Notes on China

Notes on China:

Marching to find out what happens in March.

Significant Events in December 2018;

• G20 Meeting November 30 – December 2 at whichThe President of USA and China will meet to discuss trade. 
• OPEC will meet December 6^th todetermine their impact on oil and its production
• Tencent will debut on the American StockExchange December 12, 2018
• Softbank will debut on the Tokyo Stock Exchange December 19, 2018.

This article is really to tie together some thoughts I had in respect to the U.S./China Trade war and what is possible happening behind the scenes and how it might affect the overall economy.

China currently has a strategic exit strategy from all foreign property investments. This could be to decrease their reliance on foreign lead investment vehicles producing foreign profits and to increase purchases of properties within China’s borders. China has been steadily easing the restraints to buy property in China for Chinese lead developers. In November of 2018, Beijing scored a record $4.5 Billion in the auction of 12 land sites to Chinese Developers. Of the 14 companies bidding on the properties, 11 were State-owned companies.  By tightening the capital outflows and clamping down on overseas acquisitions, China has increased the demand for properties within their own territory, also severing their dependence on the Global Financial Structure to generate wealth. The Government has place pressure to exit overseas investments even if it’s at a loss to the company to sure up capital and reign in spending.

Some widely known examples of this;

• Wanda; exits “One Beverly Hills” for $1.2 Billion to Beny Alagam which they bought for the same price.
• HNA Group; exits “850 Third Ave, NY” for $452 Million to B&L Management down from their purchase price of $463 million just one investment in its fire sale of properties.
• Anbang; Engages Bank of America to exits “LuxuryHotel Portfolio” for $5.5 Billion and may sell Waldorf Astoria to Blackstone for $1.9 Billion the same price purchased for in 2014 and the same company that assisted the purchase.
• CEFC; exits from “Luxury Hotel Portfolio” for$980 Million to European Investors down from the $1.75 Billion at the time of purchase.
• Greenland Holdings; exits from “Indigo Hotel” for $280 Million a newly built hotel.
• Ping An Insurance Group; exits from “13-StoryBoston Office Building” for $450 Million

Out of the G20 Meeting, both parties claimed good signs to come after dinner, but in reality, both sides are talking about good signs for their own Country. Both are using hard tactics through their political strength, albeit one has more say in how his Country’s companies behave. The same President is using inclusive tactics and soft powerto win over allies. 

With the Government pressure mounting China overall has become a net seller of property in America for the first time in decades. Between January through May 2018 China had a drop of 92% compared to the same period in 2017 (according to Rhodium Group). China sold $1.2 Billion worth of property and bought $126 million within the same period of time. China has also imposed a $50,000 wire limit out of the Country restricting many EB-5 candidates and other means of investing outside of the Country. Other restrictions include a $7,000 US limit to cash withdrawals outside of China for a Chinese citizen.

Of course, this only speaks to their property investment strategy, they also have a property takeover strategy. Forget invading a country just lend them money until you own them. That’s what happened to Sri Lanka and Tajikistan. Currently, the port in Sri Lanka is controlled by China. Countries with significant debt owed to China which might not be able to pay back include Djibouti, Kyrgyzstan, Lao, Maldives, Mongolia, Pakistan, Montenegro, Sri Lanka, and Tajikistan. All of which, except two, border China or are adjacent to China. What better way to expand your borders than just buy the next Country over.

After a while, these policies will just become the norm and technology will be built to work under these new set of rules, as China does not allow for technology to evade their laws just ask Facebook.