Reports suggest that China proposes to impose greater monitoring of large outbound investments and potentially block state-owned enterprises from purchasing overseas property with a value of more than US$1bn in a single transaction. Additionally, permission may be required for the transfer of funds over US$5m. The previous threshold was US$50m. It is likely that more scrutiny will be applied to deals with more rigorous due diligence and a thorough formal approval process for any substantial investments. It is suggested that if a Chinese company has the intention to acquire projects or directly invest in overseas property, they would need to get approval from a number of different government departments which might prove to be a lengthy process.
Will Chinese investors be put off by these proposed changes? It is likely that if the proposed changes are implemented, some investors will seek returns elsewhere due to the hurdles to overcome just to get the money out of China. The lower threshold for transfer of funds might also see the system overwhelmed as the number of requests for approval could soar. In the highly competitive London market the delays caused by the additional layers of bureaucracy might see Chinese investors miss out on prime opportunities if they don’t already have funds in non-RMB currency.
Are the proposed rules a reflection of the Chinese government’s view on international investment? Politically it seems that the Chinese government continues to encourage and allow Chinese companies to ‘go global’ and diversify their holdings. The US$1bn threshold is relatively high; many Chinese outbound property deals over the last couple of years were below this limit. It may be that we see investors adapt by opting to acquire a higher number of smaller deals each below the stipulated investment amount. What is certain is that should the restrictions be imposed, Chinese investors will undoubtedly take a more cautious approach to larger transactions.
At the moment UK property investment still remain attractive because of the significant currency discount on offer. Examples of recent Chinese deals in London:
- Shun Tak Group acquisition of 7 and 8 St James’s Square in London for a reported £245.9m;
- Hong Kong-listed Emperor Group’s acquisition of the Ampersand building for £260m;
- A private Chinese investor acquired 88 Wood Street for £270m;
- AGP Group acquired 20 Moorgate for £155m;
- Chuang’s China Investments acquired 10 Fenchurch Street for £80m;
- Beijing Capital Development Holding offering more than £200m for 30 Crown Place in the City of London; and
- China Life acquired the Aldgate tower for £346m.
Chinese investors will continue to invest in overseas assets but will be more selective towards deals and closely scrutinise the underlying performance of potential acquisitions.