The government-backed firm China Investment Corp. (CIC) made a groundbreaking purchase last week: Blackstone’s logistics company and warehouse firm, Logicor for the equivalent of nearly $14 billion. Logicor owns and operates nearly 150 million square feet of warehouse space in 17 countries, which makes it an extremely valuable acquisition thanks to the skyrocketing value of that space to e-commerce services like Amazon and more traditional shipping services.
Anthony Myers, Blackstone’s head of Real Estate Europe, said of the sale, “We built Logicor through over 50 acquisitions to be the premier pan-European logistics real estate company…and we have no doubt it will go from strength to strength in a sector with hugely positive benefits.”
What the investment signifies
While a $14-billion purchase is nearly always noteworthy, this purchase could be an indicator of things to come in the international real estate market in terms of the role that the Chinese government will play on the global stage. In the past 12 months, the Chinese government has reiterated its public commitment to keeping capital within its borders. In and of itself, this type of public statement is not new and has not always been aggressively enforced, but with the advent of the new presidential administration many analysts have expressed concerns that the Chinese state might start to enforce policies designed to keep Chinese capital within its borders. A purchase of this magnitude by CIC, a wholly state-owned corporation, could indicate that the Chinese state itself will be more active on the world stage.
“With capital controls continuing to limit the mainland buying binge, some slowdown in deal flow is inevitable,” wrote Deal Street Asia’s Nisha Gopalan. She added, “But investment bankers shopping around trophy assets internationally should remember: China’s state-owned firms are here to stay.”
Significant Presence for Businesses
The Chinese investor’s presence and spending ability on the global stage is of relevance not just to mega-firms like Blackstone, but also to smaller-scale investors who may wish to cater to Chinese buyers or work with larger companies that do so. Individual Chinese investors may find themselves limited, to some extent, by state regulations governing overseas spending.
In January of this year, the Chinese government reminded investors that it has the option of blocking overseas wires for cross-border purchases and subsequently anecdotal reports indicated that first-time overseas buyers from China were opting out of overseas investment.
For example, OCHousingNews reported that one Chinese investor, “Mr. Zheng,” said that he would likely “abandon” a 2.4-million-yuan home purchase in Melbourne if the move meant losing a 300,000 yuan deposit. This could affect markets in the United States that currently have an active Chinese investor presence, such as numerous West Coast cities, New York, and Miami.
If the Chinese government were to crack down abruptly on transferring large sums of money out of the country, it could result in a dramatic reduction of the volume of inflowing capital into those markets and could cause housing prices to stall or fall in certain real estate sectors.
Carole VanSickle Ellis is the editor for Think Realty Magazine. You can reach her at firstname.lastname@example.org