Salon‘s Henry Grabar explored the potential benefits at length for American cities–including Detroit–of large-scale Chinese investment back in January in “How China could save Detroit.”
Incumbent Mike Bell may have lost the Toledo, Ohio, mayoral election in November, but he departs this month with a kind of celebrity in urban development circles. His success in luring Chinese investment to Toledo, 50 miles south of Detroit on Lake Erie and with a population of 280,000, remains the envy of larger American cities. A Chinese university will soon set up a branch downtown; rare Chinese antiques will be shown at the Toledo museum this year. A waterfront redevelopment project is underway, courtesy of Chinese capital.
It’s a sign of things to come. The American real estate industry has finally tapped the faucets of global finance, and projects are swimming in Chinese capital. According to data from Real Capital Analytics, the Chinese spent $4.3 billion on commercial property in the United States in 2013, more than in the previous five years combined. The country is easily the fastest-growing source of foreign direct investment in the U.S., and Boston Consulting Group has predicted that Chinese offshore assets will double over the next three years.
“The trend for Chinese companies going abroad has just started,” Zhang Luliang, the chairman of state-owned Greenland Holding Group Co., said in October, shortly after his company agreed to buy a 70 percent stake in Brooklyn’s Atlantic Yards project. That development, which will include 15 apartment buildings behind the 19,000-seat Barclay’s Center arena, is the biggest U.S. commercial real estate project yet to receive Chinese backing. But it is joined by similarly large deals in Oakland, Los Angeles and San Francisco. In the latter city, China’s Vanke Co. Ltd. agreed to partner on a $620 million apartment project with Tishman Speyer just 45 days after chairman Wang Shi saw it for the first time. Existing structures, like Manhattan’s GM Building, part of which was sold for $700 million to Soho China Ltd. this summer, have also proven popular.
Those projects have journalists and developers buzzing with excitement. And yet, they may represent as little as one third of what the Chinese are spending on U.S. property. The bulk of Chinese property investment is in residential real estate.
According to a survey by the National Association of Realtors, the Chinese spent more than $8 billion between March 2012 and March 2013 on U.S. homes, accounting for 12 percent of residential property sales to foreign buyers (up from 5 percent in 2009). They are now second only to Canadians among international buyers, having leapfrogged the U.K., India, Germany and Mexico in the past five years.
Writing somewhat earlier, Gordon Chang traced this flood of capital to Chinese insecurity about their country’s future (“China’s Newest City: We Call It ‘Detroit’”).
The Chinese are coming, but what are they doing? Dongdu International will make a big contribution to downtown by redeveloping the Detroit Free Press building, turning it into a retail and residential complex, but that ambitious plan appears to be the exception. China’s rich are investing in the Motor City like they invest in their own country, where they buy multiple units at a time. In China, like here, they often keep their acquisitions vacant, treating new properties like stores of value.
The Chinese buy-and-hold tactics in Detroit suggest patience, but that’s not the whole story. The bigger story is that the parking of wealth offshore indicates capital flight. The Chinese have only 13% of their wealth outside China, according to Oliver Williams of WealthInsight, while the global average is 20% to 30%, so some of transfers of wealth abroad are normal for a developing society.
But it’s not just money that is fleeing. A study conducted by Bank of China and Hurun found that more than half of China’s millionaires have taken steps to emigrate or are considering doing so. This statistic tells us the transfers of cash out of China are not just normal diversification.
There is substantial disagreement as to how much Chinese individuals have already stashed offshore. Boston Consulting Group estimates they hold $450 billion in assets outside their country, and WealthInsight believes the number to be $658 billion.
Yet everyone agrees that the figure, whatever it is, will go up fast. Boston Consulting, for instance, predicts offshore assets will double in three years. CNBC late last month called the movement of Chinese capital “one of the largest and most rapid wealth migrations of our time: hundreds of billions of dollars, and waves of millionaires flowing out of China to overseas destinations.”