This time, look wider

With its steady trade surplus and strong foreign investment, China sits on top of world’s largest foreign reserve. As the recent global slowdown has forced many foreign companies to spin off assets, Chinese companies are gaining opportunities to expand further.

China’s economic growth has essentially benefited from a high level of direct foreign investments (around 40 percent of GDP estimated by IMF) which concentrated in manufacturing and later moved into capital and property markets. Since 1990s, Chinese companies and investors were encouraged to “go abroad” for investment and Chinese outward investments spurred especially after its entry to WTO in 2001. In 2009, China’s non-financial outward overseas investment is to reach $42bn while it attracted $77.9 bn in foreign investment in the first 11 months, says a paper by China’s Ministry of Commerce on December 22^nd.

Together with its exports, overseas contracted projects and labor services, Chinese companies are searching for greater presence in international business. Overseas merger and acquisition accounted for 43.5 per cent of Chinese outward foreign investment in 2009.

According to the China’s 11^th Five-Year-Plan running to 2010, its outward overseas investment stock will reach $60bn, and the Chinese government has been active pushing companies to compete internationally with fiscal support, favorable regulation and educational trainings.

In short term, outflow of capital can at least reduce the appreciation pressure for its currency from long-term current account surplus.

Also, by investing in energy and raw material rich regions, such as Latin America and African, China is to secure resources for future developments. Early this year, Chinese Prime Minister Wen Jiabao announced another $10 billion concessional loans to 31 African countries, doubled the size of what Chinese had offered 3 years ago. Africa now accommodates a tenth of China’s total overseas direct investment whose return is to be granted from the region’s development. Some recent big deals have also proved China’s resource hunger was driving the direction of its overseas investment.

At same time, overseas investment contributes to China’s economic restructure and improves Chinese companies’ international competitiveness. From Swiss oil explorer Addax AXC.TO’s buyer Sinopec to Hummer’s new owner Sichuan Tengzhong Heavy Industrial Machinery, Chinese state owned enterprises so far are the leading forces investing overseas. But more private companies such as Lenovo and Huawei are gaining international comparative advantage by acquiring advanced technologies and marketing networks abroad.

However on general, the scale of China’s outward overseas investment is still regional as over half of its oversea investment locates in Asia, predominately in Hong Kong. And comparing with developed countries, China’s capital stock is still very extremely low: By the end of 2002, China’s outward FDI stock only equals to one per cent of Japan’s and half a per cent of US’s.

In addition, as the failure of China’s mining company Northwest Nonferrous in a deal to invest in a Nevada gold mine due t U.S. national security concerns this week just showed, Chinese companies’ over seas ambition is far from free to expand.

10 must-knows before buying a property in China

[a class exercise]

China’s housing prices has been rising from July 2009 and in November recorded the highest rate in the 16months according to National Bureau of Statistics of China. Although growing rapidly, real estate costs in Beijing and Shanghai are still far cheaper than in Hong Kong or Tokyo.

While investors seem to be worrying of a second pricing dip across debt-drenched mature markets, how about getting into the Chinese market before it gets too late? Here are ten things you must know as an amateur foreign buyer in China.

1 Eligibility

Before everything else, it is good to know if you are able to buy a property in China. Only foreigners have lived in China for at least one year are allowed to purchase a property since July, 2006. This was aimed to curb foreign speculation and did have a great impact on foreign investment in Chinese property market. “We have since then ceased our service in buying property in China.” said one agent from Property Frontier, a London based property agency. But residents of Hong Kong and Taiwan and Chinese overseas are excluded from the regulation.

2 Buying Procedures

Foreigners must apply for permission to buy property, which can be granted through the public security bureau. When signing the contract, a deposit, typically of 30%, is due. This can be refunded if the deal falls through. The official transfer process must go through the Realty Transaction Department and it can take a month or more. The Realty Transaction Department will provide a date for the official Realty Transfer Notice to be given. At the final transaction date, money is exchanged, any legal fees paid, transfer and property taxes are due and the final transfer documents are signed.

3 Ownership

All property in China is under a 'land use right' system, similar to the western leasehold concept. There are three types of lease on land: residential, which is run on a 70-year lease; commercial, which is on a 50-year lease; and industrial, on a 40-year lease. At present, due to the relatively recent nature of this system's creation, what happens at the end of this period is uncertain. The laws of private property protection are quite clearly outlined in constitution.

3 Rental Market Condition

In February 2009, the average rental yield (percentage of rent to purchase price) in major Chinese cities was 4.42% which is relatively low compare to other Asian countries but higher than Hong Kong and Taiwan, according to Global Property Guide research. Government fiscal moves have encouraged individuals to buy, not rent. High-end property rental market was heavily hit during the crisis, as vacancy rates in luxury residential properties in Shanghai rose to 24.2% in Q2 2009, and at 30.2% in Beijing according to Colliers International

5 Tax Policies

After the Central Economic Work Conference finished in early December, the State Council has just re-imposed a sales tax on properties sold within five years after cutting the period to two years in January. This reversal of tax on home sales is said to be “much milder than the market had expected.” Comment Clement Luck, a Shanghai Based analyst at Centaline Property Agency.

