Infrastructure and construction projects herald start of great modernisation drive The eyes of the world are increasingly on Beijing as it undergoes a radical physical transformation fuelled, in particular, by the forthcoming Olympic Games. Massive infrastructure and construction projects are under way and the property market is being closely watched by both domestic and foreign companies interested in establishing a presence in the capital. 'We are witnessing the modernisation of one of the most historically fascinating cities in the world,' says Winnie Yip, general manager, Beijing, of DTZ Debenham Tie. 'Massive construction will continue between now and 2007 in preparation for the 2008 Olympics, and with this comes ever-increasing interest from international companies wanting a presence here.' Beijing's economy faces challenges in the coming years, not least because it is becoming increasingly exposed to global economic fortunes through China's membership of the World Trade Organisation (WTO). After many years of sustained growth, there are signs the economy is slowing slightly as the country reacts to the global economic slowdown. The outbreak of Sars earlier this year, which saw the World Health Organisation (WHO) issue an advisory discouraging travel to Beijing, also had a negative impact on the capital. The government's relaxation of many policies is viewed not only as encouraging to foreigners wishing to reside in the capital, but as promoting their purchase of residential and commercial property. An increasing number of expatriates are arriving in Beijing on short-term stays, which itself has fuelled construction of suitable accommodation. There has been an notable increase in the number of foreign retail firms establishing a presence in the capital this year, or planning to do so next year, including Wal-Mart, OBI, B&Q, and 7-Eleven. There has also been an increase in the number of retail premises sold, rather than leased, in the past two years, as investors move their money into the commercial property market. Andrew Ness, executive director of global research and consulting, Asia, at CB Richard Ellis, says the impact of Sars on Beijing's office market, in particular, diminished in the third quarter. 'Office leasing resumed again, with take-up recorded at 559,500 square feet, an increase of 26 per cent quarter on quarter,' Mr Ness says. 'Due to this surge in take-up, overall prime office vacancies dropped to 16.2 per cent in September from 17.3 per cent in June.' Despite this pickup in activity, rents continue to follow a downward trend. 'Most developers anticipate the emergence of a highly competitive environment in the office sector as a nearly continuous succession of office properties is poised to come on stream in the next 36 months,' Mr Ness says. Lina Wong, general manager, Beijing, at Colliers International, says all economic sectors have recovered since the WHO lifted its travel advisory on June 24. 'Driven by the strong manufacturing sector and automotive sales, as well as housing sales, Beijing's economy registered 9.6 per cent year-on-year growth in the second quarter, which was much better than anticipated,' says Ms Wong. Demand for office space increased in the third quarter as companies resumed relocation or expansion plans that had been postponed during the outbreak of Sars. The World Bank has leased more than 4,100 square metres of space at the China World Trade Centre and Johnson & Johnson has taken up 1,800 square metres at Pacific Century Place. Ms Yip says there is much positive sentiment on the long-term future of Beijing's economy. 'Beijing is moving into a new stage of economic development,' Ms Yip says, adding that the 2008 Olympic Games will hasten the city's modernisation drive, thereby serving as a powerful engine for economic and social change. 'In preparing for the games, the Chinese government will invest more than 180 billion yuan [about HK$167.2 billion] to improve the infrastructure of the city, with a view to making it a 'world city' by 2008. Economic growth will spur significant investment in sports facilities, communications systems, lodging facilities and airport and highway construction,' she says. China's membership of the WTO is spurring significant foreign investment in Beijing. 'As markets open up, the service sector in particular, is likely to develop more rapidly,' Ms Yip says. 'The ongoing development of the Zhongguancun Science Park will have a significant impact on Beijing's economy and provide impetus to Beijing's economic development in the early years of the 21st century. It is estimated that in the next 10 years, Beijing's hi-tech industry will maintain a growth rate of over 15 per cent.'