“Go out!”, was Deng Xiaoping’s famous slogan signalling China’s integration into the global economy. This week at MIPIM Asia revealed China has “gone back in” with important measures that will affect inward investment into the UK.
China has decided to slow the fall of its currency and strengthen its domestic economy by imposing capital controls. Here are the key impacts that will interest everyone in the real estate sector:
- Government approval is currently being required for cross-border payments of over $5m
- China domiciled non-financial companies will be limited to remitting no more than 30% of their owners’ equity overseas. This is the first time an upper limit has been imposed in 20 years
- Beijing has banned overseas investment deals worth more than $10bn until September 2017
- Overseas M&A and real estate deals of more that $1bn are being controlled.
These are anti-capital flight measures. They will probably be loosened once the yuan has stabilised. The yuan has been weakening against the dollar, driven by the return of a policy similar to Reagonomics in the U.S. as President-elect Trump proposes deficit funding for infrastructure and deep tax cuts for corporations and the middle classes. This is driving a stronger buck on the back of expected inflation and interest rate rises.
At least for now, Chinese firms are going to find it more difficult to invest heavily in UK real estate. Those headquartered in Hong Kong and subject to a different system will continue to find it easy though and their appetite for UK property remains undimmed.
Everyone working closely with these Chinese firms (which we are all doing - or want to do) will need to be alert to these capital controls. They are far and away the most dramatic recent change in China’s attitude to outbound investment.
But we shouldn’t lose sight of China’s 30 year economic miracle. When Hong Kong was returned to China in 1997 it was a fifth of the entire Chinese economy, now it is only a fifteenth. Per capita income in China has gone from $339 in 1990 to $4000 in 2010. China has lifted more of its people out of poverty in the last 30 years than any other country in human history.
“Capitalism controlled by communism” has achieved an extraordinary economic performance although obviously there are strains and still much to work on.
The hyper intensity of Hong Kong business life has to be lived to be believed. Perhaps it’s something to do with 7m people compressed into just 250 developed square miles. They are strung out in an average 1.3 mile depth between the mountains and the Fragrant Harbour. They live life higher in the air than any other people on earth as Hong Kong’s 1,223 skyscrapers make it the most vertical city on earth.
Hong Kongese can go from first business meeting to full on deal within minutes. We met a contact for a “get to know” coffee and were asked a few questions. Within an hour we were advising them on a substantial UK scheme!
In the endless lights and noise of construction we experienced while staying at MIPIM, it became clear it is not just the real estate future of Hong Kong being born as we write. In 2017, Hong Kong money and ambition will be coming to a UK real estate sector near you.