Survey Finds China Data Don’t Show Full Picture of Overseas Shopping Spree

Xi Jinping backs overseas investment

Pan Che via Caixin| Among Asian countries, China remained the largest investor in the global real estate market during the first half of this year, despite government measures to clamp down on outbound investment in the property sector, a report found.

CBRE, the world’s largest commercial real estate services firm by revenue, said China’s official data on outbound direct investment (ODI) does not fully capture the overseas shopping pattern of Chinese companies, particularly those with assets and lending facilities offshore.

Official data showed that all Chinese firms’ ODI in real estate dropped 82% year-on-year during the first half as the policy effect held up. However, the CBRE report said Chinese private firms’ spending on overseas real estate deals grew 102% year-on-year. The official ODI figures don’t count Chinese money circulating offshore.

It might also suggest that the restrictions on overseas real estate deals may not be the same story for different entities.

Chinese state-backed sovereign wealth funds’ overseas property acquisitions jumped more than 19 times over the first six months from a year ago, largely buoyed by a big-ticket deal in Europe, the report said.

By contrast, state-owned enterprises (SOEs) have scaled back their activity as they are more policy-driven. The SOEs’ overseas property deals dropped 66% from a year ago.

The CBRE report said the sovereign wealth funds are not subject to capital controls because of their roles as special investment instruments for China’s foreign exchange reserves, which remain the world’s largest.

To a certain extent, the unaffected sectors reflect the strategic layout of the Chinese government. For instance, in the aforementioned big-ticket deal, China Investment Corp. acquired Blackstone’s European warehouse firm Logicor for $14 billion, with an eye on forging a logistic network to advance the “Belt and Road” initiative, a massive global infrastructure investment plan backed by Chinese President Xi Jinping.

The sale was the biggest private equity real estate deal in Europe on record, according to Reuters.

Last week, Beijing consolidated its grip on “irrational” overseas investment in sectors such as property, sports clubs and entertainment. Regulations from several government agencies, including the National Development and Reform Commission and the Ministry of Commerce, explicitly stated that outbound investment in real estate, hotels, cinema chains, sports clubs and entertainment will be restrained.

Looking ahead, the CBRE said the new rules will yield a positive short-term impact on the domestic property market as Chinese investors return to their home market because moving capital abroad has become increasingly difficult.

The report also warned that the capital controls could hinder inbound investment from foreign investors, who could worry about an exit route and possible difficulties in repatriating their capital abroad.

Under the new rules, Chinese investors seeking opportunities abroad can opt for leveraging their entities based in Hong Kong or offshore financial institutions to engage in property and land acquisitions.