World Winning Cities

World Winning Cities Programme

China: Emerging City Winners

World Winning Cities in China

China Context Economy Investment

China 30

China Logistics

China Retail

City Cobwebs

China: Emerging City Winners

Changing Perceptions

Some things you may know about China….

…..and some things you probably didn't

The Western View of Chinese Markets

• Too much to choose from – where do you start?

• Nothing familiar – where are the sale and leasebacks and the REITs

• Partnerships – necessary, but difficult

• The banks are bankrupt

• There is no management skill and few trained staff

• They want long term investment monies not short term real estate investment

The Chinese View of Western Approach

Strengths:

Prudent in investment decisions making

Good at risk management

Weaknesses

Slow to respond to Chinese partners proposals

Require Chinese partner to do too much time consuming paperwork

Eager to have final say on everything, but fail to understand the market

Slow to amend marketing strategy in a rapidly changing market

Don’t understand gov’t approval process & unwilling to work within it

But China has come far: The History of Property Investment

1988 1989 1990 1991 1997 2005 2006

P&G enter Market/ Land lease system established

Shanghai Centre - First real property project

Macquarie GPA deal kicks off hard asset investment

1988

1990

2005

The property market since open policy

2003

Asian Financial crisis scares investors away1997-8

Case Study: Shanghai Centre (Completed 1990)

First international property investment deal

AIG, Kajima, Portman

5-star hotel, serviced apt, grade A office, retail

Hank Greenberg AIG & John Portman, Portman Group personally involved

Case Study: Plaza 66 (Completed 2001)

2001 – Phase 1; 2007 – Phase 2

66 Floors of MNC tenants

5 Floors of Luxury brands

Vast majority of Chinese couldn’t buy anything in this center

Is it profitable, or just a ‘showcase’?

Hang Lung hopes to roll out 10 more mixed use projects over the next 3 years

Case Study: Morgan Stanley Deal

A very difficult & time consuming deal, but showed perseverance

Strata title building, poorly managed & positioned

Morgan Stanley & local partner consolidate strata title ownership

Have been able to double rents, reposition retail

Just signed key anchor tenants – insurance group (8,000 sqm)

Weight of money targeting China

• International funds have announced more than US$ 30bn of investment targeting China

• Majority of funds are from Chinese, Hong Kong, Taiwanese & Singaporean investors

• ‘Western’ money continues to principally target highly competitive markets in Yangtze Delta – especially Shanghai. Some interest in Beijing.

• ‘Asian’ cross-border investors continue to target Guangdong and Tier II and III cities – first to enter strong growth markets.

• Tier II and III cities only offer development opportunities

Weight of Money Targeting China

Foreign Investors in China

2005 ‘Prime’ Real Estate Investment in China

Total > US$ 5.5bn

BeijingTianjin

ShanghaiHangzhou

Nanjing

Other

Guangzhou/Guangdong

China - Yield Convergence?

2%

4%

6%

8%

10%

12%

14%

1998 1999 2000 2001 2002 2003 2004 2005 2006

Shanghai

Beijing

Prime Property Yields: China

China Context Economy Investment

China 30

China Logistics

China Retail

China: Emerging City Winners

Shanghai, Beijing, Hong KongGuangzhou, Shenzhen, Macau

Chongqing, Chengdu, TianjinWuhan, Xi’an, Qingdao, SuzhouShenyang, Hangzhou, Nanjing,Dalian, Dongguan, Xiamen

Harbin, Zhengzhou, FuzhouNanning, Wuxi, ChangshaKunming, Jinan, Ningbo, NanchangHefei, Changzhou, Changchun

II

IIIIII

II

I

China’s Cities Hierarchy

Traditional Focus of Economic Activity

BBohai Economic Zoneohai Economic Zone•Administrative Capital•Science & Technology•Higher Education•Culture/Tourism•Olympics 2008

Pearl River DeltaPearl River Delta•Trade capital•Manufacturing FDI•External Links•Special administrative regions•Tourism •Zhujiang New City•Asia Games 2010

Yangtze River DeltaYangtze River Delta• Financial Capital• Pudong “Development Zone”• Port development• Expo 2010

Shift in Policy Emphasis onto Tier II cities

8th 5YP(1991-1995)

• Consolidate Five SEZ

• Open Pudong New District

9th 5YP(1996-2000)

• Concept of “Go West” and central China development Policy

10th 5YP(2001-2005)

• Official launch of “Go West” policy• Policy to “Revitalize Old Industrial Base”

11th 5YP(2006-2010)

• Re-emphasize on Chengdu-Chongqing axes

• Position Tianjin as Economic Centre in North China

DongguanQingdao

ShenyangXiamenSuzhouNanjing

ShenzhenTianjinDalian

ChengduXi’an

GuangzhouWuhan

HangzhouChongqing

ShanghaiBeijing

Hong Kong Macau

0 2 4 6 8 10 12 14 16 18

Tier I and II Cities: GDP Growth

Tier I Tier II

% 2005

Strongest Economic Growth in Tier II cities

II

III

Foreign Investors Move Across China

The Beginning: Hong Kong

Wave One: Beijing, Shanghai Guangzhou

Wave Two: Chengdu, Chongqing, Dalian, Hangzhou, Harbin, Jinan, Macau, Shenyang, Suzhou, Tianjin, Wuhan, Wuxi, Xian, Xiamen

