sheng said that the government is 
currently considering a way to force consolidation of smaller 
property developers with larger ones by seizing properties that 
have been on the market for eight months or more.  Real estate 
trading volume is low because many developers are holding onto 
their property in hopes that prices will eventually rise, said 
Sheng, while developers like Vanke that lowered prices have 
quickly sold their units.  The Central Government wants to see 
housing prices fall further, and would not be displeased to have 
an overall 30 percent fall, said Sheng.  (See septel for further 
details on government studies of the impact of housing price 
contraction.) 
 
¶5.  (SBU) Most low-income housing will be provided in the 
suburbs, said Sheng.  The Central Government's goal for cities 
such as Beijing and Shanghai is to have 40 percent of newly 
developed land go for low-income housing by the end of the 
housing stimulus plan in 2011.  In addition, Sheng said, an 
estimated 20 million migrant workers have lost their jobs in the 
current downturn, many of whom are employed in 
construction-related jobs, so the government hopes that the 
low-income housing stimulus will provide new jobs for some. 
 
============================ 
Stimulus Funding Coming from Multiple Sources 
============================ 
 
SHANGHAI 00000064  002 OF 003 
 
 
 
¶6.  (SBU) While most Chinese press reports have focused on the 
plan to construct new low-income housing, Sheng said that the 
overall government plan has three parts: 
a)  Subsidies for renters.  This is for the poorest families, 
who cannot afford to own a home. 
b)  Economic housing (literally, "guaranteed housing," baozhang 
fang), to be sold to persons with low incomes.  The homes will 
not be permitted to be resold for five years.  The funding will 
be one part from the central government, two parts from the 
local government, and one part bank loans. 
c)  Price-controlled housing (xian jia fang).  This refers to 
housing built on land sold to developers at a low price with the 
express purpose of keeping the cost of housing units down. 
These are then sold to low-income families. 
 
¶7.  (SBU) Sheng said that the full RMB900 billion cited for the 
low-income housing plan would not come from the Central 
Government.  Local governments will contribute 10 percent of the 
proceeds of local land sales -- although Sheng admitted that 
this source would be minimal, as new construction starts remain 
low.  Personal savings accounts -- which Sheng described as 
automatic deductions from paychecks that are reserved for 
retirement, education, or housing expenditures -- also account 
for part of the funding.  And on November 9 the Central 
Government legalized real estate investment trusts (REITs) as 
another vehicle for channeling funds to the program, said Sheng. 
 
 
¶8.  (SBU) Separately, Sheng  noted that the Ministry of Finance 
is planning to issue bonds on behalf of localities to help fund 
construction projects.  He said that this is a controversial 
move, since localities had been banned from doing so after 
becoming heavily indebted, and therefore the program is only in 
a trial stage.  Sheng said that the trials are not restricted to 
large cities, but are being carried out to some extent in most 
localities. 
 
============================ 
The Housing Downturn Could Last Three Years 
============================ 
 
¶9.  (SBU) Sheng said that he estimates the current housing 
market downturn is "L" shaped, not "V" shaped, and that he 
expects it to last for three years.  The China Real Estate Index 
System (Zhongguo fangdichan zhishu) is the most complete series 
of real estate data available to Chinese leaders, said Sheng; 
the other is the National Bureau of Statistics' National Real 
Estate Climate Index (Guofang jingqi zhishu).  The China Real 
Estate Index developed from cooperation between the State 
Council Development Research Center and the National Real Estate 
Association in the early 1990's.  The current CEO, Mou Tianquan, 
is a returned overseas Chinese who worked at Dow Jones. 
Maintenance of the index is aided through the center's close 
cooperation with online real estate portal Soufun.com, which has 
offices in 100 cities and is based in Beijing (see reftel). 
(Comment:  Sheng's conclusion that the current housing market is 
in a prolonged downturn probably were reflected in his remarks 
at the meetings he attended with Central Government officials, 
and would have been taken seriously, given the singular insights 
provided by the China Real Estate Index System.  End comment.) 
 
============================ 
Soufun Organizes U.S. Real Estate Buying Trip 
============================ 
 
¶10.  (SBU) Sheng confirmed press reports that Soufun.com is 
pulling together a buying mission that will look for real estate 
investment opportunities in the United States.  The idea was 
 
SHANGHAI 00000064  003 OF 003 
 
 
generated by CEO Tian, who was a long-time U.S. resident, as a 
result of being repeatedly asked about the possibility by 
Chinese who heard about the bargain prices for stateside 
property.  Sheng said that two types of investors will join the 
trip:  those who want more information about real estate market 
trends, and those who have already decided to buy with an eye to 
retirement or providing a U.S. education for a child.  More 
details will be announced at a press conference in Beijing on 
February 22, said Sheng. 
 
============================ 
Comment 
============================ 
 
¶11.  (SBU) Our contact appeared to hew closely to Central 
Government policies on restraining property developers while 
providing benefits to low-income families, but offered little 
insight on how effectively this could be implemented at a local 
level.  Local governments are now used to substantial revenue 
streams from property sales, and will not be inclined to sell 
land at lower prices.  In addition, property developers will 
most likely heavily lobby local governments for support during 
the downturn (see septel reporting), and will resist efforts by 
the Central Government to push property onto the market at lower 
prices through takeovers. 
CAMP