We?re almost a week into the brand new year, and 2016 ? the year of the Fire Monkey1 ? will be a year of action, especially for China and the Chinese market.
Juwai
Other
We round up and share 10 hot China trends to watch for in the months to come:
#1 6.5% GDP growth – China’s extraordinary ‘new normal’
While the 6.5% GDP increase – or ‘new normal’ – forecast for 2016 looks slower than the 10%-12% growth recorded between 2009 and 2012, let’s put this in perspective: 6.5% growth is the fastest growth outlook of the top five economies in the world.
The net annual increase in China’s GDP (approx. US$720 billion) is about equal to the total GDP of Switzerland, or three times the GDP of Finland – hardly an insignificant performance.
What’s more, most (c.55%) of that extra GDP will come from private consumption in China. With total retail sales worth US$3.6 trillion in 2015 – forecasted to grow 15.6% y-o-y to hit US$4.1 trillion in 2016 – any self-respecting retailer will be looking to make inroads.
#2 China’s hottest export: 139.2 million outbound tourists
Consumer demand is growing so fast that China just can’t contain it. Burgeoning consumer demand and an increasingly globally minded populace saw China became the largest global source of outbound tourists in 2015.
120 million Chinese travelled out of China last year, spending a whopping $229 billion overseas and charting a 19.5% increase y-o-y on the 109 million outbound tourists in 2014.
This growth is set to continue growing. Total tourists and spending are estimated to grow 16% and 21% y-o-y respectively in 2016, which basically adds up to another monster year of 139.2 million projected outbound Chinese travellers!
And this monster spending power of China’s internationally mobile HNWIs, business travellers, and middle-class is having such an impact on travel markets that it’s dominating business class, which is usually the domain of the well-heeled and the high-end.
The Global Business Travel Association Foundation estimates that business class spending by Chinese travellers will increase to $322 billion in 2016 and rise to $420 billion by 2019, overtaking the US market as the largest source of business travel bookings.
#3 Domestic upturn = time to cash out and look internationally
With a slew of supportive government measures, forecasters have penciled in 10% growth in domestic property sales in 2016, continuing the recovery in sales that emerged in mid-2015.
This is good news for developers, no doubt, but it is also good news for mainland property investors looking to buy properties overseas.
Increased market liquidity presents an opportunity to cash out of domestic investments and free up capital to channel overseas into assets, which are more keenly priced.
We’ve previously highlighted the value that overseas properties can offer in terms of pricing, space and facilities, and these attractors, supported by ongoing policy relaxation to ease outbound investment (see below), will likely continue to stoke overseas real estate investment from China in 2015.
#4 China’s silver screens worth US$8.2 billion in 2016
Western film companies are starting to wisen up to China’s movie market and, let’s face it, they have 8.2 billion reasons to do so – that’s the amount of revenue (in US dollars) that Citigroup research expects will be spent in mainland box offices in 2016.
That 28% y-o-y increase means China is closing in onto the US – the world’s largest film market, which is expected to see approximately US$11 billion of box office revenue in 2016.
With this huge potential market in mind, Western movie companies have been offering more parts to Chinese actors and actresses, and featuring mainland locations prominently in their biggest recent releases. (Think Transformers 4: Age of Extinction.) Chinese companies are also funneling investment into film studios, with firms such as Dalian Wanda and Hony Capital particularly active.
#5 Overseas education remain a key driver for investor demand
China looks set to retain its place as the world’s largest source of international students in 2016. Competition for top-end positions in China is as fierce as ever18, and the allure of a Western education abroad remain strong.
An estimated 460,000 mainlanders studied overseas in 2014 alone, up 11% y-o-y compared with 2013.
The Chinese student market is so important that it is being regarded as ‘priority number one’ by Times Higher Education Rankings, with universities bending over backwards to market their courses in China and expand the range of courses on offer to Chinese students.
As such, many governments, including the UK, US, Canada, and South Korea, have moved mountains to make visa processing simpler and more accessible for the thousands of potential Chinese students looking overseas.
