ChapterⅠ Introduction

　1.1 Brief Introduction of the Financial Crisis

　The sub-loan crisis is also called as the subprime mortgage crisis and translated as the subprime lending crisis. It refers to a financial storm that occurred in the United States due to the bankruptcy of the sub-mortgage agencies, the forced closing of the investment funds, and the severe turbulence of the stock market. It led to the crisis in lack of liquidity at the world's major financial markets. The U.S. "Sub-Loan Crisis" began to emerge from the spring of 2006. From August of 2007, it started to sweep through the United States, the European Union, Japan, and other major financial markets in the world.

　Sub-loan means "subprime mortgage loan". “Sub” means the poor side corresponding to “high” and “excellent”, while in the "sub-loan crisis" it refers to the low credit and low debt-repaying capacity.

　Subprime mortgage loan is a high-risk and high-yield industry, which refers to the loans offered by a number of lending institutions to the borrowers with poor credit and low income. Comparing to the traditional standard mortgage loans, the subprime mortgage loans demand low levels on the borrowers’ credit history and repaying ability, but its corresponding lending rate is much higher than the normal mortgage loans. Those who are refused on high-grade mortgage loans by the bank for their bad credit history or weak repaying ability may apply for the subprime mortgage loans to buy houses.

　When the house price is going up, the subprime mortgage loans business is booming. Even if the borrower’s cash flow can not repay the loan, they may obtain re-loans from the value-added real estate to fill the gap. However, when the house price maintains or goes down, there will be a funding gap and then the bad debts.

　The subprime mortgage loan is a kind of housing mortgages abroad, to supply loans to the people with less income or lower-level credit history. The reason for supplying loans to these people is that the lending institutions can receive a mortgage interest higher than the good credit mortgage. When the house prices rise, the loans will have no problems as a result of adequate value in pledge; but when the house prices fall, value in pledge is no longer sufficient, while the mortgager has less income, thus the loan contract may be breached and the house may be returned to the bank. It will cause the increase in the bad debts of the mortgager, the collapsed cases of the mortgage providers and the risks in the financial markets.

　1.2 Importance of Real Estate Industry on Beijing's GDP (Proportion)

　The added value of real estate industry accounts for more than 5% of the gross domestic product (GDP) in our country. As a pillar industry, it has played an important role in the national economy.

　Yu Xiuqin, the spokeswoman of Beijing Municipal Bureau of Statistics said on October 14, 2004, that Beijing’s GDP in the first quarter increased 13% over the same period of the previous year. The released Real Estate Investment Report by the Fixed Assets Investment Division of Beijing Municipal Development and Reform Commission on October 15 indicated that the investment growth rate in the first three quarters reduced to 20.3% from 40.6% in the first quarter, "ranking in a more reasonable range." But the Report also pointed out that the great dropping in the real estate investment "leading indicators (land development, etc.)” undoubtedly affected the potential growth of investment in real estate. The delayed impact from macro-control measures shall be paid attentions to." This Report obviously reminded that the development and investment in real estate may maintain the downward trend due to the impact of macro-control, and it may further have a certain impact on Beijing’s economic growth.

　What impact can macro-control bring on Beijing’s GDP? Ding Xiangyang, Director of Beijing Municipal Development and Reform Commission, said when he reported to Beijing People's Congress Standing Committee on the implementation of national economic and social development plan during the first half year, that a series of land policies in Beijing such as the moratorium on agricultural land requisition, the ceasing of agreed land transfer, and the clean-up of investment projects in development zones, as well as the macro-control, had probably effected an investment of about RMB 120 billion yuan, with about 2-3 percentage points on affecting the annual economic growth in the next few years. The Report of the Fixed Assets Investment Division finally showed that from the investment in recent years, the proportion of real estate investment had always been maintained at above 55%, which did not match the direction of industrial restructuring on developing high-tech industries and modern manufacturing sectors. In order to maintain the consecutive and stable economic growth of the city and optimize the industrial structure, it is necessary to intensify the investment structure adjustment and increase the proportion of industrial investment, especially under the circumstances that the potentials in the real estate industry are affected."

　We can see such a logic relationship: the real estate investment maintains a high proportion in recent years, while the macro-control reduces the real estate investment growth rate, which will annually decrease several percentage points of Beijing’s GDP in the next few years. Real estate has an extraordinary impact on Beijing's economy.

