Latest News:  


Is now good time for bottom fishing in UK property?

(People's Daily Online)

16:03, March 01, 2013

It is best to invest foreign exchange reserves in readily cashable and liquid overseas assets, and take Chinese companies’ equity investment into account.

China’s State Administration of Foreign Exchange (SAFE) has invested more than 1.6 billion U.S. dollars in U.K. property and infrastructure since last year. Certain analysts believe now is a good time for bottom fishing in the U.K. real estate market.

Making good use of the huge foreign exchange reserves as well as preserving and increasing the value of the reserves have been a constant headache for China. There is a strange phenomenon concerning China. The prices of the bulk goods the country buys in international markets are bound to rise, but the currency China invests in is bound to depreciate. It is heartbreaking to see over 3.3 trillion U.S. dollars of foreign exchange reserves shrink in value.

The SAFE and Chinese sovereign wealth fund China Investment Corporation (CIC) have made considerable achievements in managing and investing the country’s foreign exchange reserves. However, the SAFE’s investments in U.K. property are somewhat questionable, and it is too early to say whether U.K. home prices have hit bottom.

Both investment companies and banks develop various financial tools and mainly adopt three ways to invest. These ways include buying a company’s stock or participating in mergers and acquisitions for long-term and stable returns, investing in readily cashable financial assets such as stocks, bonds, and financial derivatives in international markets, and purchasing international bulk commodities as reserves.

It is risky for the SAFE and CIC to invest in overseas property projects that have poor liquidity but involve overly high management fees and taxes.

Here are two examples. If a bank takes back asset from a company unable to repay an asset-backed loan on time, the value of the asset, which is often real estate, usually shrinks significantly.

Another well-known example is Japan. The Japanese yen appreciated and the country’s foreign exchange reserves increased sharply in the 1980s, kind of like what is happening in China now. Japan’s domestic stock and real estate bubbles peaked in 1989, and the wealth of the Japanese people increased significantly accordingly. At the time, home prices in Japan were much higher than in the United States and Europe, so Japanese spent loads of money buying real estate in the United States and other countries. Japan’s Mitsubishi Estate bought Rockefeller Center, then a complex of 14 commercial buildings, for nearly 1.4 billion U.S. dollars in 1989, and Japan’s intention of buying the United States surprised the whole world. However, Mitsubishi Estate suffered losses after buying Rockefeller Center, and sold it back to its original owner at half the purchasing price shortly afterwards. There were many similar incidents. Instead of buying the United States, Japan fell into the trap set by the United States.

It is best to invest foreign exchange reserves in readily cashable and liquid overseas assets, and take Chinese companies’ equity investment into account. For example, CIC invested in Alibaba Group to finance the Internet company’s plan to buy back part of its stake from Yahoo. By doing so, CIC not only supported a major Chinese company, but also made a good investment which would bring long-term returns.

The SAFE and CIC should try to make such investment.

Read the Chinese version at: 中国外储成功抄底英国地产言之尚早, Source: The Beijing News, Author: Yu Fenghui

We recommend:

IKEA: Meatballs in China supplied by Fujian factory

Jet-set life takes off for country's super-rich

Taking a bite out of the market for snakes

Ratings agency warns about rising debt

Holiday firework sales fail to boom

4G network to lead the world

Email|Print|Comments(Editor:LiZhenyu、Liang Jun)

Leave your comment0 comments

  1. Name


Selections for you

  1. Special operation members in shooting

  2. Chinese peacekeeping engineer detachment

  3. Israeli troops arrest 3 Palestinian protesters

  4. Sand, haze pollute Beijing’s air

  5. Photo story: Arriving in Beijing

  6. Lantern Festival in women's prison

  7. Planting seeds for a dance revolution

  8. The most weird festivals in the world

  9. Time for Blackberry to shake up China strategy

  10. From 1st paper currency to success

Most Popular


  1. When will Poland join the eurozone?
  2. Paulson: Urbanization key to China's development
  3. Prevent Xiqu from being lost in translation
  4. Housing still on unsustainable path
  5. Property market so far so good
  6. Park Geun-hye's road will be tough
  7. China reserves right to appeal WTO ruling
  8. SOEs must act to avoid PR disaster
  9. Mainland hails Lien Chan's visit
  10. Party mulls personnel, govt reshuffles

What’s happening in China

Village teacher with his back basket

  1. PM2.5 will disappear, in name that is
  2. Shanghai restauranteurs jailed over gutter oil
  3. Beijing raises taxi fuel surcharge
  4. Strong voice of the farmers
  5. More Chinese cities ready for property tax pilots