Why are Chinese property giants going into pig farming, carmaking?

02:04

China's property giants have been moving into new fields that have nothing to do with their traditional expertise.

Property group Evergrande, for example, had decided to go into the auto industry. Earlier this month, Evergrande debuted six new energy vehicle (NEV) models – sedans, sports cars, and SUVs. The company plans to invest 45 billion yuan in the auto project by the end of 2021, and to start production that year in both Shanghai and Guangzhou.

Just as its love for automobiles, China loves pork, too. Another developer, Vanke, has bought a pig farm and pork processing plant in Shandong. Meanwhile, developer Country Garden has opened a robot-staff powered restaurant in Shunde in Guangdong Province.

So why are property developers diversifying? Some experts told CGTN a crucial reason is that many have lots of cash on hand due to the profitability of the sector over the past several decades.

Cash is king

Vincent Mo, board Chairman of Chinese real estate website Fang.com, said that it is very natural for property companies to diversify their business.

"Property developers made a lot of money in the past, it's a very profitable industry, they had a lot of cash in hand. That doesn't have a lot to do with a pandemic situation, this has happened many times," he said.

Meanwhile, Shanghai Securities chief analyst Cai Junyi said part of the reason for some of these players were the sluggish prospects for real estate.

"After some twenty years of development, China's real estate industry is facing some bottlenecks."

"The Yangtze River Delta and the Pearl River Delta are still developing well, but some other areas are quite weak, and so it's hard to expand the market on a large scale any more. So the property giants are reaching out to new areas. These are not new areas, but they have a larger room to grow, and the companies can use their operational advantages in new areas," said Cai.

E-House Real Estate Research Institute research director Yan Yuejin said only developers have the financial might to risk going into new businesses, compared to small firms.

"You have to be clear about a new business. For example, about operational cycles and investment returns. There are a lot of uncertainties in developing new business, and only the developers are capable of doing that," he said.

Property sector still in 'golden years'

Despite property companies diversifying their business, Fang.com's Mo remains positive about the continued growth of the property sector, especially in China's major cities.

"Real estate has been moving China's economy in the past decade. The demand for property is still very strong. We are expecting shortages in major cities. And the supplies are comparatively not enough."

"These are the fundamentals. The industry is still going to continue its silver or golden age in the coming five to 10 years, that's for sure," he said, adding that his firm expects property prices may be growing at a rate of not more than five percent annually.