China Vanke Chairman Wang Shi speaks at the 2013 World Economic Forum, in Davos. Wang is has been in the midst of a drawn-out fight with Vanke's largest shareholder over control of the company. (AP Photo/Michel Euler)China Vanke Chairman Wang Shi speaks at the 2013 World Economic Forum, in Davos. Wang is has been in the midst of a drawn-out fight with Vanke's largest shareholder over control of the company. (AP Photo/Michel Euler)

China Vanke Co. Ltd., the world’s biggest residential real estate developer, has doubled down on efforts to blunt its top shareholder in an ongoing fight for control of the company.

The company—one of China’s most well-known firms—has been mired in an eight-month long dispute with No. 1 shareholder Baoneng Group, after the little-known insurance company began to amass Vanke shares late last year. Baoneng’s goal is to wrest control of Vanke from Wang Shi, the company’s founder and chairman.

Vanke’s latest gambit was a proposed asset purchase in Shenzhen via new stock issuance that would dilute current shareholders in an effort to stave off Baoneng’s increasing influence. Vanke’s future could come down to an investor vote of the plan.

The shareholder battle has intrigued market participants due to an almost shocking level of confrontation in a country where private ownership of companies is still maturing and negotiations are done orderly and behind closed doors. Wang called Baoneng a “barbarian,” a reference to the 1988 hostile takeover of RJR Nabisco by Kohlberg Kravis Roberts & Co. In turn, Baoneng accursed Wang of not putting shareholders first and sought his ouster from Vanke’s board.

A Shenzhen Gambit

Vanke’s latest maneuver is a purchase of assets from state-owned Shenzhen Metro Group for 45.6 billion yuan ($6.9 billion) through new stock issuance. Vanke’s stock sale would dilute Baoneng and other investors’ ownership stakes. If approved, Shenzhen’s subway operator would assume the title of single largest shareholder, surpassing Baoneng’s stake.

In a statement last week, Vanke said that if the deal consummates, Shenzhen Metro would hold 20.65 percent of its shares, exceeding Baoneng’s 19.27 percent after dilution. Before the sale, Baoneng through several subsidiaries and affiliates, have accumulated close to 25 percent of Vanke’s outstanding shares.

Vanke’s stock sale would dilute Baoneng and other investors’ ownership stakes.

The deal, and more importantly investor dilution, is critical for Vanke in its fight with Baoneng. “For our firm, the deal is not like icing on a cake, it’s a crucial matter to our future,” Vanke Senior Vice President Tan Huajie told investors in a transcript acquired by Bloomberg.

But approval of the deal is far from a guarantee. Vanke’s second biggest shareholder and long-time ally is state-owned China Resources Group, which owns a 15 percent stake in Vanke before dilution.

While initially wary of Baoneng’s share purchase, China Resources has since sided with Baoneng in criticizing Vanke’s recent maneuvers. China Resources also plans to vote against Vanke’s proposal to purchase the Shenzhen Metro assets, viewing it as a ploy to hurt current shareholders. China Resources Chairman Fu Yuning called the move “unfortunate” as the plan was never brought up to be discussed with the board.

Combined, Baoneng and China Resources own around 40 percent of Vanke’s shares prior to dilution and represent a formidable challenge for Vanke’s plans.

Ironically, more than 15 years ago it was China Resources that came to Vanke’s rescue as it fought off a similar shareholder takeover situation.

Baoneng Under Pressure

Baoneng also faces its share of challenges.

Wang criticized Baoneng and its affiliates for excess use of leverage. Vanke sent a letter to regulators earlier this year alleging that Baoneng used structured debt vehicles and sold high-yield wealth management products to accumulate its stake in Vanke.

The use of leverage could have negative impact on Baoneng’s financial health. Since Vanke shares resumed trading on July 4—it had been suspended on the Shenzhen Stock Exchange since Dec. 18, 2015—its value has fallen more than 20 percent to 17.39 yuan ($2.60).

If Vanke shares continue to fall, Baoneng could face margin calls on its position and may be forced to liquidate some of its holdings to pay back debt.

Baoneng could also draw increasing scrutiny from insurance regulators. At an industry conference last Thursday, China Insurance Regulatory Commission Chairman Xiang Junbo stressed that policyholder and investor protection are top-of-mind for the regulator, warning insurers to refrain from selling wealth management products to finance risky asset purchases.

A Test for ‘Capitalism’

To Western observers, the Vanke-Baoneng takeover battle seems routine. Activist investors such as Carl Icahn and Daniel Loeb shaking up corporate boards is commonplace in the United States.

