Think outside the China box

Slower growth and doubts about accounting are leading international investors to rethink China. That’s precisely what the Chinese themselves are doing. As they diversify beyond the borders of the Middle Kingdom, the value of global property assets could benefit.

Chinese companies are upping the pace of international diversification. The value of outbound acquisitions exceeded that of inward deals in 2011, according to Thomson Reuters data. Outbound investment rose by nine per cent to $59 billion in 2011, and the flow may be only just beginning. China’s economy is now bigger than that of Japan’s, yet in 2011 overseas investment was only about a sixth of its neighbour’s.

The deployment of China’s state controlled funds has long buoyed the value of US Treasuries. Now the flow of private Chinese money could boost the value of a wide range of global assets. Energy companies have already benefited from rising Chinese demand, with the country’s top five foreign acquisitions in 2011 all focused on energy-related assets.

For China’s wealthy individuals, foreign passports top the most-wanted list. Next comes property. Among the 20,000 Chinese with at least $15 million in individual investment assets, 27 per cent have already emigrated, and 47 per cent are considering it, according to US consultants Bain & Co. As home prices cool inside China, cash-rich mainland buyers have swarmed to Hong Kong. This has helped drive Hong Kong’s high-end property market to be the priciest in the world, according to UK property sales agent Savills.

Mainland Chinese buyers now account for more than 20 per cent of foreign buyers of new home sales in Vancouver, Toronto, London and Singapore, according to commercial brokerage Colliers International. Unlike Japanese investors who scooped up iconic buildings in London and New York in the 1980s, Chinese buyers are more interested bargains. This could provide welcome relief to owners of distressed properties in the United States and certain parts of Europe. Figuring out what the Chinese investors will buy and moving one step ahead of them is tricky. But global investors will be dealing with more familiar territories, and valuations of which may be more reasonable. Accounting conventions outside China give greater comfort, too.