Real Estate Capital Flows move to Tier II cities

Signals of Change: Retailer Expansion

Wal-Mart’s Presence - Over 60 Stores across China

Dalian

Qingdao

Beijing

Tianjin

Shanghai

Shenyang

Xiamen

Shenzhen

ShantouDongguan

Chongqing

Kunming

FuzhouChangsha

Wuhan

Nanchang

Changchun

Harbin

Jinan

Nanjing

Nanning

Guiyang

Taiyuan

Source: Wal Mart Website

Jinan

Harbin

DalianTianjin

Shenyang

Nanjing

Nanning

Changsha

Wuhan

Beijing

Shanghai

Guangzhou

Macquarie Shopping Mall Portfolio

Signals of Change: Bank Expansion

Signals of Change: High Tech Expansion

The Investors’ Geography

Taiwan

Japan

Korea

MNCs

Xiamen

II

III

Dalian

Qingdao

Yangtze River Delta

Xiamen

China 30: City Evolution Curve

China 30: City Evolution Curve

Ningbo

Wuxi

Fuzhou

Jinan

Harbin

Changchun

Zhengzhou

Changsha

Maturing

Shanghai

BeijingZhuhai

Wenzhou

Lanzhou

Urumqi

Kunming

Hefei

Nanchang

Nanning

Changzhou

Growth Early Adopters

Watch ListDormant

Guangzhou

Shenzhen

ChengduHangzhouTianjinChongqingSuzhouWuhanNanjingDalianShenyangQingdaoXi’anXiamenDongguan

Short Term Winners

Medium Term Winners

Longer Term Winners

Property Opportunities

Dormant

Early Adopters

Growth

Property Opportunities

Maturing

Active Players in the Market

• Low-end Retails • Mass Residential

• Specialist Opportunities e.g. Tourism and Hotel sector

• Office • Luxury Retail • MICE• Logistics• Hi-end Residential

Various Investment opportunities for institutional investors

II

III

China’s Emerging Tier II Cities

Tianjin• 10 million inhabitants• Manufacturing/Freight Hub • Improving linkages with Beijing

Suzhou• IT Manufacturing Hub• High FDI• Proximity to Shanghai

Dalian• IT Hub• Emerging BPO Cluster• Japanese Investment

Hangzhou• IT Hub• Labour Skills• Proximity to Shanghai

Chengdu• Commercial Hub of SW China• Manufacturing Centre• Target for International Developers

DalianTianjin

Chengdu

Suzhou

Hangzhou

Tier II and |III cities: Drivers of Growth?

10 Drivers we identified….

Industrial Heritage Cities

Ripple Effect Cities

Port Cities

Gateway Cities

R&D Cities

Administration Targets

Hi-Tech Cities

Culture Cities

Neighbours Cities

Transportation Cities

Industrial Heritage CitiesShenyang & Changchun

Old Heavy Industrial Base - Changchun: Car Manufacturing - Shenyang: Chemicals & Machine Tools Rich JV opportunities for foreign

investors Improving Infrastructure

Hi-Tech CitiesDongguan & Wuhan

Dongguan: Significant FDI from Hong Kong and Taiwanese companies for computer components/Export driven economy

Wuhan: The “Detroit of China” / China’s largest laser equipment production base and the third largest optical fibre producer in the world

R&D CitiesNanjing & Xi’an

High Skilled Labour Force- Nanjing: number of engineers twice as high as

in Shanghai- Xi’an: ranks third in R&D capability after

Beijing and Shanghai

Promising Future in R&D Sector

- Nanjing has become a favourable location for auto design and development. Ford had big commitment in the city

- Xi’an aims to become another “Bangalore” by carving out a niche in IT outsoucing

Ripple Effect CitiesSuzhou, Hangzhou, Wuxi, Changzhou, Hefei & Jinan

Benefiting from Cost-based decentralization from Shanghai

Moving up value-chain- Suzhou developing hi-tech Industry- Wuxi focusing on solar-energy industry- Changzhou expanding to MICE activities- Hangzhou has active indigenous private sector

Hefei & Jinan benefiting from second-wave ripple effect over medium term

NeighboursDalian, Qingdao, Xiamen & Fuzhou

Geographic location offers opportunities for cooperating with nearby countries

- Dalian and Japan- Qingdao and Korea- Xiamen and Taiwan- Fuzhou and Taiwan

Administrative TargetsChengdu, Chongqing & Tianjin

Chengdu & Chongqing: Target of “Go West” policy

Preferable choice for those MNCs seeking to access the large domestic consumer markets in west China

Tianjin: Economic Centre in North China

Airbus set up its first assembly line outside Europe in Tianjin

Port CitiesNingbo

Ningbo Port will double in size by 2010 One of the top 5 ports in China

Completion of Hangzhou Bay Bridge (2008) links Ningbo directly to Shanghai

Wealthy local residents

Transportation HubsZhengzhou & Nanchang

Zhengzhou: Railway Hub of China/on the major north-south axis from Beijing and southern China

Nanchang: allowing Hong Kong and Macau investors to invest in public transportation industry

Gateway CitiesKunming, Harbin & Nanning

Kunming: International highway connecting Chengdu and Bangkok is planned

Nanning: Benefiting from a booming Vietnamese economy

Harbin: links with Russia, major trading hub in north-east China.