Stakes are high for the Chinese Communist party in the Vanke fight.

But the showdown over Vanke is a rarity in the Chinese markets, where the ruling Communist Party craves stability and control above all. But in recent years, regulators have stepped up rhetoric about letting free market forces play a more decisive role in shaping the country’s financial markets.

Stakes are high for the Chinese Communist party in the Vanke fight. For one, this showdown will test resolve of the Communist party to stand pat and let market forces resolve the situation, one way or another.

Secondly, Wang Shi is a celebrity with a rock star-like reputation, and one of China’s first-generation entrepreneurs who is synonymous with the rise of Shenzhen into a business hub. He founded Vanke in 1984 as a private trading company under a government agency. Four years later, Vanke became one of the first companies in Communist China history to restructure into a private holding corporation.

After the Tiananmen Square crackdown of June 4, 1989, Wang helped several democracy activists escape to Hong Kong. He was detained for almost a year for assisting in the activism, a person familiar with his background told the Wall Street Journal in a 2014 interview.

In the following decades, Wang carefully managed his relationship with local and regional Communist party organs. Vanke largely followed party blueprints to develop and build homes and apartments across China during the real estate boom.

To avoid suspicion from the Community party as he and the company rose to prominence, Wang held less than 0.1 percent of Vanke’s shares. Instead, the company has relied on state-owned organizations as top shareholders—such as China Resources—to support Wang’s position. But this strategy also left Vanke vulnerable to outside takeover.

While Beijing has kept a watchful and wary eye towards the saga playing out in Shenzhen—where both Baoneng and Vanke call home—it had not intervened directly.

Until now.

China’s top securities regulator, the China Securities Regulatory Commission (CSRC), gave indications of intervention last week after staying on the sidelines for more than half a year. The CSRC criticized both Vanke management and shareholders, and warned that any illegal actions would be punished although it did not cite what would constitute illegal actions.

“Vanke and shareholders not introduced any concrete plans to resolve their differences,” a posting on CSRC’s Weibo account read last week. “Instead their conflict has intensified, not regarding capital market stability, the interests of the company, nor those of small investors.”

The CSRC set up a task force to investigate the Vanke saga, according to Chinese business journal Caixin citing unnamed sources close to the situation. A separate notice released by China’s securities regulator says Vanke and its top shareholder both violated disclosure requirements on major shareholder changes.

Regulators’ scrutiny around the transaction and a pending shareholder vote likely means that for better or for worse, the Vanke shareholder battle could be nearing its endgame.

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China has a huge real estate bubble, yet Chinese economists and the government still don’t seem to have a clear understanding of the damage, and continue to infuse more credit into sectors related to real estate.
The Chinese economy has run into many obstacles this year, including a slowdown and volatility of the RMB exchange rate. The only bright spot is the real estate market in first-tier cities, which is skyrocketing.
With a sluggish real economy, a declining manufacturing sector, and no substantial improvement in per capita income, why is real estate soaring?
Credit Feeds Real Estate Bubble
New loans of 2.51 trillion yuan ($387 billion) have been issued in January, the highest single month on record, and the growth rate of M2 monetary supply increased 14 percent, the highest in 18 months, according to data released by China’s Central Bank. The majority of these loans went to individual mortgages, affordable housing developments, land development, government projects, transportation, and wholesale and retail trade —with three areas directly related to real estate.
Workers go about their chores at a construction site for new shops in Beijing on November 28, 2011. (Goh Chai Hin/AFP/Getty Images)
So, who are the buyers of expensive real estate in major Chinese cities? One businessman, who has bought dozens of houses, said the price of real estate in first-tier cities has skyrocketed because rich bosses have closed their companies and factories and have invested cash in real estate. Running a real business is extremely tiresome, full of risks and responsibilities, and profits are less than gains from real estate investments, he said.
According to Ren Zhiqiang, the Chinese real estate mogul whose remarks recently brought down official wrath, the Chinese real estate market is designed to build houses for the rich, so they can buy houses for investments.
In other words, this round of China’s real estate upsurge is not because of an actual demand for housing, but solely because of speculation by rich people with few investment opportunities.
MORE:Real Estate Market has Much to Offer in Time for Chinese New Year
However, regardless of the reason, when houses are sold, the government makes money from selling land, banks earn interest from loans, and real estate companies make commissions. It is a prosperity cycle based on credit. As long as banks continue to provide loans, those with money can make use of it and play the investment game.
Domino Effect
The cost of housing is a basic economic indicator in China, on par with food prices. A change in housing costs directly affects the cost of a range of other commodities and services.
For example, an increase in housing costs leads to an increase in labor costs. With a substantial rise in housing and rent prices, businesses need to raise wages. Even though there is an oversupply of labor, it is difficult for businesses to recruit workers if wages are insufficient for workers to live in the city.  This has been a common issue along China’s coastal industrial zone over the past decade, and it is now beginning to spread throughout the country.
Rising wages, in turn, increase manufacturing costs, and this has hindered much needed industrial upgrading, weakened the relative advantage of labor-intensive industries, and led to more unemployment.
Long-term high real estate costs have a detrimental effect on business, reduce urban employment opportunities, and reduce government revenue.

