Chinese Residential Real Estate Industry Analysis Economics Essay

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During last several decades especially last 10 years, a great development has been seen in the Chinese residential real estate industry. From the eastern wealthy cities such as Shanghai to the developing cities which in the western part of China, the residential real estate industry has became an important part of the economy. According to national research the sales of Chinese residential real estate in 2009 was nearly 4.4 trillion RMB which account for nearly 13.11% of total GDP. More than millions of people were employed in this sector. This report conducted two famous tools-PEST analysis and Porter's 5 forces to analyze the remote environment and the competitive forces of the chosen industry. The PEST analysis analyses the remote environment in terms of four aspects: political/legal, economic, social, and technological, while the Porter's 5 forces model examines the competitive environment including new entrants, competitors, substitutes, suppliers and buyers. The purpose of the report is to reveal how the remote environment and competitive arena have effects on the industry and the players within the industry.

Industry background

Residential real estate is the mainstay filed in our national economy and plays a decisive role. It is closely related with our national economy and our people's livelihood. From the open-and-reform policy on¼Œreal estate in our country develops rapidly and shows great liveliness.

The Chinese residential real estate market developed into the embryonic stages in 1980s. A few residents who lived in the city began to accept the concept of the living house as a commodity, the sales of residential house as commodity began to rise. But under the circumstance of planned economy system, the develop speed in this industry is still very low. Because many people still hold the concept of "welfare housing" which means the employees can get the living house from the government or the enterprises for free. Enter the 1990s, the investment in residential real estate market appeared a fast growth momentum. Many real estate develop enterprises grew up during this period of time. Only in 1992, the amount of Chinese real estate enterprises increased by from 2243 to 11432. Although the numbers of real estate companies declined in 1996, however since 1997 the quantity shows a steady growth trend until today. According to some research there are over fifty thousands real estate enterprises in China. A lot of famous real estate enterprises emerged such as Poly Chonghai and Vanke which is the largest real estate operator in the world in 2010. The ups and down of the numbers of real estate agency can reflect the development of this industry in some extent. Since 2000, accompanied by the continuously growth of Chinese national economy, the development in this industry became more quickly than ever before.

Source: Journal of the Chinese Statistical Association

As we can see from the graph above, the brown line shows the sales of housing area in China increased dramatically from near 3 billion in 2001 to over 9 billion 2009. Moreover, we can learn from the blue line that the amount of money supply (M2) went up from 2.2 billion to over 12 billion which means that many credits have been invested in this market and it still increase by nearly 20% every year. According to economic regular pattern, under the market economy condition, the money without exception will flow into high-profit industry, this is an inevitable trend. This means the huge development in this industry has attracted many attention and investment in last 10 years.

However, like many other countries, China also has experienced a process of quickly increase in the residential asset price during last several years. According to YU(2010) The average residential house price increased 52.57% in China, in some big cities, the price went up over 100%.

Source: The data are from the National Bureau of Statistics, PRC, January 2003 to March

2009. Output is generated by Eviews 7.

From the graph above, we can see that the average residential house selling price in China was nearly 5000RMB in 2010 which doubled the number of 1998. But this is just the average price of the whole China including the western poverty provinces, in some big cities in the eastern part of China, the price is much higher, take Shanghai as an example, the average residential house selling price in 2010 was 45887 RMB. The price increased so quickly and for many city residents, their income for nearly 30 years still can not afford to buy a living apartment in the some cities, so many economists argue that maybe there is a bubble in China's residential housing price.

Pest analysis of the residential real estate operate industry

The pest analysis is a tool used to analysis and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management. The Pest stands for political factors, economical factors, social factors and technological factors.

3.1 Political/Legal