ASIA NEWS: Swimming with the tide

You could forgive CITIC Capital’s real estate head Stanley Ching for thinking his firm’s current investment strategy is somewhat blessed.

The strategy behind the firm’s third investment fund, Capital China Real Estate Investment Fund III, was something of a departure from its residential-focused predecessor vehicle. It was launched in 2009, just before Beijing issued a number of bubble-stemming rules to reduce China’s rapidly over-heating housing market.

With last month’s China Insurance Regulatory Commission (CIRC) rules containing no constraints for China’s insurance companies to invest in commercial assets, CITIC’s debut retail investment in Changsha, Hunan Province, could well benefit from their entry into the market as it would facilitate a raft of potential buyers of the asset when the time comes.

Last month, alongside a consortium of private co-investors, CITIC invested RMB1.5 billion (€170 million; $222 million) in the ID Mall, a 120,000-square-metre retail mall expected to be opened by October 2011, the first investment in a sector for which Ching said CITIC could well launch a dedicated vehicle at a future date.

But while he recognised CITIC’s good fortune from a state policy perspective, he insisted the mall “stands up” as an investment regardless. He said: “We think this project will work without the insurance companies coming into the market, although that will make the market more efficient as they will be long term holders of such assets.”

Ching said CITIC had not ruled out further residential investments in the future, however he acknowledged the importance of swimming with the state policy tide rather than against it. “We think the residential market in China remains a huge opportunity but right now it’s too sensitive to government policy, so, as an investor, we wanted to do something where we would have more control and less interference. Retail, we feel, fits into that. Instead of enforcing controlling measures, the government wants to serve domestic consumption to aid its GDP growth.”