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Chinese Electronics Manufacturer Gains over $60 Million Through Shady Land Deals

Sun_Huixia

Sun_Huix...

· 8月6日

A Chinese electronics company profited from transferring land-use rights of an industrial park and getting government subsidies, while the original land provider repurchased the rights and built the park.

Image source: China Visual

Image source: China Visual

By Liu Min and Shaw Wan

BEIJING, August 4 (TMTPOST) -- Konka Group Co., Ltd, a Chinese manufacturer of electronics, made over 400 million yuan ($60 million) by promising to build industrial parks in northwestern China’s Shaanxi province, taking advantage of the local government’s efforts in boosting international trade and logistics. Such earnings came from resale of land-use rights and government subsidies.

Last February, Konka Group claimed to invest 20 billion yuan  ($3 billion) to build Konka Smart Home Appliance Headquarters and Konka Silk Road Technopole, along with supporting facilities, in Xi’an, the capital of Shaanxi province. It was the second largest investment that the company has made in terms of building industrial parks in China.

However, its annual report 2021 showed an investment of only 141 million yuan ($21 million) was actually made, which was less than 1 percent of what it had promised.

How did Konka Group make a fortune with those bad checks or the promises of future investments?

Securing land-use rights

Konka Group reached out to the local government in Xi’an in 2020, seeking possibilities to build a strategic partnership with the government. As an electronics provider, Konka has been integrating the real estate into its businesses since 2001. In 2007, the company approved a proposal to establish a real estate development and investment business unit. A decade later, it initiated plans to build science and technology industrial parks. In 2018, the company announced an investment plan of 58 billion yuan ($8.6 billion) with the ambition to build such parks in seven cities across China.

When Konka was busy building its business empire, Xi’an was the sought-after partner of many enterprises. The National Development and Reform Commission announced Xi’an as one of the national central cities in 2018 in an apparent effort to boost economic development in surrounding cities. With support from the central government, the local land price skyrocketed. In the first nine months of 2020, the residential land price in Xi’an grew by 35 percent, making Xi’an the city with the fourth drastic increase, according to a report  by EJ Real Estate Research and Development Institute.

Konka Group visited Xi’an in September 2020, in the hope of establishing a high-technology cluster in Xi'an International Trade & Logistics Park, an inland port established in 2008  by the local government as a free trade zone. Both parties reached consensus on landing advanced manufacturing and related industry projects of Konka in the park.

13 months later, a wholly-owned subsidiary of Konka Group gained the land-use rights of 305 mu (20 hectares) of residential land with 2.7 billion yuan ($400 million). In China, a land user can obtain only the land-use right, as there is no private ownership. With preferential policies, the company was granted such land with the lowest price the government could offer, 8.86 million yuan per mu or $20 million per hectare, much lower than other companies that also gained land-use rights from the park

The land market in Xi’an became hot red by mid 2020 because of the local government’s support and a city-wide housing price surge for years. “It is almost impossible to gain land-use rights in downtown Xi’an. The very few possible choices lie in the suburb Xixian New Area and the International Trade & Logistics Park,” a real estate analyst said .

To secure their land-use rights in the park, Konka Group announced five months  after their visit that they had reached an agreement with the authorities of the park. Detailed information was also disclosed to discourage competitors. According to their statement, Konka Group planned to acquire 480 mu  (32 hectares) of residential land to build Konka Smart Home Appliance Headquarters and Konka Silk Road Technopole. The first phase of investment into the headquarters would be 1.5 billion yuan ($222 million) and the total investment into the technopole was 2.5 billion yuan ($370 million).

Resale of land-use rights

Five  days after Konka Group secured the land in Xi’an on Oct.15, 2021, China Beijing Equity Exchange disclosed information on the resale of Konka’s wholly-owned subsidiary, which owns the land-use rights. Such notice to transfer land use rights was announced again in May , demonstrating the company’s determination and urgency to sell the rights.

“The land-use rights were granted to Konka Group on certain conditions, not to mention the fact that the company got them with the lowest price. They started reselling before they even paid for the land, which at least went against the local government’s intention,”a real estate analyst said.

“It was to optimize asset allocation,” the company responded in a statement.

This explanation has been used many times. Since 2014 , Konka Group has transferred shares worth 9 billion ($1.3 billion) of over a dozen subsidiaries. The only difference was that the company seemed to be more anxious to offload them this time. When the appraisal report was issued on April 15, more than 1 billion yuan ($148 million) for the original transfer of land use rights had not been paid.

A company named Xi'an Port Industry Investment Co., Ltd. took over the land on June 27. In most cases, the buyer would be a third-party land agent. However, it turned out to be a wholly-owned subsidiary of the management committee of Xi'an International Trade & Logistics Park, the original seller. The park paid 220 million yuan ($33 million) for repurchase, which was over 100 million yuan ($15 million) higher than the amount Kongka Group would have paid.

Massive subsidies

A company named Shaanxi Konka Smart Home Appliance Co., Ltd. was founded last March, Konka Group holding 51 percent of its shares. It looked like that this company would be responsible for building Konka Smart Home Appliance Headquarters, which was part of the agreement. But an announcement on  Xi’an Construction Resource Trading Platform showed that the construction unit for the first phase of the construction project was a subsidiary of the park, Xi'an Gang Pengyuan Electronic Technology Co., Ltd.

The tricky thing is, apart from the net profits gained by trading land, Konka Group also received government subsidies worth of 300 million yuan ($44 million) for landing the construction project “by itself.”

According to public information, Duan Xiannian, the Board Chairman of the Overseas Chinese Town Group, Konka Group’s majority shareholder, had been a deputy mayor of Xi’an immediately before he took helm of the state-owned enterprise in 2014. Duan was removed from the top position of the company in March 2022.

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