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IDG Capital targets China’s consumption shift in real estate investment strategy

The company prefers long-term projects in areas including tourism and health care, where demand is growing

PUBLISHED : Sunday, 18 March, 2018, 5:48pm
UPDATED : Monday, 19 March, 2018, 10:16am

IDG Capital, one of China’s first venture capital firms, is targeting the country’s shift towards a consumption-driven economy in its real estate investment strategy, seeing value in long-term tourism and health care projects.

Zhai Ping, a partner with IDG Capital, said in an interview that the company had found success in previous tourism projects, where it offered both operational expertise as well as investment in physical infrastructure, and was looking to expand the approach.

“Most of our funds are 10 years. Tourism and health care projects require long incubation periods and are unlikely to succeed with a five-year investment rule,” Zhai said.

The Chinese government has a stated policy of shifting the economy’s traditional reliance on investment and the export industry for growth into one where consumer spending and domestic demand are the main drivers.

One pillar of that plan is domestic tourism, which has boomed in recent years. Revenue from domestic tourism reached 2.17 trillion yuan in the first half of last year, a rise of almost 16 per cent over the same period the year before. The figure also represents an almost threefold rise over the 777 billion yuan for 2007.

Zhai said IDG Capital had been building expertise in tourism projects since 2009, when it invested in large-scale development in the city of Wuzhen, near Shanghai. It exited the investment after a profit that some reports put at four times its initial investment. IDG Capital did not give a figure.

Health care is another area where the company sees potential, particularly in care for the elderly. China has one of the world’s fastest ageing populations – the State Council said last year that about a quarter of the population would be 60 or older by 2030, up from 13.3 per cent in 2010 – and the sector has attracted a number of investors both domestic and from overseas.

IDG Capital last year backed an aged care fund set up by one its advisers, Jiang Jianning, with whom it had worked on the Wuzhen project when Jiang was CEO of China CYTS Tours Holding, a state-owned travel company.

It had also backed Jiang in 2011 to build a 7.5 billion yuan elderly care, hospital, rehabilitation centre and villas near Wuzhen.

Zhai said IDG Capital did not require immediate returns for tourism and health care investments, but instead targets a healthy cash flow. It also invests in commercial and office properties, as conventional funds do, but the real focus will in areas linked to domestic demand such as apartment and co-working space operators.

“There are fleeting investment hotspots but in general I’m bullish on the consumption upgrade, and scenarios that can put hi-tech into use,” she said.

IDG Capital, formed in 1992 in the US, has a portfolio of some 700 investments, in areas from new technology to e-commerce to clean energy and media.