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Econometric Advisors' blog

Notes on China’s 19th National Congress, for American CRE

Oct 30, 2017, 16:08 PM by Wei Luo

China’s 19th National Congress was held in Beijing earlier this month. It is a party gathering that convenes every five years to reshuffle leadership (including the executives of state-run conglomerates), review/change the party’s constitution, make strategy, brief the public, etc. The conference sets the tone for Chinese economic and monetary policy for at least the subsequent five years.

Here's what American CRE should know:

  • Outbound investment from China:
    • China’s 2017 outbound CRE investment is projected to exceed its 2016 record ($27 billion, according to our APAC research). As of H1 2017, it had already reached $25.6 billion (though this includes a $13.2 billion one-off purchase of an EMEA logistics portfolio). Even without that warehouse deal, the total was still up 23%, year over year. However, EMEA has overtaken the Americas as the #1 recipient of China’s outbound investment, in keeping with the government’s “Belt and Road” infrastructure initiative.
    • Capital control is not loosening anytime soon. Liu He—a mastermind of China’s recent financial reform—was promoted during the October Congress and will continue to lead economic policymaking. He believes the government should monitor the financial market very closely.
      Capital control is not projected to discourage CRE investment, however. It targets “irrational” investment in sports, entertainment and clubs (European football clubs and Hollywood studios, in particular) and in individuals moving money overseas through house purchase.
      Institutional buyers such as developers and investment managers should have no problem investing across the border. They may need to get a few extra approvals, but essentially, no new rules have been imposed on them. 
  • USD/CNY Exchange rate:
    • The exchange rate will be more volatile but remain under control. The government will not let the Chinese currency depreciate too much—a point proved in 2016. The central bank raised foreign exchange reserves at mid-year, making it more stable.
    • The exchange rate will likely end 2017 somewhere between 6.50 and 7.00. In general, this would support continued activity among institutional buyers.

 

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