China could soon come to play a greater role in global markets as a source of capital

China could soon come to play a greater role in global markets as a source of capital, DTZ Research believes.

The growing reliance of the world’s economy on Chinese growth could also extend to global real estate and capital markets, it says in a report.

Although China’s phenomenal growth is well documented, ‘a different and, potentially, more important story over the medium term is that of China, not as a destination for global investment, but as a source of capital increasingly active on the world’s stage’, says the report.

Already in Singapore, a Chinese company is said to be part of a consortium that has just bid for a residential redevelopment site in the Cairnhill area, setting a new collective-sale benchmark price in the process.

DTZ says that if the deal goes through, it would be the first direct foreign investment by a Chinese company in Singapore real estate here.

Whether this will lead to more Chinese capital flowing into Singapore is not known, but DTZ China head of investments Frances Li says: ‘At the moment, pension funds and insurance companies in China have generally not been allowed to invest in real estate by regulations.

‘I do know the insurance authorities are considering the possibility and in discussion to draft the policy. It is estimated to take at least two years for them to open the real estate market by the current pace.

‘Therefore, I believe most investors (here) will be developers.’

In its report, DTZ also says that Chinese capital could play an instrumental role in ‘plugging’ the estimated shortfall in household wealth of most mature economies as a result of the impending ‘demographic shift’.

The report says that China’s savings pool now makes up about 50 per cent of GDP, with foreign exchange reserves expected to double to US$2 trillion in the next two or three years.

‘This represents a potentially enormous investment capital if deployed internationally,’ DTZ says.

‘An increasing likelihood given the need to diversify risk, maximise returns, as well as improve the general management of these funds.’

For the moment though, more capital is likely to be flowing into China rather than out of it.

For 2006, global investment transactions in direct real estate totalled US$551 billion, a 35 per cent increase from 2005. Cross-border investment activity accounted for 40 per cent of this, up from 30 per cent in 2005.

DTZ estimates that US$2.5 trillion of capital is currently looking to be deployed in real estate worldwide, roughly a ratio of US$5 of capital chasing every US$1 of investment grade stock.

In China, the ratio is estimated to be 15:1.