Policies such as these, and a strong demand outlook, will likely lend extra support to property investment demand, since Chinese parents prefer setting their children up with their own homes while studying abroad.
#6 Financial sector reforms will open up capital floodgates
As more Chinese companies and citizens look outwards for business and investment opportunities, China’s financial system will be moving to adapt to meet their needs.
Measures such as expanding the Hong Kong-Shanghai Stock Connect, permitting non-residents to issue financial products on domestic markets, and giving foreign investors easier access to China’s capital markets will all feature prominently, as Chinese authorities look to promote full convertibility of the RMB with foreign currencies within the next five year plan.
Simply put, that means removing controls on capital outflows and allowing investors to move their money in and out of China whenever, wherever. That said, smoother processes and relaxed limits will also have big repercussions on the following big trend to take note in 2016.
#7 Outbound property investment to soar 50% y-o-y
Chinese companies are slated to ramp up their overseas investments in 2016, and the total investment will likely exceed the US$104 billion recorded up to the end of November 2015.
2015 has seen a marked policy shift, with numerous measures implemented, such as an expansion of QDII quotas and other changes to grease the wheels of outbound investment, and this is only going to expand under the newly-announced 13th Five Year Plan.
Coupled with the financial sector reforms previously discussed in trend #6, plus increasing demand from business and individuals for overseas property investments, it’s likely to be another bumper year of outbound investment.
Colliers International estimates China’s 2015 total outbound investment in property alone totalled US$29 billion, and will increase by 50% y-o-y in 2016.
#8 China to be closer than ever, with more routes set to open
The Chinese diaspora is set to grow. As China’s populace becomes increasingly internationally-minded and dispersed, airline operators will lay on more connections.
Major airlines – including China Airlines, China Southern Airlines, United Airlines, Singapore Airlines, AirAsia, and Hainan Airlines – are setting up new routes to ferry China’s business and leisure travelers to increasingly diverse locations.
It’s this trend that has seen air traffic doubling at major airports in China like Shanghai’s Pudong Airport, and also is also witnessing rapid growth at emerging hubs, such as Kunming, according to a recent in-depth report by OAG Aviation, an industry consultancy.
What’s important to note is that new routes are not only linking up China with major gateways, such as London and New York, but also with second- and third-tier cities in Europe and North America, such as Budapest29, Birmingham30, and Boston.
This clearly illustrates Chinese investors’ widening horizons as they become tuned into investment opportunities away from more traditional investment hubs.
#9 The beautiful game to boom in China
Almost by presidential decree, football – or soccer – is about to become big business in China. President Xi Jinping is an avowed football fan, and away from the dry statements about five year plans, top-level initiatives are being drawn up to boost the development of the game in the mainland.
Government support, plus the prospect of the growth of soccer and the marketing revenue and TV viewers associated with the sport in China, has already sparked huge investments in soccer franchises:
Football fever is driving Chinese investors overseas too – Dalian Wanda scooped up 20% of Atletico Madrid, whilst China Railway bought a stake in Inter Milan. On one level, they want to market the teams to overseas travellers, but they also want to tap the foreign teams’ expertise to help them develop their China franchises.
#10 Demographic policies to alter real estate demand
China reached a demographic turning point in 2015, when it became clear that the % share of young people in the population started to drop, while the % of old people started to increase.
Concerned about a dwindling workforce, the Chinese government released a spate of policies recently, including the stunning abolishment of the one-child rule, as the country promotes a new, more laissez-faire approach to family planning.
While we’ll leave a calculation of the impact on the economy to the economists, the acknowledgement of the demographic problem and the roll-back on one of the government’s main policies is a major sea change in China – one that’s likely to feature at the forefront of investor’s minds, particularly when it comes to property investments.
With this turnabout, 2016 and onwards will see more Chinese couples thinking in larger dimensions for living space to support their future families.
This shift in mentality, combined with overseas property investment being more accessible than ever, will also likely generate a wave of couples and retirees who will be thinking more seriously about moving overseas, which may expand the range of investible properties in mainland buyers’ sights.
2016 © Juwai