6 New Hot Spots

In 2007, 66 out of the 88 land transactions involving foreign investment identified by Knight Frank, an international property agency, were located in second tier cities. The Knight Frank 2008 Report indicates that China’s first tier investment cities are mainly Shanghai, Beijing, Guangzhou and Shenzhen. But with surging land prices and the lack of urban land availability in those cities, property developers have gradually shifted their attention to China’s second tier cities instead.

7 Locals

As many developing countries, laws are different throughout the country, so it is a good idea to have a local real estate agent and/or lawyer to help you through. Zimny, a private investor in Shanghai, said the most important thing when buying in China was to get experience people to help “You can find well-established, well built, well designed properties, and you can find competitive prices. But the buzz words here are: be smart. ”

8 Property Funds

If you do not want to miss out a investment opportunity, but are either not eligible to be a buyer, or feel uncertain to secure a good deal, or simply frustrated by complexity of purchasing in a foreign country. Then property funds majored in Chinese market maybe a better option for you. Property funds invest in Chinese market by both purchasing properties (mainly commercial properties) and holding shares in Chinese developers. However, according to Jiancheng Ye, Chairman of DTZ China investment department, only five foreign funds invested in China this year, less than half of usual number. He also hinted that foreign funds are preparing a transition to reduce operating cost such as tax, and to collect funding in local currency.

9 Currency

The prospects of appreciation of the Chinese Yuan add expectation that property values will eventually get a boost.

10 “Bubble”

After Dubai, fears of bubble in Chinese property market also rise, especially with anticipation that the low interest in U.S. can drive an excessive capital flow into the region. Andy Xie, former Morgan Stanley Chief Aisan economist warned China’s property markets to burst as a bubble when inflation accelerates in 2011 in a interview with Bloomberg, while the Economist argued even if its asset prices slump, the damage will be less grave thanks to the less debt-driving borrowing. It said that only around a quarter of middle-class homeowners have mortgages and the average loan-to-value is less than 50%.

In a recent report, Fitch Ratings predicted that China's property market will remain stable with housing price fluctuation to remain within the narrow range in the next year. Fitch Ratings forecasted that Chinese developers would see moderate growth in sales and profit next year, supported by the country's urbanization process and rise in incomes. Hope 2010 will also bring modest good news for investors.

What does one-child policy mean?

It first of all means, if you were born after 1978, the year the policy was launched, you probably are the only child in your family just as 100 million others are. It also means, it is illegal to check baby’s gender to prevent abortion for getting a boy from the only chance. It can also mean, family is being atomized and replacing big size traditional ones with generations living together.

Born after 1980s, I grew up with 5 neighbor kids just around my age and their parents were all working in a state-owned factory by which my parents were employed. I used to call my cousins brothers or sisters and hang out with them. I did not even question why I had no siblings as I have taken it for granted: 56 students in my primary school class were all like me, except one boy, and he had a twin brother.

I began to meet friends with siblings after getting into the university in Nanjing, a city that I considered as “north/inland” as I was born just along the southeast coast. Students from the western or rural areas were more likely to have siblings as the policy was much looser in these parts. Years later, my mom explained me that a severe fine(almost equal to her then whole year income) stopped her having an other child, even though the “one child” was encouraged for parents to take and was not yet stated in the law. In turn, she was rewarded a red colored certificate for having only one child and was given compensation till I was fourteen. “It was not only a matter of money, it linked with promotion, benefit and other social pressures.” My mom lived in an age that even her marriage had to be approved by her employer.

What does the one-child policy mean for China? They have a saying at Microsoft about their Asia center “Remember, in China, when you are one in a million, there are 1,300 other people just like you.” Enormous population had put us, one among the millions other baby boomers into intensive competition since the day we were born. But situation could have been worse, the policy was an enormous success in preventing a population explosion in China.

However, for the first generations after the “family planning” policy which encourages late marriage and fewer children (in practice, one), much more challenging tasks are yet to come. According to UN secretariat(http://esa.un.org/unpp/p2k0data.asp), population over 60 will soon exceeds population aged between 15-24 and become twice as big as the latter’s number in two decades’ time. China’s shrinking young population and fast aging population is resulting in a radical demographic transition which brings in problems such as raising health care cost, lacking of young labour forces, high burden for the middle generation, and possible slowing down consumption, etc. It is not unique issue across the globe, but again, China wins (loses?) over scale!

In five years’ time, me and my five other buddies I used to play with will all be at our thirties, with our parents over 60, grandparents over 80s. Normally, our spouses will bring in have a similar pair of parents and even grandparents for us to take care of (it is socially recognized as responsibility in China). So when an article on FT Chinese was discussing loosing the one-child policy to two, the burden becomes inevitably heavier for our generation but good news for my parents: they do not need to fight for having their only grandchild over weekends!