　The proportion of real estate investment is too large? According to the planning of National Development and Reform Commission, Beijing City has cleaned up the fixed assets projects in the city. From the information of Beijing Municipal Development and Reform Commission, there are more than 6000 projects being cleaned up, in which more than 600 projects involved in violations. Among them, there are 53 projects being stopped the construction or cancelled and 554 projects being suspended the construction for rectification, with a total investment amount of RMB 164 billion yuan, accounting for 1/5 of the total number in our country. From the project clean-up situation, there is still more than 50% of investment concentrated in the real estate field among all the city's investment projects being constructed or planned for construction. Figures show that the real estate investment in

　However, Ren Zhiqiang, President of Huayuan Group who researches much on the economic indexes said, "Beijing originally has a lot of lands for use, but the Capital has not implemented constructions for a long time, and now the construction develops after conquering great difficulties, a higher proportion of real estate investment is normal." Professor Ye Jianping, Head of the Land Management Division of Renmin University of China, considered that demands for housing and the supply in Beijing in recent years had promoted the proportion growth of investment, although this proportion of 56.5% was much higher than the international average level. However, it is very difficult to evaluate whether it is right or not at special stages in a specific period." Nevertheless, there must be problems if such proportion maintains in a long period." Someone in the Fixed Assets Investment Division of Beijing Municipal Development and Reform Commission said that a higher proportion in real estate investment has certain rationality at the present stage on accelerating urban transformation, urbanization and economic growth. And now all aspects of the real estate industry are still within the safety line in general. A large number of bubble phenomenon such as housing vacancy or price skyrocketing have not occurred. But he also pointed out at the same time that it was very easy to emerge bubbles as the real estate industry was greatly affected by the policy. Therefore Beijing, as a large-sized city, if the proportion of real estate investment is too large, the city’s whole economy will accordingly become more vulnerable.

　Who is the largest contributor to GDP? The official data from Beijing Municipal Development and Reform Commission show that the direct pulling role of real estate on Beijing’s GDP is between 5% and 10%. Experts believe that the direct contribution of the real estate industry to GDP completely results from the demand growth in the real estate market. It is reported that the volume of demolition in Beijing reduces at the annual rate of 20% for 5 consecutive years. There were about 100,000 removing households in Beijing 5 years ago, but in 2004 there were only 20,000. In the past a considerable portion of the demand in Beijing real estate market consists of urban renewal, infrastructure construction as well as a large number of demolitions invested by the government. Now although the government demolitions decline a lot, the consumption amount has not reduced, thus the real estate market remains a strong demand. "With this demand, the relatively high proportion of real estate in GDP is quite normal, because Beijing's real estate is not for Beijing

　In addition to the pulling role of the strong demands in real estate market on Beijing’s GDP, it is well known that the real estate industry drives its upstream and downstream industries. Someone in Beijing Municipal Development and Reform Commission disclosed: "According to the sales estimation, the proportion of real estate and the relevant industries such as its driven raw materials and service industry is about 1:1.2." "Real estate investment can drive a dozen of or a hundred of related industries." Ren Zhiqiang had his personal experience. He considered that from an investment view, the real estate industry could stimulate many affiliated industries, thus it had a great impact on the whole GDP. But he also said that the current method of calculating GDP was on the basis of the net investment amount, excluding the consumption, whereas the related consumption of real estate such as second-hand housing transaction was a very important part of the real estate industry. Therefore he thought that the statistical methods on GDP was not entirely correct, which could not calculate accurately the specific contribution value of the real estate industry. What he implicated was that: the present statistics were incomplete, and the polling function of the real estate industry on GDP had been underestimated.

　Macro-control on the balance beam: more than one expert warned that the long-term development of a city could not rely on continuous investment though real estate played an important role in driving the fixed assets investment and GDP. It should develop more industries. Only the driving industries can bring sustainable development, no matter what it is the first, second or third industry. Someone in the Investment Division of Beijing Municipal Development and Reform Commission introduced that for the adjustment of investment structure, the Municipal Development and Reform Commission at present had established a long-term guideline aiming at reducing the proportion of real estate in the fixed assets investment in Beijing: to change the structure with so large real estate investment at present by increasing the investment on other industries and fields, rather than limiting the current real estate projects, in order to increase the growth points of the city and avoid large effects on the whole economy resulted from the changing real estate industry. At the same time, we shall strengthen market monitoring and analysis, guide the restructuring of real estate products, focus on developing the mid-priced residential houses, and expand the size of second-hand housing market etc. "But the government has the responsibility to control the real estate for avoiding major fluctuations." The staff in the Investment Division of the Development and Reform Commission said that people in the real estate industry were more psychologically vulnerable to the effects of the outside world. Therefore the misconduct may result in insufficient investment in real estate, declining engineering volume, effecting the development of the relevant service and raw material industries, and finally directly or indirectly affecting the entire GDP growth." So the real estate investment, no matter it is up or down, should be a smooth process. It shall follow the principle of ensuring a smooth and stable development in real estate, to prevent the sharp ups and downs."

　The information on our country’s real estate and construction of 2007 shows that there are 63,000 real estate development enterprises in 2007, with a total employment of 1,720,000 people; the completed investment on real estate development is RMB 2.5289 trillion yuan, with an increase rate of 30. 2%.

　Statistics show that the asset-liability ratio of China's real estate development enterprise in 2007 was 74.4%; the real estate development enterprises realized a total profit of RMB 290 billion yuan, with an increase rate of 48.4%.

　The released information also shows that China's real estate industry in 2007 still has problems such as irrational housing supply structure, high housing prices and so on.

　Statistics show that in 2007 the affordable housing investment accounts for 4.6% in the commercial residential investment, reducing 0.5 percentage points; residential housing under 90 square meters only accounts for 23.3% in the commercial residential housing; the real estate sales areas reduced a lot at the end of the year.