Rent increases and lack of consumer demand have also caused trouble in the commercial retail and service industries. Commercial rents are not only high in first and second-tier cities, but also in third and fourth tier cities and towns, making it difficult for many small businesses to remain profitable.
MORE:How China Is Causing Real Estate Bubbles Around the World
China’s urbanization push is also affected by high real estate costs. While people generally blame the household registration system for preventing farmers and migrant workers from moving to the cities, in actuality it is the high cost of housing in the cities that hinders them. With an average monthly wage of about 2,000 yuan ($308), a migrant worker has to spend approximately 50 percent of his income on housing.
Overall, long-term high real estate costs have a detrimental effect on business, reduce urban employment opportunities, and reduce government revenue. Pouring more credit into the real estate sector has only further inflated the bubble and broadened the wealth gap.
When poor people have trouble making ends meet and hope for lower rents, does it make sense to lend money to the wealthy to speculate and make a big fortune in real estate? When small and medium enterprises need funds to maintain their operations, does it make sense to pump money into the real estate sector that will hike up the costs for small and medium enterprises? Real estate speculation does not improve the economy or the lives of the majority of people.
Fan Di is an independent economist and part-time professor of Peking University and Sun Yat-sen University. He obtained a Ph.D. at the University of California, Berkeley, supervised by Li Yining of Peking University and Nobel Prize winner George Arthur Akerlof. Fan has been a senior executive and consultant at major banks, financial firms, and large companies. This is an abridged translation of an article posted on March 7, 2016 to his public WeChat account.

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Every economy has themes. For the Chinese economy, the only theme up until recently was rapid growth. First because of exports, then because of investment in infrastructure and factories.
The Chinese economy of 2016 has many different themes. One theme is an unprecedented economic slowdown, reflected in official numbers and much worse in unofficial estimates. But then there is the theme of rebalancing. The old economy of manufacturing, investment, and exports is slowing down but the new consumer and services led economy is supposed to take over the baton.
With official sector data notoriously unreliable, China analysts get conflicting messages and don’t know which theme is actually happening. To shed light on this murky situation, Leland Miller and his team at the China Beige Book (CBB) interview thousands of companies and hundreds of bankers in China each quarter to get an accurate gauge of the themes prevailing in the Chinese economy.
Led by rising layoffs at private firms, first quarter job growth took another notable hit.— China Beige Book

CBB collects data from thousands of Chinese firms every quarter including some in-depth interviews with local executives. Although the CBB does not give definitive growth numbers, it logs how many companies increased their revenues or how many laid off workers, for example.
Labor Weakness
The most interesting finding of this quarter’s report is that the labor market is finally reflecting the weakness in the general economy. This hasn’t been the case throughout the slow-down, which started in the second quarter of 2014 according to the CBB data.
“Led by rising layoffs at private firms, first quarter job growth took another notable hit, sliding to a new four-year low. Expectations of future hiring have also taken a dive,” states the report. Only 23 percent of respondents said they were hiring, with 15 percent of companies said they are firing. China has announced it will lay off millions in the moribund steel and coal sectors of State Owned Enterprises (SOE). However, the CBB survey indicates it was mostly private companies which didn’t want to hire more workers.
Only 28 percent of the companies said they will hire in the near future. Another interesting development is the slowing growth in the country’s supply of skilled and unskilled labor. The constant flow of rural workers to the cities dramatically increased productivity over the last 20 years and provided China with a low-cost labor advantage. However, many analysts now estimate that the Lewis Turning Point has been reached and China’s working age population is declining. The CBB report confirms this thesis, as only 33 percent and 24 percent of the companies reported growth in skilled and unskilled labor.
The good news: Profit growth stabilized overall and didn’t further deteriorate compared to last quarter, although the report notes this may be due to cost cutting and layoffs.
Old Economy
Capital expenditure increased at only 33 percent of companies, a record low in the 5-year history of the CBB. Again it was private companies leading the way here, whereas SOEs tried to budge the trend. Another part of the old economy—manufacturing—continues to deteriorate, especially when compared to the first quarter of last year. Only 42 percent of companies reported revenue gains, which technically means the sector is in recession. 
Collectively, our data show that that firms first stopped borrowing, then cut spending, and now are becoming allergic to hiring. — China Beige Book

