China Capital Investment Group (CCIG) has been involved in Shanghai real estate for over a decade. The company’s first investments included Zhengyang Bowling Club and the US$73 million Jiahehuayuan project in Shanghai in 1996. In November 2008, it put the finishing touches on its US$89 million CCIG Plaza project. Gao Feng, executive deputy general manager of CCIG’s real estate arm, Zhongjin Property, spoke to CHINA ECONOMIC REVIEW about the current commercial rental market, pitfalls facing foreign tenants and CCIG’s new branch office in New York City.
Q: What is the greatest difficulty foreign firms have when searching for office space in China?
A: The biggest challenge is that foreign companies with little knowledge of the local market and regional economic features are likely to choose office sites unsuitable for their industrial or regional characteristics. Take Shanghai, for example. If you are a company in the high-end luxury segment, traditional leading business addresses in Shanghai, such as Jing’an and Xuhui are your best choice, while locating in Baoshan or Minhang would be a mistake. If you’re a manufacturer, you’d do better choosing a suburb, which not only saves costs but also facilitates logistics. Foreign firms should also have a better understanding of taxes in their registration region. Due to the financial crisis, all districts in Shanghai have gradually introduced favorable tax policies for renters. Enterprises that understand the policies well can reduce their operating costs by quite substantial margins. Take CCIG Plaza, for example. It belongs to the Xujiahui community administration office. If an enterprise registers at our office building, not only can it enjoy a tax rebate, but the firm can also enjoy a rent subsidy.
Q: What prompted your decision to open up a branch office in New York?
A: We set up a branch abroad to create a window through which we can understand the global macroeconomic situation as well as industrial conditions faster and more directly, and capture new business opportunities.
Q: Which types of property do you see as being most in demand in the next year?
A: In terms of the domestic property market, rigid residential housing demand is still the highest in the Chinese property market. As for the commercial real estate sectors, particularly retail property, consider Shanghai. Shanghai has been in an asymmetric state, overheating in the central urban areas while conditions in the surrounding regions were dismal. In fact, there were successful cases of regional central business district (CBD) and urban sub-CBD developments in recent years, but they relied on importing population to the suburban areas as well as supportive policies by local governments.
Q: How do you anticipate the stimulus plan will affect your business? What are the most important provisions in the plan as far as commercial real estate is concerned?
A: China’s “fast, accurate and aggressive” stimulus package has, to some extent, moderated the financial crisis’s impact on China’s economy. But we think that our business will only realize genuine benefits when China’s economy evolves from policy-spurred growth to market-driven growth. Enterprises that are large-scale but unprofitable can stay large-scale but need to become profitable. From the perspective of commercial property, the US$586 billion stimulus package, the “ten industry” revitalization plan and loose monetary policy all have a positive impact, but we think loose monetary policy is the most effective and important one as far as our sector is concerned.
Q: What are the prospects for management services and serviced offices?
A: Serviced offices are suitable for start-ups and small- and medium-size enterprises. With government support for college graduate entrepreneurs and favorable policies for private enterprises, we believe that there will be a good market for serviced offices. We think the financial crisis is stimulating demand for such products. In order to develop a better selection of office solutions, developers should be innovative, particularly when it comes to providing services.