Foreign investors pile back into booming China
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Ivanhoé Cambridge, a group that invests in international property on behalf of the Quebec state pension system, had already put $2bn into China’s logistics sector over the past few years. In June, as coronavirus was raging across the world, it decided to add another $400m to the total.
“We’ve certainly been trying to increase our exposure to logistics in China as quickly and as responsibly as we can,” said George Agethen, senior vice-president, Asia Pacific, at the Canadian company, who points to a “difficult environment” in which to make an investment decision.
“The interest to invest in China and China logistics is . . . everywhere,” he added. “There’s not a single investor I know who doesn’t think it’s a good idea.”
Foreign direct investment into China plummeted at the start of the year when coronavirus emerged within its borders. But its rapid recovery from the pandemic, as well as the chaos the virus has wrought elsewhere, is now encouraging a flood of money into the country.
That shift could support China’s longer-term plans to expand domestic consumption and gradually liberalise foreign involvement in its industries even after it has cracked down on some of its biggest conglomerates and the outward capital flows they fuelled over the past decade.
Official data show that foreign direct investment in China rose in October for the seventh straight month, jumping 18 per cent year on year to Rmb81.9bn ($11.8bn).
Last month Zong Changqing, an official at the Chinese commerce ministry, said investors saw the country as a “safe harbour”.
Rising FDI echoes a wider rush of funding into China’s financial markets on the back of its recovery, which has helped push the renminbi to its highest level in years. The economy is expected to grow 2 per cent this year, compared with declines elsewhere.
“What it’s showing is China is an attractive investment location in the same way it’s attractive for portfolio flows,” said Alicia García-Herrero, chief economist for Asia-Pacific at Natixis. “Overall its relative growth is better and its return is higher.”
Natixis said that if mergers and acquisitions between Hong Kong and China were excluded, activity had increased by the most in sectors such as real estate, ICT, ecommerce and consumer industries. Such sectors often rely on the Chinese market as an end in itself, tying into the country’s next five-year plan to focus the economy on domestic production that seeks to serve its own consumers.
Higher foreign investor interest follows an investment chill between China and the US. Despite geopolitical tensions this year, the coronavirus pandemic is now helping to accelerate longstanding investment trends in the country.
Like ecommerce, the logistics sector taps into rising urbanisation and consumer demand in China. JPMorgan Asset Management this year entered into a $600m joint venture with Chinese logistics firm New Ease, investing in assets on behalf of North American, European, Middle Eastern and Asian investors.
“When you look at the urbanisation, the explosion of the Chinese middle class, the consumption spending that has evolved in China — foreign investors have consistently tried to find a way to invest in that mega theme,” said Mr Agethen.
Despite higher inbound appetite, China’s outbound investment remains sluggish, according to Natixis. The country’s overseas FDI had boomed in 2015 to 2017 on the back of high levels of activity from conglomerates such as HNA and Anbang, but subsequently dropped.
In 2019, China’s outbound FDI was $77bn, less than half the level in 2017, according to data from Jean-Marc F Blanchard, founding executive director at the Wong MNC Center, a think-tank in California.
Mr Blanchard said that the decline had a political component given the high-profile role of the companies that may have “got them the wrong kind of attention from the government” — an issue he suggests is echoed in Ant’s recent failure to list in Shanghai.
Chen Feng, chairman of HNA, was in September barred from taking flights and high-speed rail trips after the company’s failure to make court-ordered payments. HNA, originally an airline that took on huge debts to fund its overseas expansion into a global conglomerate, had been a big source of outward FDI in China between 2015 and 2017, contributing almost $50bn over that period.
Mr Blanchard added that the Chinese government was at that time “very sensitive about large sums of money leaving” because of a fall in foreign exchange reserves.
Signs of political support for outbound investment eroding have coincided with more openness to foreign involvement in various domestic sectors, especially financial services, which has increased this year.
Adam Lysenko, an associate director at Rhodium Group, a consultancy, said foreign inflows were a priority for China as it relaxed its strict controls on capital outflows.
“The key to stability will be ensuring that the immediate result is not a rapid run to the exit,” he said. “That is a difficult tightrope for Beijing to walk.”
Additional reporting by Xinning Liu in Beijing