Most notable here is the textile sector, which has lost competitiveness due to higher wages. As a consequence, multinational companies relocate their production elsewhere in Asia or even back to the United States. The number of companies reporting gains crashed by 31 percentage points to only 24 percent compared to last year.
The last part of the old economy, the manufacturing export sector, is also very weak, with only 27 percent of companies reporting revenue gains.
The CBB cautions that any kind of monetary easing, like the Reserve Requirement Ratio cut earlier this year, is not having its intended effect. Only 16 percent of companies say they are borrowing money. Again, contrary to the People’s Bank of China’s (PBOC) easing effort, interest rates at banks and shadow lenders increased, presenting an interesting paradox. The central bank eases credit conditions, firms do not wish to borrow, and yet interest rates are on the rise. Unfortunately, the CBB doesn’t explain this phenomenon but succinctly summarizes the current state of affairs like this: 
“Collectively, our data show that that firms first stopped borrowing, then cut spending, and now are becoming allergic to hiring.”
The PBOC has been cutting reserve requirements but the CBB days it didn’t help much (Natixis)
So what about the new economy? Services, consumption, retail?
“Revenue growth in retail and services each slowed again in the first quarter, a rebuke to those analysts who optimistically repeat the mantra of ‘two-tiered economy’ in lieu of compiling relevant data.” So no, at least for now, even though e-commerce companies reported gains.
The worst performers in retail were textile and furniture and appliances. The China watchers who speculated the home furnishing section would take a hit because of a slowdown in property were right. 
Services presented a mixed picture, with 47 percent of firms saying their revenues increased, which is down from 48 percent compared to a year ago and not enough to take over from the old economy.
Within the service sector, China shows a remarkable similarity to the United States: The strongest subsector was healthcare.
As for the property market, residential is still under pressure but commercial property showed a rebound compared to the last quarter.
“Talk of a property rebound was also accurate only on the surface, in light of sharp differences by city size, region, and commercial (soaring) or residential (plunging) orientation,” the report states.
With respect to the official data rebound in prices and record volumes of used homes transacted in residential real-estate, the CBB survey poses more questions than it answers. Or maybe we should just trust the data on the ground and not the officially reported ones, as Andrew Kollier of Orient Capital pointed out: “I don’t trust the official figures of a rebound because

