09 March 2017
One of the common topics today is to where the Chinese money may flow despite the tightening policies on money outflow imposed by the Chinese government. China’s outbound direct investment (ODI) has reached USD170 billion in 2016 and has doubled in the past 5 years. According to RCA, Chinese capital invested in real estate amounted to USD37.6 billion in 2016, a 7.8% increase YOY. The demand for foreign direct investments is still growing as the renminbi is expected to fall further although the pace may be slower.
For companies who have already set aside some foreign capitals outside China or have a listed vehicle to raise debt, they may not be affected by the recent tightening of the money outflow. However, the Beijing government has tried everything they can to restrain money from leaving the country. I expect China’s foreign direct investment (FDI) will slow down in 2017 because of the tightening measures. The places in where they can invest are somewhat limited due to different economic or political reasons. Not so long ago these capital have pursued trophy assets and higher returns in much preferred locations such as the downtown of those gateway cities where they could never find this type of asset back home. After Brexit these capital have become more cautious about the London market and more so lately when uncertainties in other parts of Europe are growing. In the US, the Trump policy may make the country a more favourable place for foreign investments in the short to medium term. However, it is questionable whether these conditions can be sustained in the long run. Nevertheless, I believe the outbound investment will continue as there is still considerable wealth in China that needs to be diversified. The question is where they will likely to invest, in the US or back in Asia?
I believe Asia has once again become more attractive to many global investors as there are fast growing and performing countries such as India, Indonesia, the Philippines and Vietnam. In fact, Hong Kong will benefit from the currency peg to the US dollars that makes it one of the outbound destinations of much Chinese capital. The numbers show that the capital volume has reached USD5.1 billion in 2016 and has surpassed the amount going into Europe, primarily the UK. In the first 2 months of 2017, Chinese developers have snapped up 3 development sites in the last 3 government tender sales, spending over USD3.5 billion in total. I expect they will continue to buy more properties, land or completed developments.
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