The real estate investor’s guide to China’s party congress

Hints on capital controls and new appointments could matter to the U.S. market

TRD NEW YORK /
Oct.October 20, 2017 06:30 PM

From left: Members of the new Politburo Standing Committee Xi Jinping, Li Keqiang, Zhang Dejiang, Yu Zhengsheng, Liu Yunshan, Wang Qishan and Zhang Gaoli (Credit: Getty Images)

Wendy Cai-Lee tried to read the transcript of Xi Jinping’s three-and-a-half-hour speech at the Chinese Communist Party’s 19th congress, which opened Wednesday. “He lost me after about 35 minutes,” she said.

Cai-Lee, the founder of debt and equity fund Oenus Capital who regularly works with Chinese investors, is more familiar with China’s political system that most of her peers in the U.S. real estate industry. Other local players may not bother to sift through Xi’s speech and stay up-to-date with the weeklong bureaucracy fest happening across the Pacific. But they would be wise to.

At the congress, which happens once every five years, China’s ruling party appoints a general secretary (the incumbent, Xi Jinping, will stay in power), and chooses the members of political bodies that control the country’s government, including the Politburo and Central Committee.

The congress also sets the tone for economic and monetary policy. That matters a great deal to the real estate industry in markets such as New York, Los Angeles and Miami, which benefit from a steady influx of Chinese cash.

“It doesn’t matter what industry you’re in,” said Joel Rothstein, an attorney at Sidley Austin who splits his time between Hong Kong and L.A. In China, “everyone is watching the Congress to read the tea leaves.”

Here are two things U.S. real estate professionals should look out for:

Hints on capital controls

“The main question is what will be China’s policy on outbound investment going forward,” Rothstein said. Chinese capital flows into New York and L.A. real estate exploded in recent years, but amid stricter capital controls starting last November they slowed down noticeably.

Will that change? Don’t expect detailed policy proposals to come out of the congress, but keep an eye out for hints. The early signs aren’t encouraging. In his speech, Xi used the word “market” 19 times, down from 24 at his predecessor’s speech in 2012 and 51 times in 1997, according to the New York Times — indicating that opening up the economy further may be falling somewhat out of favor.

China imposed additional capital controls in late 2016 in part to stabilize the country’s currency, spur domestic investment and rein in risky overseas dealmaking. But another motivation was to push capital into its “belt and road” initiative, which seeks to pump billions into infrastructure construction in developing countries China trades with, Rothstein said. In his speech, Xi doubled down on the program, indicating that the rationale behind the capital controls hasn’t changed.

“I just don’t see any kind of relief in terms of money coming out of China,” Cai-Lee said.

Leadership changes at key government agencies

China’s leadership reshuffle can “filter down” and lead to new appointments at government agencies overseeing financial markets and capital flows, Rothstein said.

Earlier today, the South China Morning Post reported that Guo Shuqing, known as a champion of free markets, is the favorite to become the new leader of China’s central bank, the People’s Bank of China.

Putting reformers into key positions doesn’t by itself ensure capital controls will be lifted. But at the very least, it puts proponents of market liberalization in Xi’s orbit.

Higher up, Premier Li Keqiang, who is in charge of economic policy and helped liberalize the economy in recent years, may keep his job, according to some reports. “We believe Li remains premier because he and Xi roughly share the same vision for China’s economy and work reasonably well together, despite a lack of personal chemistry,” consulting firm Eurasia Group said in a recent report, according to CNBC. “Also, removing Li would be risky and disruptive at a time when China needs stability and continuity.”


Related Articles

arrow_forward_ios
(Image by Wolfgang & Hite via Dezeen)

Hudson Yards megadevelopment inspires a new line of sex toys

Cammeby's International Group founder Rubin Schron and, from top: 194-05 67th Avenue, 189-15 73rd Avenue and 64-05 186th Lane (Credit: Google Maps)

Ruby Schron lands $500M refi for sprawling Queens apartment portfolio

Wendy Silverstein (Credit: Getty Images)

Wendy Silverstein, co-head of WeWork’s real-estate fund, is out

Bernie Sanders (Credit: Getty Images)

Bernie Sanders throws support behind New York rent-suspension bill

Web searches for terms including “homes for sale” are way down up north. (Credit: Pixabay)

Fewer Canadians are searching for homes online amid pandemic

Hometrack Managing Director David Ross and a view of Nottingham, England (Credit: Hometrack)

Demand for housing tanks in UK as buyers stay home

(Credit: iStock)

Stimulus deal buoys real estate stocks, but coronavirus maintains its grip

The Plaza Hotel, Sofitel New York at 45 West 44th Street and Le Bernardin at 155 West 51st Street (Credit: Yarl via Wikipedia Commons, Sofitel and Le Bernadin)

Mass layoffs claim jobs at the Plaza, Sofitel and Le Bernardin

arrow_forward_ios
Loading...