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Will the Chinese economy have a hard landing? Absolutely not, according to Xu Shaoshi, director of China’s state economic planning agency. A hard landing of China’s economy is not a possibility, and neither is it possible that China’s slowdown will drag down the global economy, Xu said at a news conference during the annual “Two Meetings,” the de facto legislature of the Communist Party.
Despite how much has already been written about China’s economic slowdown, Xu’s statements require a response.
The Impact of China’s Economy on the World
Let’s take a look at the past first. In the past 30 years, China has accepted foreign investment to fund development through its “opening up” policy. China then joined the World Trade Organization (WTO) to export cheap goods to the world. In the mid-1990s, when China had accumulated enough profits and power, it started making strategic investments to acquire resources and enterprises around the world. Although there were more failures than successes, China’s huge capital outflows have been a significant force.
Viewed from different perspectives, China has had both a positive and a negative impact on the world economy. Inexpensive goods manufactured in China at the turn of the century indeed benefited consumers all over the world for about seven to eight years.
A construction worker rests near a building in the new Yujiapu financial district in Tianjin, northern China, on May 14, 2015. (Greg Baker/AFP/Getty Images)
On the down-side, however, substandard and toxic products have led to boycotts and loss of credibility beginning around 2005. There were the toys containing high levels of lead, followed by melamine-tainted milk powder and feed, pesticide residues and other toxic substances in textiles, leather, problematic drywall, and more. In short, China has constantly been subject to complaints via the World Trade Organization, and this was one of the reasoning prompting the United States to set up the Trans-Pacific Partnership—a hope to bypass China and establish another international trade organization.
MORE:CHINA TRANSLATED: China’s Hard-Selling Real Estate Agents
Since 2009, when it largely stopped being the world’s factory, China became the world’s largest money printer. In 2012, when this strategy was no longer sustainable, China was left with an inventory of 9.83 billion square meters of vacant real estate and dozens of industries loaded with overcapacity.
China was set to expand trade with over 30 countries around the world. But these countries are now either in turmoil, war, or economic recession. As a result, China is no longer in a position to be a major raw materials importer and thus stifles the world economy. Of course, one cannot say that this is China dragging the world economy down. But the dreams that China would become the world’s economic engine have been dashed.
Capital Outflows and Real Estate
China’s real estate market also indirectly affects the world. Real estate prices in Beijing, Shanghai and Shenzhen have recently soared. For example, the total market value of all homes in one Shenzhen community climbed to 14 billion yuan (US$2.4 billion), nearly matching that of Shenzhen’s airport, which is approximately worth 14.8 billion yuan ($2.3 billion). How can housing prices rise so incredibly high? It’s because Chinese are maintaining the high prices by taking out cash loans against the bubble-priced assets, and then moving money out of the country. The capital escaping from China’s housing market will affect the world.
A Chinese man talks on a mobile phone in front of a real estate agency in Beijing on April 15, 2013. (Wang Zhao/AFP/Getty Images)
Since the end of June 2014, when China’s foreign exchange reserves were $3.99 trillion, there has been an outflow of nearly $790 billion. Such a huge flow of funds around the world is going to have a large impact. Where did this money go? Part of it was used for investments, mainly in real estate, which has been pushing up housing prices around the world.
The overseas investments of Chinese real estate enterprises totaled about $22 billion in 2013 according to the 2015 China Enterprise Globalization Report. In 2014 it reached nearly $40 billion, with $28.6 billion going into the US market. Led by giants such as Vanke, Wanda and Greenland Holding, Chinese real estate firms invested as much in the first half of 2015 as in the whole of 2014.
MORE:If You Only Look at China’s GDP, You Are Missing the Real Action
According to a Sept. 7, 2015, article by Caijing National Weekly, wealthy Chinese are buying homes in more than a dozen overseas countries or regions, including the U.K., Australia, and Dubai. On Jeju Island of South Korea, Chinese owned 20,000 square meters of properties by 2009. At the end of April 2015, the area rose to 11.73 million square meters, an increase of nearly 600 times in six years.
The money being created by China’s state printing press is flowing around the world. Real estate prices in China have long deviated from their actual value. A small 150-square-meter apartment in Beijing, Tianjin, Shanghai, and Shenzhen is listed for about 6 million yuan ($920,000). For this kind of money, one can buy a single family home three times the size on the east or west coast of the United States (except for places like Manhattan and San Francisco) with a large garden and pool. Faced with this reality, Chinese real estate investments are bound to flood the globe.
The fact that China is no longer purchasing large amounts of global commodities may not be really dragging down the world’s economy. However, when rich Chinese invest huge amounts of cash in other countries’ real estate markets, they are causing bubbles. Eventually, locals won’t be able to afford a home, and the country will be impoverished. Can this not legitimately be called a drag on the global economy?
This is an abridged translation of He Qinglian’s Chinese article posted on her personal blog on March 13, 2016. He Qinglian is a prominent Chinese author and economist. Currently based in the United States, she authored “China’s Pitfalls,” which concerns corruption in China’s economic reform of the 1990s, and “The Fog of Censorship: Media Control in

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Not very many people were interested in China in the early 1980s except for Andrew Collier and a few others. He went there as an exchange student from Yale just after the country’s reform and opening phase began. Later he built his career in finance with China and Hong Kong as a launch pad.
Having followed the country for more than 30 years, Mr. Collier knows what’s happening on the ground as well as the macro currents that influence the economy and policy.
Epoch Times spoke to the managing director of Orient Capital Management about capital controls, the local government bond swap, as well as renewed stimulus efforts.
It’s definitely gotten harder to funnel money out of the country.

