China’s Outbound Investment BoomIf you remember the 1980s, you’ll also remember the last great Eastern panic overseas. At that time, Japan was booming — the bubble had yet to burst — and Japanese multinationals were snapping up overseas assets left, right and centre. Sony purchased Columbia Pictures and made itself a Hollywood big shot (though it still hasn’t mastered Spider-Man), Nintendo bought the Seattle Mariners baseball club and had Americans asking how their national pastime fell into the hands of a foreign country. Mitsubishi purchased the Rockefeller Center in Manhattan, just the tip of the iceberg when it comes to Japan’s property purchases of the era. Of course, it all ended poorly and most investors retreated to lick their wounds. Flash forward 30 years, and it’s China’s turn as global raider.

Shopping Spree

And there it is. The idea that somehow Chinese buyers’ of single apartments or landmark hotels (such as Anbang Insurance Group’s US$2 billion purchase of the Waldorf-Astoria in New York last year) is a harbinger of the end of Western civilisation is hysterical and vaguely xenophobic. The debate now is if the fear is justified or simply racism. But ever since Chinese investment overseas took off in 2009, reaching US$9 billion in 2013, and then rules relaxed to allow more overseas investment by Chinese insurers, the idea that Mainland firms own everything has become entrenched. According to Knight Frank’s 2015 Wealth Report, commercial investments held by private individuals totals US$153 billion. With those numbers, $9 billion doesn’t sound so threatening.
Chinese investors are still relatively new to global investment, and like any private individual, developer or fund, the reasons for investing overseas are safety and security for wealth. China’s flush with cash right now, and it needs someplace to protect that — or earn a good revenue if you’re an insurer. “We believe more Chinese developers will look overseas to support the needs of their local clientele,” said Colliers International’s Terence Tang, managing director of capital markets and investment services, Asia in a statement last year. Outbound investment from China has been increasing at a 50 percent clip per year for the last five, largely based on domestic policy (restrictions, cooling growth, demand to diversify), and that’s unlikely to change.

Initially, inexperienced Mainland investors descended upon well known, recognisable safe spots like London, New York and Sydney — and of course Hong Kong — largely seeking trophy assets. Indeed investors in the so-called first wave sampled key international waters almost exclusively. Nearly 29 percent (US$2.3 billion) of all investment into the US in 2013 was in Manhattan, $1.4 billion went to Sydney and Melbourne, and nearly $3 billion to London according to Knight Frank.
But as knowledge and experience grew, so did ambition. The next step was second tier gateways like San Francisco, some cities in Germany, Miami and Tokyo. “More Chinese investors are set to jump onto the bandwagon simply because they now feel more comfortable about venturing their capital in overseas real estate markets,” said Tang. And policy at home looms large as an influence. “Given the volatile nature of the policy-driven domestic market, Chinese investors see the need to diversify their investment for more stable returns and reduced portfolio volatility by cashing in on various economic cycles,” said Knight Frank’s Chinese Outward Real Estate Investment. According to research by Cushman & Wakefield, China is now the third largest overseas investor in the world.

Widening the Net

For 2015, capital is likely to flow to more experimental locations like Seoul, Chicago, Vancouver, Seattle, Houston and Boston, a clear sign China’s days as a resources and infrastructure based investor in emerging markets are past it. Cushman & Wakefield points out the United States remains the number one destination for Chinese capital, followed by the UK, Hong Kong, Singapore, Australia, Malaysia, Japan and BRIC brother Brazil. But cash isn’t a guarantee of smooth sailing. C&W’s China’s Outbound Boom noted, “Investors face an array of challenges in the form of government controls on capital flows; talent shortages; differences in corporate and management cultures; and unfamiliarity with foreign legal and regulatory environments, including sometimes-daunting tax laws.”
Nonetheless, the Mainland is a major real estate mover and shaker now. State-owned developer Greenland Holdings Group has its fingers in projects in the US, the UK and Australia among others, including the massive Greenland Center redevelopment in Sydney, Metropolis in Los Angeles, a newly announced Toronto project, and the controversial Pacific Park — formerly Atlantic Yards — in Brooklyn. Other developers looking at international markets are the country’s largest residential player China Vanke, Fosun International and Dalian Wanda.
Which brings up the spectre of resistance. How this is going to affect office workers and apartment dwellers remains to be seen. But it will. Critics warn of public assets and eminent domain land being controlled (as in the case in Pacific Park) by Beijing and residential development designed to appeal to Chinese buyers rather than locals or to blend in with existing zoning. (Years ago accusations of neocolonialism were bandied about when China increased its investment footprint in resource-rich Africa.) For now, however, analysts see the outbound boom as an issue of internationalisation for the PRC and have few worries. Hong Kong’s retail sector can attest it’s a new day in China after all. Cushman & Wakefield: “We anticipate that rising outbound capital flows over the coming years will have major implications for investors and property markets around the world.”