CHINA/REAL ESTATE: SIX MINISTRIES ISSUE

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