New Rules from China

Date: April 2018

What:

On April 10, Yi Gang, the newly appointed governor of the People’s Bank of China (PBoC) announced a timetable for financial market reforms.

Key measures included:

• Scrapping foreign ownership caps for banks and asset management companies, effective within the next few months. Foreign firms will be allowed to compete on an equal footing with domestic financial institutions, thereby providing foreign banks with greater scope to operate on the mainland.

• Raising the daily northbound Shanghai-Hong Kong stock connect quota from RMB 13 billion per day to RMB 52 billion per day, and the daily southbound quota from RMB 10.5 billion per day to RMB 42 billion per day, effective May 1.

• Increasing the foreign investment limit for securities brokerages, fund managers, futures companies and life insurers to 51% over the next few months, and removing the cap completely within the next three years. The business scope of joint venture securities brokers will be the same as that of their Chinese counterparts.

• Opening the insurance industry and related businesses to qualified foreign investors and allowing foreign insurance companies the same scope of business as local companies, effective the end of H1 2018. The government will also ease a restriction requiring foreign insurers to have a representative office in China for two years before they can set up a company.
Subsequently, on April 12, Yi Gang announced that Beijing was aiming to launch a new stock trading connection between Shanghai and London later this year. This would provide Chinese investors with direct access to shares traded in the U.K. and allow international investors outside Greater China to access China A-shares.

What does it mean for real estate?

In the short-term, China’s financial sector reforms will benefit the office market, particularly in gateway cities already home to a large number of multinational corporations.

Despite the strong increase in demand from domestic enterprises in Beijing and Shanghai in recent years, multinationals accounted for 33% and 45%, respectively, of new leasing transactions by area in 2017. The high concentration of multinationals in these two cities continues to drive significant demand for financial services and generate business opportunities for foreign financial institutions. Once these new measures are in place, CBRE Research forecasts that more foreign financial institutions will set up or expand their operations in these markets.

Demand from the insurance sector is expected to be particularly strong. Although China is already the world’s second largest insurance market in terms of insurance premiums, it still has significant growth potential, particularly in tier II cities where the middle class is expanding rapidly. Asset management is forecast to be another growth industry, with Boston Consulting Group expecting the Chinese asset management industry to grow at a CAGR of 17% during 2015 to 2020.

However, as the broader financial sector already comprises a key source of office leasing demand in tier I and II cities, backed by robust demand from domestic institutions, the new measures are likely to have only a mild impact in terms of its proportion of overall leasing demand.

Recent comments from President Xi Jinping suggest that similar policies will be rolled out in the automotive sector and other industries. Once confirmed, these measures are likely to trigger further investment, and with it, office leasing demand, from multinationals operating in these sectors on the mainland.

THPT Comment: How will this affect hotel development a) in China and b) by Chinese companies, outside of China? I’ll ask CBRE!

Reported By: CBRE