The long and winding road - from Chongqing to our very own Duisburg

Yuxinou Railway is a freight rail route which links China with Europe along the New Silk Road. It starts in the southwestern Chinese city of Chongqing, carves through the Alataw Pass into Kazakhstan, and after chugging through Russia, Belarus and Poland, it terminates in the old steel-making city of Duisburg, in Germany’s most populous state of North Rhine-Westphalia.

If you live in Europe and use an iPhone or an iPad, there’s a good chance that your smart device landed up in Duisburg after a 14-day, 11,200 km journey from the Foxconn factory in Chongqing, one of Apple Inc’s principal contract manufacturers. Two years ago the train, about 800m in length, ran weekly. By the end of 2013 it was running three times a week. Now, after a sevenfold increase in volume since 2012, the train is about to start arriving daily.

Now, Duisburg would not normally be considered a first-choice destination for international capital looking to invest in Germany. True, the city has undergone a renaissance since its decline from its glory days as a steel producer and a centre of the mining industry, but most investors are more naturally drawn to its neighbour, Düsseldorf, which has a much more urbane and glamorous feel to it.

Duisburg is, however, the largest inland port in the world. Although deep inland, more than 20,000 seagoing ships stop off at Duisburg every year, and more than 40m tonnes of various goods are handled through the city’s sophisticated container port facilities. For investors in logistics and infrastructure, the city is very much on the map.

REFIRE recently met with Duisburg’s office for economic development, where the CEO told us that the previous day he had held no less than FOUR meetings with different groups of Chinese investors. All were anxious to soak up anything they could learn about what it takes to run the world’s most successful inland port.

Doubtless they were also weighing up investment opportunities in the infrastructure and real estate that accompany the development of new transport arteries across the globe – new versions of the Silk Road that the Chinese government is now actively promoting to propel the movement of both goods – and companies themselves – out into the wider world, and get away from the image of China as mere sweatshop for the world’s manufacturing. The process has been underway in Africa for a decade now, and its results are plain to see. Europe is now increasingly in Chinese investors’ sights, and while transformation won’t happen overnight, the longterm implications of this historical development are inevitable.

A recent study by consultants Ernst & Young shows that Chinese companies made 68 sizeable direct investments in Germany last year, not counting mergers and takeovers. This pushed Germany to the top of the table – ahead of the UK and France – of European destinations favoured by the Chinese for industrial development, and nudged the Chinese into third place overall, behind the US and Switzerland, for German inward investment.

Several factors are at play here. The Chinese government’s recent moves to lower the barriers to Chinese companies’ overseas investment will now enable Chinese capital to move much faster, a hindrance which led them to lose out on several deals in the recent past. While ‘official’ Chinese investment in German real estate has been modest so far, we have no doubt this is about to change. Inofficial investment, however - from private individuals, family groupings or investment pools and club deals cobbled together from the wider mainland and overseas Chinese community - is already rampant.

Just last week a REFIRE staff member was witness to an almost surreal dispute between a seemingly wealthy Chinese lady and a local Frankfurt financial institution. The lady was having difficulty understanding why she couldn’t buy the two newly-built apartments that she wanted - on her credit card. The notion that Germany has compliance standards, and likes to have SOME idea of the source of sizeable sums of money, was proving difficult for the would-be investor to digest...

Still unquantifiable is the amount of Chinese real estate investment that is allocated indirectly via asset and fund managers, although it is certainly more than that invested directly. Obviously Germany has much catching-up to do. The UK is still - by far - the preferred destination in Europe for real estate investment, with a Chinese market share of 6%, compared to the estimated 1% in Germany.

This is certainly going to change, not least because of the investment pressure that many Chinese institutions now find themselves under. With a falling property market at home, the pressure to look out beyond their borders is increasing, and the Eurozone is offering stable if modest returns, in addition to a currency hedge.Recent regulatory changes in China now permit Chinese insurers to double their allocations to infrastructure and real estate to 20%, and while the larger players are likely to look at accessing the market initially through funds and listed companies, drawn by attractive dividend yields, they will inevitably develop the expertise and the contacts to invest directly.

Furthermore, investments of up to €1bn, which previously required special government dispensation, now merely need to be registered with China’s National Development and Reform Commission (NDRC), greatly speeding up the ability of Chinese companies to think boldly and move fast.

REFIRE has had a very positive response from German companies wishing to participate in our forthcoming “1st Annual German-Chinese Real Estate Forum” taking place in China, with highly-targeted Chinese investor participation. The Forum will include a full day’s conference devoted to German real estate opportunities for outbound Chinese investors in each of three cities: Hong Kong on January 19th, Beijing on January 21st and Shanghai on January 23rd.

For speaker positions and sponsorship opportunities, along with the ability to participate in the week-long road-show, things will be moving fast between now and the Expo Real in Munich in early-October. Make sure to stay tuned to our website to follow developments: www. refire-online.com