Recently, the news about the $300 billion China Investment Corp. (“CIC”) invested an additional $500 million in Blackstone’s Fund-of-Funds unit and earmarked about $800 million for investing in a Morgan Stanley Global Property Fund has stirred up another round of excited discussions about China’s money pouring into the U.S. Lately, the Wall Street Journal reported that CIC is in talk with U.S. private-equity funds, including BlackRock Inc., Ivesco Ltd. and Lone Star Funds, about potential investments opportunities in the distressed commercial real estate assets in the U.S. According to the Wall Street Journal, last year, CIC deployed just $4.8 billion in global financial markets and this year it invested that much in a single month. CIC’s chairman has indicated that Mr. Jiwei Lou, if CIC’s future returns are good enough, it might ask the government to let it invest more of China’s $2.132 trillion foreign-exchange reserves.
CIC’s investment decisions are among the most watched indictors for Chinese private investors when they choose foreign investments. Will Chinese private investors follow CIC this time to look into the real estate market in the U.S.?
In contrast with the U.S. real estate market, China’s overall real estate market, both residential and commercial is very “hot.” Some even have concerns that a serious asset bubble is developing in real estate. According to Shanghai real estate and foreign investment lawyer, Zengli Li, a partner at Yaoliang Law’s Shanghai office, the hot China real estate market is mainly attributed to the “flood money” that Chinese investors have directed to the real estate market. According to Zengli, Chinese investors now do not have many choices when it comes to investment opportunity. Originally, Chinese investors invested heavily in manufacturing sector but because foreign consumers tighten their belts under the current economic situations, manufacture does not sustain good investment opportunity anymore. The lack of other investment opportunities domestically has pushed and concentrated the private investors to the real estate market. In July, for instance, a land parcel along Beijing’s Guangqu Road was auctioned off for more than 4 billion yuan ($585 million US dollars) after fierce bidding among major developers from the mainland and Hong Kong. In Shanghai, developers of the luxury Tomson Rivers apartments, known for their price of more than 100,000 yuan per sq m ($14,000 US dollars), sold 10 units in the first 25 days of June. Some investors are starting to look outside of China. Many high end residential real estate markets around the globe are seeing discreet Chinese buyers.
However, Chinese investors are not accustomed to foreign markets. It has been decades that people are used to foreign investment flowing into China. Now Chinese investors start to reverse the general trend of investment. They have heard U.S. distressed real estate market and understand there could be opportunities for buy in low.
The channel directing the flow in of Chinese money is still not there. If you can figure out a smooth channel to attract the abundant Chinese cash, you probably need not worry about cash flow for a long time. After all, $2.132 trillion can make quite an impact!