Feeling Restricted in China?

Monday, November 12, 2007 4:48
Posted in category Red Tape
Comments Off on Feeling Restricted in China?

In my nearly 6 years in China, it has been incredible to see the interest in China (and the money that followed) skyrocket.  It is a topic that I find myself having more and more as friends talk about how easy it was 5 years ago to buy apartments, as we speak to government officials who are becoming picky about the sectors they are interested in, and with companies who were once dying to meet VCs but are now turning them away because of the glut of domestic capital that can be found.

In the international press, the result of this trend is China being called nationalistic and closed up, but what it really is is a maturing of the economy and the investment profile of China.

and should it come as any surprise? They had been accepting 60 billion USD a year for the last 5 years…

All that aside the recent changes in the investment guidelines for me did hold a couple of interesting surprises.  not because I think that these sectors necessarily should be encouraged, but because what I have seen in the market and what I have heard from Chinese officials would have lead me to think that there was still time in these sectors.

The first area is in the area of logistics as classified in section heading Communication and Transportation, Storage, Post and Telecommunication Services, specifically investments in

  • Cross-border automobile transportation companies
  • Water Transportation companies
  • Railway freight transportation companies

Why I find these three interesting is that these are three areas where some of the traditionally larger international logistics firms are beginning to show interest, and where a LOT of inefficiency needs to be drive out through competition, investment, and technical development…. three things brought by foreign investment  Now, that being said, it should not come as a surprise that these sectors are dominated 100% by large SOE firms and that their power is absolute.
The second category that held nuggets of interest, is in the real estate sector.  I have convered the governments band-aid attempts to fix this problem before through banking restrictions, taxes, development, etc… however, the limitations in the following areas was unexpected:

  1. Development of pieces of land (equity joint ventures or contractual joint ventures only)
  2. Construction and operation of high-ranking hotels, villas, high-class office buildings and international exhibition centers

Now, we are still looking at how the above applies in the areas of 5 star hotel and serviced apartment management, but no doubt there will be some increased hurdles for ANYONE looking to invest in real estate.. be it Prologis, the Portman, or anyone else.  The impact will be beyond the residential sector (depending on local enforcement) and could reach into commercial, retail, and industrial.

If the above impacts you, please let us know.  I am sure these regs wil have flexibility on a regional basis, but from a risk analysis perspective I am sure this off a few red lights in the  affected industries

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