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

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.”