　ChapterⅡ Financial Crisis

　The real estate industry is the leading industry of China's national economy, which ranks a decisive position in the modern social and economic life. After more than ten years of development, China's real estate industry is in the transition period towards to a large-scaled, branding and standardized operation. The growth means of the real estate industry is changing the focus on from speed and scale to benefit and market segmentation, and the relied aspects from the government’s policy control to market regulation and corporate self-regulation. In the first half of 2006, the rigid housing demand in Beijing released a lot, and the supply in the commercial forward delivery housing market turned on a recovering trend. There were four features showed in Beijing’s real estate market in 2006: the investment growth in real estate recovered and the residential investment increased a lot; new construction area increased fast, but the completion area of residential buildings reduced; the sales in the housing market boomed, but the vacant space lessened; the residential price index continued to increase, but at a stable rate.

　Beijing’s investment in real estate increases rapidly. From January to June in 2006, the completed investment in real estate development in Beijing was RMB 64.01 billion yuan, increasing 20.8% over the same period in the previous year, with an increased rate of 12.7 percentage points. From January to June in 2006, the completed land development area of the real estate development enterprises in Beijing reached 1,964,000 square meters, increasing 130% over the same period in the previous year; the vacancy space decreased for the flourishing market demand and supply reduction. At the end of June in 2006, the vacancy space of commercial housing in Beijing covered an area of 9,652,000 square meters, with 4,090,000 square meters less than that at the beginning of the year, with a decreasing rate of 29.8%. From January to June in 2006, the fund in place of Beijing’s real estate development enterprises was RMB 126.52 billion yuan, increasing 20.3% over the same period in the previous year, in which the financial loans was RMB 33.95 billion yuan, increasing 40.1% over the same period in the previous year. It accounted for 26.8% of the fund in place that year, raising 3.8 percentage points.

　Since 2006, the housing sales price index in Beijing City showed a slight upward trend. From January to June in 2006, the total price index of newly-built commercial houses accumulated at 107.7%, increasing 0.6 percentage points than that of the previous month, and increasing 1 percentage point than that at the same period of the previous year; of which the residential price index accumulated at 108.5%, increasing 0.5 percentage points than that of the previous month, and increasing 1.3 percentage points than that at the same period of the previous year; the second-hand residential price index accumulated at 109.5%, almost the same as that of the previous month, and increasing 3 percentage points than that at the same period of the previous year. The price increasing rate of ordinary residential housing exceeded that of the high-grade residential houses. From January to June in 2006, the average residential price index in

　The competition in Beijing’s real estate industry has become increasingly fierce and white-hot. As for the developers, Sunco’s entry into Beijing, the establishment of Beijing Capital Development Holding Group, together with the macro-control policy of the past two years, the rising interest rates, 8.31 Land Revolution (The agreed land transfer was prohibited since August 31, 2004), the introductions of the State’s 8 Articles and 6 Measures on controlling the real estate market, the entry of overseas real estate funds, all of these made the competition war even more interesting. Accompanied by the clank of horns, the developers are making every effort to win in the real estate market. The agency industry has also begun the price war. In the future the industries will be fully integrated, which is a general trend.

　ChapterⅢ Overall Conditions of Beijing Real Estate after the Financial Crisis

　Comparing with the previous two years, Beijing’s real estate market in 2008 had much more challenges. The Olympic opportunity existed with the financial crisis and the real estate market advanced slowly in the year. In the first half of the year, the theory of the turning point in real estate market was very popular, "the concept of the Olympic Games" deeply rooted in people’s hearts did not bring about the active transactions in the real estate market. "Wait-and-see" has become the pronoun of the real estate market. In the second half after the Olympic Games, the real estate transactions had not fully warmed up, and the global financial crisis came. Thus the second-hand housing prices began to fall, and the government decreased the deposit and lending rates to stimulate the market consumption. The redemption and reform policies in the second-hand housing transaction taxes and fees came out, but they had no obvious effects on the one-year sluggish real estate market. In a word, the Olympic Games opportunity and the financial crisis existed together in 2008, and Beijing’s second-hand housing market was on the fence.

　In 2009, the global economy may appear the first negative growth after the Second World War. In addition, the economic recession, low inflation, the release of potential risks in the economic and financial fields and so on, reveal that the world’s economic recession and risk are amplifying step by step. In order to stabilize the financial markets and stimulate the economic growth, each country has introduced measures. However, the economic recovering signs in major economic unions are still rare. From the latest data of 2009, the economic recession of major developed economies is deepening, and the financial crisis is sweeping rapidly from the developed countries to the developing countries with a growing impact on the global real economy. Confronted with the changing economic situation and the unprecedented challenges brought about by the international financial crisis, China has begun a new round of macro-controls with unprecedented efforts. The implementation of an active fiscal policy and an appropriately loose monetary policy conveys a clear signal: the macro-controlling measures on expanding domestic demand, maintaining the growth and ad