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Real estate development ranks as most profitable Chinese industry
The Epoch Times
3/10/2005

Gong Ming Magazine, which specializes in international finance news, recently published its top-ten list of most profitable industries. The categories represented on the list were real estate, funeral and burial industry, driving school, highways, electrical energy, wired television, medicine, education, publication of education materials and Internet gaming. Of these it was real estate that came out on top, laying claim to the title of “Most Profitable Industry” in China. It is the third straight time the industry has been awarded such unique honor.

The real estate industry has consistently posted much higher profits than other industries in China, especially of late. Profits from the real estate industry were twice that of the coal/gas burning electrical power industry. Coal/gas burning electrical power in ranked the second most lucrative industry in China, with posted profits totaling five times that of the average industry.

So what creates these astronomical profits for Chinese real estate companies? It is that the Chinese government has a land monopoly that it manipulates to benefit the wealthy few within the real estate industry at a heavy cost to the rest of the nation’s people. On the surface, it is a fully competitive industry with more than 40,000 real estate enterprises in China. However, the government doles out the best pieces of land to its favored few, thus unbalancing any honest competition within the market.

If the leasing of land is one of the most profitable sectors of the real estate industry, then relocation with low compensation is the second most profitable sector. During these years, the real estate industry took a huge amount of land from farmers with little to no compensation. Last year while the standing committee of the National People’s Congress was conducting inspections on enforcement of land management laws, they discovered that the government owes debts nearing 100 billion yuan to farmers in compensation for relocation.

For example, in the red flag village of Zigong city, Sichuan province, from 1992 to 1999 over 7700 mu (roughly 1/6 of an acre) of land were taken from farmers. These lands were generally placed in the hands of government officials who happened to also run privately owned real estate development companies. At the time, each farmer was compensated with an 8000 yuan (US$967) relocation fee. However in March of 2004, the market value of one sector of land, about 71 mu, was auctioned off at the starting price of 600,000 yuan (US$72,494) per mu.

The real estate industry is also rife with tax evasion. In the second public announcement of the 2004 Beijing property tax publication, out of the 15 enterprises that owed back taxes, the majority of them were real estate development and construction companies. Furthermore, the amounts that they owed were quite large.

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