We witnessed the dramatic retreat from global real estate markets in 2018 by large Chinese mainland investors and conglomerates following a crackdown by the Chinese government on outbound capital into overseas properties.
The effect of that retreat is still being felt today as some of the debt-laden investors work frantically to dispose of their trophy assets in financial hubs such as London and New York.
Another, perhaps less dramatic, effect of that policy change is that many of the affected Chinese mainland firms had switched to Hong Kong as their launch pad for overseas markets. Some have moved their headquarters to Hong Kong or have listed on the city’s stock market. As the Asian financial hub boasts separate monetary, customs and legal systems from the mainland, it is itself considered to be an overseas market where liquidity is free of the policy controls of the mainland.
In fact, mainland money flow has travelled through Hong Kong for many years. As the chart shows, Hong Kong-based investors, including local and mainland entities listed in Hong Kong, drastically increased their overseas investment in 2013 – the year when outbound investment by large Chinese firms such as developers and insurance companies was allowed by the central government.
Over the years, the outflow has sustained the city as one of the major capital exporters in the world. In 2017, the shadow of capital restriction prompted some major overseas deals, driving up the volume of capital outflow from Hong Kong.
In the past two years, Hong Kong-based capital outflow has managed to maintain the level of the past five years, despite global uncertainties such as Brexit. Apart from those Hong Kong funds with a mainland background, capital from traditional Hong Kong families has also been used to make large purchases in locations such as London when the dollar exchange rate of the pound offers a major discount.
A case in point is that with increased Brexit and General Election clarity, London, with its position away from global controversies, continues to attract Hong Kong-based investors.
David Ji is head of research, Greater China at Knight Frank
