Since 2016, China has been one of the biggest investors in commercial real estate here in the United States, having invested approximately $12.5 billion over the past year and a half. However, recent opposition and headwinds in China stemming from things like the government cracking down on money leaving the country and depreciation of currency, are leaving some professionals within the commercial real estate industry wondering what the future holds in terms of China’s power as a global buyer.
From 2013 to 2016 the Chinese renminbi fell 13% compared to the dollar which lead to the US leading some aggressive acquisitions, but as the dropping value of the renminbi begins to slow, capital flows could direct back towards Chinese markets.
Andrew Haskins, Executive Director of Asian Research for Colliers International, believes a shift is inevitable: “There are signs that the focus of Chinese overseas property investment is shifting,” said Haskins. “Evidence so far this year supports the contention in our report that Chinese investments [will] shift gradually towards Asia from this year.”
Meanwhile, regulators in China are tightening their grip on the largest investment companies in the country, reducing their international reach and temporarily suspending a number of mergers and acquisitions. Many industry professionals view this government curtailing will delay and possibly prevent the closing of various deals.
There are likely several reasons why China is working to reduce capital being sent out of the country; the first being that it’s trying to prevent further currency depreciation of the yuan. Over the past two years, China has been devaluing the yuan to counteract the effects of the financial crisis felt around the globe; by devaluing its currency, it was able to strengthen its position in the international trade market through cheaper exports.
The second reason China is cracking down on capital outflows is likely due to the 19th National Congress of the Communist Party of China which is set to meet this October or November, where they will vote to elect a Central Committee and agree upon an agenda for the following five years. The third and final reason for the reduction of capital outflow is the tremendous amount of capital that has already left the country. Over the past 3 years, more than $1 trillion worth of Chinese capital has left the nation, and increasing and perpetuating that that loss could be incredibly detrimental to the country’s economy.
Regardless of the regulations and obstacles created by the government, capital will still leave China through back channels, due to the ability of wealthy individuals to move their funds. It’s also likely that these Chinese investors will expand into investment opportunities in Hong Kong, India, and Singapore. All of this being said, nothing so far is definitively predicting a complete drought of investors in US deals.