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China tightens land sale rules to fight corruption

hina's two-month drive to crack down on corruption in the property market netted one of Shanghai's biggest developers. It may also crimp surging shares of Hong Kong developers with projects in China, analysts said.

The Ministry of Land Resources, which governs all land policy nationwide, decided at a March 11 meeting in Beijing that only ministry officials can approve land sales.

Previously, many Communist Party cadres and government officials peddled their influence to help developers obtain land, according to a May 15 notice on the ministry's Web site.

"With property development, where demand for money is higher and connections to the government are more important, there is an even greater incentive to do deals illegally," said Eric Wong, an analyst at UBS Warburg in Hong Kong.

Chinese authorities yesterday said for the first time that police are holding Zhou Zhengyi (周正毅), who runs Hong Kong-listed Shang-hai Land Holdings Ltd., for questioning over his transactions.

While he hasn't been formally charged, Chinese and Hong Kong newspapers, without saying where they got their information, linked his arrest to bank loans Zhou obtained to take over Shanghai Land in May last year.

Cheap land, partly the result of corruption, led to more luxury projects throughout China and prompted then-premier Zhu Rongji (朱鎔基) to raise the alarm last October at rapidly increasing real estate prices. In Shanghai, prices rose by as much as a fifth since 2001, spurred by an expanding economy that boosted average per capita disposable income in the city by 11.5 percent last year 13,250 yuan (US$1,596).

In response, the central government tightened mortgage approvals to prevent a possible bubble. That may not be enough -- developers from Hong Kong and elsewhere have been building homes and offices on expectations of increased demand for the 2010 World Expo in Shanghai.

"The situation in Shanghai is particularly complicated," said Guo Baoping, who heads the ministry's task force in charge of the crackdown, in Beijing. He declined to comment on Zhou.

Zhou's closely held Shanghai Nongkai Development (Group) Co is being investigated for irregularities, the Shanghai government said. Zhou could not be reached to comment.

Zhou has been placed under house arrest and his financial records were seized by government auditors, the Securities Journal said yesterday.

The land ministry counted 81,000 cases of illegal land transactions last year, costing the nation an estimated 1.54 billion yuan, according to its Web site.

Chinese anti-corruption drives have netted tycoons before. Yang Bin (楊斌), ranked China's second-wealthiest man by Forbes in 2001, faces trial next week on charges of fraud, according to Hong Kong's Sing Tao Daily newspaper.

The latest push may prove bad news for investors who have been buying Hong Kong-listed developers with projects in China.

"The government policy towards the property sector and this kind of scandal will likely have a negative affect on these property stocks," said Ben Kwong, the head of research at KGI Asia Ltd.
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