China Finds Abuses Nearing $1 Billion in Affordable Housing Push

A Chinese audit concluded that about 5.8 billion yuan ($947 million) was misappropriated from an affordable-housing program that Premier Li Keqiang said would provide a test of the government’s credibility.

Funds from 360 projects were diverted to pay back loans or make outside investments, while money designated to pay for demolitions was used to start other construction, the National Audit Office said in a report posted on its website yesterday.

The five-month audit’s findings draw new scrutiny to a program that was designed to reduce the risk of real-estate bubbles and ease discontent among the poor. In February 2012, when Li was vice premier, he called on the public to supervise the government’s push to distribute affordable housing in a fair way.

In 2012, the government invested 412.9 billion yuan in affordable housing, while another 466.8 billion yuan came from bank loans, bonds and other social financing, according to the report. The real amount of money that was lost may be higher than reported, Jinsong Du, a Hong Kong-based property analyst at Credit Suisse Group AG, said in a phone interview.

“If there’s any surprise it should be that it’s so small,” Du said of the abuses. “This is probably a deflated number.”

Li’s predecessor as premier, Wen Jiabao, pledged in 2011 that the government would build as many as 36 million affordable-housing units within five years. The audit found that 38,900 units had been distributed in violation of the rules, and abuses included people providing false information and families receiving multiple houses.

Advertising Costs

In one case cited by the audit, a property company in the Inner Mongolia city of Ordos spent money meant for affordable housing on advertising and sales expenses for property projects. The money was later returned, it said.

The report said local governments had paid “great attention” to problems pointed out by the auditors.

“Overall, the situation is quite good, but the audit found that there exist problems of violating the rules and substandard management in some affordable-housing projects,” it said.

Before becoming premier in March, Li had championed affordable housing as a way to stabilize the housing market and boost supply.

“Fair distribution of the houses is the lifeblood for the success and sustainable development of the program,” Li said in February 2012, according to the official Xinhua News Agency.

Almost 20,000 auditors were deployed to 31 provinces from November to March to check the program’s progress, yesterday’s report said.

— With assistance by Henry Sanderson

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