Academic journal article China Perspectives

Finance Capital Launches an Assault on Chinese Real Estate

Academic journal article China Perspectives

Finance Capital Launches an Assault on Chinese Real Estate

Article excerpt

Over the last two decades, property markets have undergone a process of "financialisation" brought about by the global expansion of market finance. change Is characteristic of the new regime of capital accumulation that emerged In the 1980s, establishing the pre- dominance of finance over industry and favouring the rise In power of In- stitutional investors. A crucial stage In this process was the deregulation of the financial markets, the effects of which proved spectacular In Asia, namely the explosion of a gigantic "property bubble" In Japan, followed by the triggering of the Asian crisis on the Thai property markets In 1997.<3) Up until now, China has been spared systemic crises, as Its resilience In the face of the subprime mortgage debacle shows. Nonetheless, It has not es- caped speculative mechanisms In the property market, or even bubbles,!4) which encourage It to exercise caution In the face of the penetration of for- eign financial capital. penetration of such capital has admittedly been timid with regard to the deployment of multinationals In Industry, but has been steadily Increasing for the last ten years or so.

The stakes are very high Indeed. Urbanisation has Intensified In China, coastal megacities have expanded, and regional capitals have become giant cities. The latter will now have to provide the facilities needed to meet the needs of a rapidly growing middle-class that aspires to urban change. China therefore represents a true Eldorado for global financial capital. Not only does this country offer formidable potential for a diversification of Invest- ment, It also promises excellent performance supported by growth dynam- ics that contrast with the lethargy of the Industrialised economies.

This article falls within the scope of recent research In the field of financial geography that seeks to shed light on several distinctive aspects of finan- cialised Investment channels. Upstream of the channel, research has focused on the discriminatory nature of the risk-return coupling and time horizon In the spatial and sectoral strategies of Investment funds.!5) Downstream of the channel, the accent Is on the role of mediator assumed by certain local urban operators In the anchorage of transnational capital.!6) Basing our observations on semi-directed Interviews conducted with property op- erators In Hong Kong and Guangzhou, supplemented by exploiting the plen- tiful "grey literature" taken from the official sites of these companies, I show that differences In the Investment strategies of the funds are accentuated by a split In the geographical origin of the sponsor groups. I also take ac- count of the role of public policies In the full-scale urban restructuring that foreign financial Investment allows as well as of the many changes resulting from this In urban life.

Adaptation of the urban context to the requirements of finance capital

The penetration of finance capital Into the property sector Is a response to the need felt by Institutional Investors, notably the pension funds of In- dustrialised countries, to diversify their investments to cope with the in- creased demand for savings and retirement services emanating from ageing societies. (7) They generally allocate between 5 and 10% of their capital to property investment. presents two main advantages: on the one hand, Its performance Is often only weakly correlated with that of the other cate- gories of assets, which limits the overall risk to which Institutional Investors expose themselves In their portfolios, and on the other, It offers attractive return/risk couplings, notably In Asia.!9) However, the Integration of property Into finance Is not automatic. It requires property rights to be transformed Into securities, listed or not, and exchangeable on the financial market. This operation removes the constraint of Illiquidity that Is a characteristic of prop- erty with Its high "entry cost" (Initial high Investment, high taxation, and var- ious expenses), fragmented markets, opacity of Information, and long transaction times. …

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