Boosting Maturity of Outbound Investment
At the APEC Economic Leaders' Meeting recently concluded in Beijing, China announced its investment of USD 40 billion establishing the “One Belt, One Road” strategy. CBRE hold the view that the “One Belt, One Road” initiative will further impact the domestic and global economy as a significant development for investors moving forward.
CBRE notes China’s high level of foreign exchange reserves faces difficulty in considering asset allocation, especially its USD assets. Foreign exchange investments are mostly limited to the passive type due to financial constraints including fluctuation of the USD currency rate and U.S. loan facilities. With “One Belt, One Road”, we see purposeful selection of investment scope and extension of outbound investment channels in geography as a wise choice. Secondly, the initiative facilitates RMB internationalization by guiding the direction of outbound investment and trade, further expanding the international market for RMB settlements. Thirdly, the initiative creates a new channel to absorb surplus capacity in the market. The current economic environment is undergoing adjustments, needs to continue growing employment, and needs a way to deal with surplus capacity, both upstream and downstream.
CBRE predicts that select industries will experience benefit and reinforcement in the long term, including infrastructure-related fields such as high-speed rail, highway, communication, electric power plus trade and logistics fields, plus additional opportunities in the resource and energy domain. Those industries are typically following the strategic trend of localization and production optimization characteristic of current developments in China.
“One Belt, One Road” Strategy shall promote the implementation of outbound investment further:
- Investment Model: Previously, it was mainly state-owned companies’ rather than private enterprises applying for capital credit to make investments overseas, a model which also required extensive orientation. With support of the new strategy, it shall be more international and market-oriented on infrastructure construction, trade logistics, resources and energy that focus on and enable higher investment effectiveness.
- Investment Enterprises: Previously, state-owned companies had enjoyed absolute dominance in the development of such international and regional economic cooperation. Against the general trend of mixed ownership reform in China, the strategic direction of “One Belt, One Road” may provide a higher quality investment environment and routes available to more private enterprises, helping diversified capital in China to make its way abroad.
- Source of investment capital: Asian Infrastructure Investment Bank and Silk Road Foundation are specially established to match the “One Belt and One Road” initiative. Associating with BRICS Bank and other financial entities, project opportunities will be more nationalized and market-oriented for capital sourcing, composition and use in the future.
- Influences on boosting overseas real estate investment: In recent years, with domestic economic growth and sufficient financial liquidity, it is no longer news that substantial capital flows to overseas real estate markets. Overseas investment was initially driven by interests to immigrate and now reflects a rising investment trend in commercial real estate acquisition and business development projects. We further note such investment initiatives are now being structured in more diverse ways. The launching and implementation of the “One Belt, One Road” Strategy creates a fresh, imaginative, emerging space for overseas real estate investment allowing new asset values to be discovered.
Moreover, we also realize that to promote “One Belt, One Road” requires a high degree of participant cooperation and high integration of trade practice. Chinese investors will be required to possess a high understanding of the political, legal and financial systems of both local and international parties involved in such projects. The “One Belt, One Road” strategy both enhances and diversifies future outbound investment opportunities for Chinese investors.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
