China's state television, CCTV, has taken on domestic companies -- after having gone after Apple Inc. (Nasdaq:AAPL) and Starbucks Corporation (Nasdaq:SBUX) -- alleging that Chinese property developers owe trillions of yuans in taxes, and prompting an immediate and heated backlash from the business community.
For its Weekly Quality Report on Sunday, CCTV reported that 45 of China’s biggest property developers owe a total of more than 3.8 trillion yuan ($623 billion) in land appreciation taxes from 2005 to 2012. Well-known companies like SOHO China Ltd. (HKG:0410) and China Vanke Co., Ltd. (SHE:200002) were named, and Guangzhou-based Agile Property Holdings Limited (HKG:3383) was said to owe the highest bill, 8.3 billion yuan, the Wall Street Journal reported on Monday.
Many of the businesses mentioned in the report quickly denied the allegation. Gemdale Corporation (SHA:600383), Beijing Capital Development Co., Ltd. (SHA:600376), BBMG Corp (HKG:2009) and Beijing Vantone Real Estate Co., Ltd (SHA:600246) all made clarifications in stock exchange filings today. Vanke, the biggest Chinese developer listed on mainland exchanges, said the report is based on a “misunderstanding” -- the company said it paid 21.1 billion yuan in taxes in 2012, of which 5.28 billion was land appreciation tax.
“Vanke has always abided by the law in its business operations and paid taxes according to regulations,” the developer said in a statement.
One real estate mogul, Ren Zhiqiang, who runs Huayuan Property Co. Ltd (SHA:600743) and who is one of China’s most widely recognized online personalities with nearly 16 million followers on Sina Weibo, China’s Twitter-like microblogging site, was so outraged by the allegation that he's considering suing CCTV over allegations that his company owes unpaid taxes.
“CCTV appears to have an axe to grind and seems determined to bring down the market economy,” Ren wrote in one Weibo post. In another, Ren stated, “I know only of the stupidity and ignorance of CCTV after seeing this report.”
The news program was also met with criticism and doubt among analysts who specialize in the real estate sector as being not well-informed. A spokeswoman for Vanke said in an email that developers only pay land appreciation tax after projects are completed, while before that, there is only a provision for the payment, Bloomberg noted.
“The TV program ignored the dynamics between developers and local governments, which often allow developers to pay [land appreciation tax] over an extended period of time to incentivize the developers to buy more land,” said Jinsong Du, a Hong Kong-based property analyst at Credit Suisse.
CCTV has broadcast similar exposés targeting prominent foreign firms like Apple, Starbucks and Volkswagen AG (ETR:VOW) in recent months. A complete list, in Chinese, of the property developers named by the program and the amount they allegedly owe in taxes is available online.