By Petra Blazkova on January 17th, 2017
Speculation about new capital control rules squeezing the pipeline of Chinese outbound capital is causing some concern among market participants both in China and internationally. For the moment, recent official announcements from China’s State Administration of Foreign Exchange (SAFE) chiefly point to better scrutiny of deals. At a time when Chinese investors’ demand for overseas commercial real estate acquisitions is red hot, consternation about the impact of any future stricter policies is tangible.
Preliminary Real Capital Analytics data shows that $32.6b was invested abroad by Chinese investors in 2016, up 38% from 2015. While Hong Kong has always been considered the key target for the mainland Chinese real estate investors, it ranked only in third place in 2016, with 11% of capital allocations and $3.6b invested. The #1 destination was the U.S., where Chinese investors invested $15.1b in 2016 (for a 46% share of all Chinese overseas investments), followed by Australia with $6.6b (a 20% share).
Moreover, there has been a large increase in megadeals by Chinese investors. In 2016, nine real estate deals transacted above $1b globally. Of these, five took place in the U.S. (comprising hotel portfolios as well as large office assets) and three were in Hong Kong. From such a perspective, it is reasonable that the Chinese authorities would want to have better understanding of any future purchases abroad and eventually rein in capital outflows.
At least for now, Chinese authorities want to improve the transparency of overseas investments, better manage the risk, and, in the process, minimize any negative impacts on the domestic economy. These aims are all very reasonable given recent pressures on the renminbi (down 7% versus the U.S. dollar last year) and the drainage of foreign exchange reserves.
It is fair to assume that the China capital outflows will slow down in 2017 considering the mighty surge in 2016. RCA will keep a close eye on any new regulations that may be introduced but it is far too early to see any evidence of capital outflows slowing as yet.
RCA will release Asia Pacific Capital Trends, with detailed analysis of capital flows across Asia Pacific, on Feb. 3.