Apparently it’s not enough for China to own all the world’s resources — it needs to own other stuff too, like real estate in the U.S.
After sitting out most of 2008, China’s sovereign wealth fund is looking to dive in to real estate once again, says The Wall Street Journal. The China Investment Corp. is in talks with private equity groups and wants to snap up distressed assets in the U.S. taking advantage of certain government programs, like the PPIP.
Taking advantage of such programs will whip up an American backlash, so it’s treading carefully:
WSJ: To be sure, CIC and other sovereign-wealth funds face considerable obstacles to investing in U.S. real estate.
Economic distress has resulted in growing protectionism on Capitol Hill, with some lawmakers blaming China for helping create a credit bubble in the U.S. by investing heavily in U.S. government bonds.
Any large-scale foreign acquisitions of U.S. property could lead to a political backlash reminiscent of the 1980s, when Japanese companies invested about $77 billion in the U.S. property markets and bought assets such as Rockefeller Center and the Pebble Beach golf course.
CIC is unlikely to replicate those showy investments.
It consistently has taken minority stakes, often below 10%, as CIC executives recognize the fund’s lack of management expertise and the potential political ramifications of buying control. To minimize political risk, CIC’s “debut in the U.S. property market likely will be double arm’s-length investments,” meaning through U.S. fund managers and then with a minority stake in the fund, as opposed to direct stakes in properties, says Michael McCormack, an executive director at Z-Ben Advisors, a consulting firm in Shanghai.