China Tobacco Enters Real Estate Market

Source from:  Global Times 01/18/2010

Analysts warned State-owned Enterprises (SOEs) to move cautiously Thursday after China's State Tobacco Monopoly Administration (STMA) quickened the pace of its entry into the domestic real estate market. China Real Estate Business reported Monday that Zhongwei Real Estate, launched last month with registered capital of 3 billion yuan ($439.5 million), was founded by China Shuangwei Investment, a subsidiary of the STMA, Zhejiang Tobacco Monopoly Bureau (Corp) and China Tobacco Yunnan Industrial Corp. The publication did not identify its sources in the report. A recruiter surnamed Zheng at Zhongwei Real Estate said Thursday that the company has already started operations and is in need of more employees. The STMA, along with the China National Tobacco Corporation, is responsible for centralized management of the country's tobacco industry, but it has already been involved in the real estate market. The agency's bureaus in Fujian, Yunnan, Guandgdong and Zhejiang provinces, as well as the Inner Mongolia Autonomous Region, have all operated property businesses. The Zhejiang Tobacco Monopoly Bureau has eight subsidiaries or branches developing properties, and it also owns a listed company named Sunny Loan Top, whose top 10 shareholders are from the STMA. Last August, the STMA released a notice saying it would expand the number of areas in which it does business. And the China Tobacco Society, affiliated with the STMA, also set up an industry development commission in 2008 to do professional research, including real estate research. "Via Zhongwei Real Estate, all the properties that are owned by the subsidiary corporations will be integrated," Zhou Yangmin, a tobacco analyst and chairman of the Yangming Consulting Institute, said Thursday. The STMA and the China National Tobacco Corporation are not the only State-owned companies entering the real estate industry as a sideline to their main business operations, Zhou said. He noted that it is a negative trend for such companies to focus on reaping huge real estate profits instead of concentrating on their major businesses. "The State-owned enterprises have the responsibility of doing business in sectors with lower profits that private firms prefer not to do," Zhou said. China Real Estate Business quoted unnamed sources as saying that in the second half of this year, Zhongwei Real Estate will "take positive actions" to set up a property operation platform and the company will seek to get listed in the near future. Zheng Xinye, a professor with Renmin University of China, said that if the company's operations are irregular, there is the potential risk that State-owned capital will disappear. In 2007, the STMA started to spin off some of its affiliated companies that majored in "non-tobacco" businesses, including the securities, automobile and hotel industries. But "This move of setting up a real estate company would possibly be a regression in the reform process," Zhou said. The tax and profits of the domestic tobacco industry in 2009 amounted to 513.11 billion yuan ($75.17 billion), up 12.2 percent over the previous year. Zhang Lianxiu, an STMA spokesman, said Thursday that 416.34 billion yuan ($60.99 billion) in tobacco taxes were collected in 2009, up 26.2 percent over 2008. Enditem