Epoch Times: You talk to a lot of people on the ground, do you think the regime is tightening capital controls to prevent more capital outflows?
Andrew Collier: When I was in Beijing I spoke to some banks and they had a tough time to find out what are legitimate international transactions.
The banks are in charge of approving loans. The banks are the ones who get in trouble. If they approve a loan for an international transaction, they have to prove to the regulators it’s a legitimate transaction.
Transactions over a certain amount now have to be approved by their head office in Beijing. The banks don’t have that many people in Beijing. They have 200,000 branches, so they can’t keep up. On the margin that can affect certain transactions, but I don’t think it’s going to be a huge influence.
It’s definitely gotten harder to funnel money out of the country.
Epoch Times: Harder for some people, easier for others …
Mr. Collier: There are $23 trillion in personal deposits in the banking system. I estimate 15mn people control half of all personal deposits in the banking system. They are very well connected. They are using their connections at the state owned enterprises or large private companies. Some people are aggregating student loans as a way to move money offshore.
Andrew Collier speaks to CNBC in Hong Kong on Dec. 14, 2015 (CNBC)
Epoch Times: What about the debt swap program where local governments can exchange their bank debt for lower yielding bonds, you have done quite a lot of work on that.
Mr. Collier: We are going to see a lot more from the bond swap. The allotted 3.1 trillion yuan ($470 billion) is not enough for 20 trillion to 30 trillion yuan in local government debt.
They are trying to centralize the debt. The problem is that Beijing has a reluctance to increase central government debt through bond issuance.
At this moment, there is no market for debt apart from the banks. They are finding ways to put debt on the central government’s balance sheet without calling it this way.
I don’t trust the official figures of a rebound.

The bond swap is the first example of that. The original intent was to replace loans with bonds. It’s not happening this way. A lot of the money is being leaked out. If they swap 10 million, the banks only get back 5 million to 7 million.
A portion stays with the local government. They are essentially increasing the amount of debt with the bank. The banks I talked to said they are losing because they are taking a haircut for this.
Epoch Times: So the regime starts another round of stimulus with debt?
Mr. Collier: The banks have started to evade lending restrictions. For one bank I saw, there was a 30-40 percent increase in investments. That could be a sort of bond or equity, or custom project but not strictly loans. There is very little disclosure regarding investments so they can do what they want.
Their risk weightings are a lot lower. It moves from being a loan to being an investment. They evade the central bank’s restrictions. They are extending more loans to local governments.
They are using it to prop up the local economy. They are in the middle of doing all these projects, they ran out of money, so they would have to declare it a default, unless they get more money to complete it. It’s all being centralized on the banks’ balance sheet.
Epoch Times: Give us your take on the recent rebound in property.
Mr. Collier: You have vacancy rates of 25-30 percent. There is a lot of stuff that is not being used. The only way to clear vacancies is to lower prices. So you could have a multi trillion yuan hit on household wealth [the largest investor in property are households]. The prices will have to come down if there is market clearing.
I don’t trust the official figures of a rebound because they don’t cover the lower tier cities which make up the bulk of property construction. The data is highly untrustworthy.

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Most China watchers are focusing on the stock market and the currency these days. 
Is the stock market’s rally going to last? Will the International Monetary Fund accept China in its reserve currency basket? In the meantime they are missing a revival in the Chinese real estate sector.
In the last week of October, new home transactions sored 7.55 percent compared to the same period last year (measured in square meters), according to research firm JL Warren Capital.
Used home transactions even went through the roof: They are up 51.2 percent over the year.
“In Q3, the mainland residential market picked up gradually amid a series of favourable policies. Luxury home prices gained further in Beijing, Shanghai and Guangzhou, where the markets continued to clear inventories,” Knight Frank, a real estate research firm writes in a report.
Policies have indeed been favorable after the real estate bubble started bursting in 2014. 
A comparison between U.S. and Chinese house prices, rebased to the respective beginning of the decline. (Fathom Consulting)
The People’s Bank of China cut interest rates for six times this year but also dramatically eased housing policies, relaxing the urban registration system and lowering the amount of money needed as downpayment.  
So with the stock market out of favor, some of these easy money policies had to work. 
“Grade-A offices prices in Beijing, Shanghai and Guangzhou rose as investing in such properties became increasingly attractive in such a low interest-rate environment,” writes Knight Frank.
However, first and second tier cities are the only beneficiaries of the uptick.
“The widening sales gap between the top 35 cities and the rest of China , where turnover is much lower and prices are soft, is driving developers to crowd into tier one and some tier two cities (again) and bid up the land prices disproportionately,” it says in a note by JL Warren Capital. 
MORE:Chinese Have a Trillion Reasons to Invest in New York Real EstateChina Stock Woes Good for New York Real Estate
What’s worse, the rising prices won’t have a positive impact on growth, according to JL Warren. 
“Home sales prices, on the other hand, although rising in those cities, by no means keep up with the rise of land prices.  That explains why new home starts are falling and residential housing construction will not drive GDP growth in 2016.”   

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