Concrete Analysis

Silk Road takes new turn with Chinese property investments in the West

Old trade route takes new turn with mainland firms and investors now focusing on the West

PUBLISHED : Tuesday, 14 October, 2014, 10:36am
UPDATED : Wednesday, 15 October, 2014, 11:48am

The Silk Road is probably the oldest expression relating to the opening up of business channels between Asia and the West. The expression and the concept have certainly evolved through the centuries but remain relevant today.

The origins of the route can be found in the Han dynasty and its importance can be seen by the expansion of the Great Wall of China to protect it. As Mediterranean culture developed and advanced it became the umbilical cord of business and the interchange of technologies. As such, while silk trading was the catalyst for the establishment of this channel, an ensuing result was also the creation of social, economic and political ties.

Fast forward to the 21st century we are now witness to a redefining of the very concept of this route. A powerful China, the second-largest economy in the world, and with large foreign currency reserves, seems to have begun a slow but firm economic conquest of new territories by taking strategic positions in the "Old World".

We read almost daily in the media about new investment deals by Chinese companies and investors in productive sectors, the service sector and, of course, the real estate sector.

One of the clearest blueprints for change in general, and particularly in China, is the consolidation of a powerful mass of population with significant purchasing power. China now occupies second place in the ranking of number of millionaires, overtaking Japan and behind only the United States. Among their many aspirations is the desire to experience Western countries and culture as tourists.

A powerful China ... seems to have begun a slow but firm economic conquest

With this in mind, if we look at recent corporate deals in and around Spain, a common thread appears.

The competition opened for the control of Club Med by Fosun International is no casual occurrence. Fosun recently acquired 80 per cent of the Portuguese insurance company Fidelidade, which owns 20 per cent of Club Med. Its lacklustre results in recent times offered the Chinese corporation an opportunity to relaunch the platform, coupling its access to mainland Chinese demand with a strong and prestigious brand in the sector.

We have also seen numerous other recent examples in Spain and Portugal which underscore this trend. For example, HNA has taken a position in NH Hotels, Dalian Wanda has taken steps to establish itself in the Spanish market and Sol Melía has struck a strategic agreement with Jiang Jian Hotels. All of these reflect the aforementioned strategy. Moreover, this activity feeds demand for services in areas such as banking. Industrial and Commercial Bank of China is one of the forerunners to position itself strongly in the Spanish market.

Undoubtedly, the Spanish real estate sector is a target for investors from the mainland, Hong Kong and the wider Asia region. To date, aside from the activity already mentioned, interest has yet to translate into deals as competition from other international investors is strong. As a result, we see greater desire to form partnerships with local developers and also a shift to more indirect forms of investment.

In the residential market we have seen a surge in mainland Chinese interest. On the development side, some large Chinese developers are actively seeking out large tracts of land for residential projects. While this is partly a response to the shortage of residential supply in certain areas, it is also designed to cater for rising demand from mainland Chinese clients. By spending just €500,000 (HK$4.8 million) on real estate a family can secure a residency permit not just for Spain but also the wider Schengen area, which covers most of Europe. En-bloc buildings are therefore also sought out with the aim of offering individual units to mainland Chinese investors.

Yet, in history as in life the only constant is change. In the era of internet travel search engines, low-cost airlines and social media, perhaps the Silk Road is no longer so much a route to facilitate the exchange of exotic goods and precious items from the Orient. However, in its place we may have a corridor to bring people together and share vital experiences.

Perhaps as a result of this we may pause upon an intriguing comment from Qian Jiannong, managing director of Fosun: "The strength of French brands beyond their own borders is stronger than you think".

Adolfo Ramirez-Escudero is chief executive of CBRE Spain