Culture CitiesChangsha

Creative hub for media and entertainment

Super Girl Show impact

Entertainment industry growing rapidly, accounting for 10% of GDP

The raised city image has attracted lots of well-known developers/investors.

China Context Economy Investment

China 30

China Logistics

China Retail

City Cobwebs

China: Emerging City Winners

China Logistics

• 20 Logistics Hotspots appearing on radar screen of logistics operators and developers

• 80% of activity in five prime hubs – Shanghai, Shenzhen, Guangzhou, Beijing and Tianjin

• Secondary Logistics Hubs – Suzhou, Ningbo, Qingdao, Dalian and Xiamen

China’s 20 Logistics Hotspots

Source: Jones Lang LaSalle Research

China’s 20 Logistics Hotspots

Bohai Bay 21%

Yangtze River Delta 43%

Pearl River Delta21%

Other 15%

Survey of 138 Logistics OperatorsSource: China Supply Chain Council, Jones Lang LaSalle, 2006

China Warehousing Facilities: Current Activity

Survey of 138 Logistics OperatorsSource: China Supply Chain Council, Jones Lang LaSalle, 2006

Storage

25%

Trans-Shipment

20%

Industry Operations 9%

Value-Added Services

20%

Reverse Logistics

7%

Consolidation

18%

Current Warehousing Uses

China Warehousing Uses

2 2.1 2.2 2.3 2.4 2.5 2.6 2.7

Survey of 138 Logistics OperatorsSource: China Supply Chain Council, Jones Lang LaSalle, 2006

Value-Added Logistics

Consolidation

Trans-Shipment

Industry Operations

Reverse Logistics

Storage Score

China Warehousing Uses – Growth Prospects

Source: Ministry of Communications of PRC, November 2006

China’s Future Expressway Network

Source: Ministry of Communications of PRC, November 2006

China’s Existing Rail Network

Mainland China’s Major Ports Network

0 500 1000 1500 2000 2500 3000 3500

NANJING Lukou

HANGZHOU Xiaoshan

XIAMEN Gaoqi

CHENGDU Shuangliu

SHENZHEN Baoan

GUANGZHOU Baiyun

BEIJING Capital International

SHANGHAI*

HONG KONG International

‘000s tons

•Combines Shanghai’s Pudong and Hongqiao airportsSource: Statistics Bureau of each City

China’s Top Freight Airports, 2005

Beijing 13%

Tianjin 5%

Shanghai 32%Suzhou 7%

Guangzhou 12%

Shenzhen 9%

Chengdu 6%

Xiamen 3%Greater Bohai Bay 21%

Yangtze River Delta 43%

Pearl River Delta21%

Other 15%

Survey of 138 Logistics OperatorsSource: China Supply Chain Council, Jones Lang LaSalle, 2006

Region City

Warehousing Facilities: Current Presence

Greater Bohai Bay 23%

Yangtze River Delta 27%

Pearl River Delta35%

Other 15%Beijing 13%

Tianjin 8%

Shanghai 23%

Suzhou 2%Guangzhou 19%

Shenzhen 15%

Chengdu 12%

Region City

Survey of 138 Logistics OperatorsSource: China Supply Chain Council, Jones Lang LaSalle, 2006

China Warehousing Facilities: Plans for Next 2 Years

0 10 20 30 40 50 60 70

Tianjin

Beijing

Guangzhou

Chengdu

Ningbo

Shanghai

Shenzhen

Source: Jones Lang LaSalle, 2006

US$/sq m/year

Warehousing Rental Ranges

China Context Economy Investment

China 30

China Logistics

China Retail

City Cobwebs

China: Emerging City Winners

China: Retail Futures

China’s Consumer Groups

The Lost Generation

The Emerging Middle Classes

The Girls of the Economic Miracle

The Little Emperors

The New Elite and Super Rich

The Vibrant Youth

World Largest Shopping Malls

ChinaSouth China Mall, DongguanGolden Resources Mall, BeijingPanda Mall, ChengduGrandview Mall, GuangzhouOriental Plaza, FoshanMall of China, QingdaoTriple 5 Mall, Wenzhou

North AmericaWest Edmonton Mall, AlbertaSouth Coast Plaza, Orange CountySawgrass Mills, Ft LauderdaleMall of America, MinnesotaDel Amo Fashion Center, LA

Source: New York Times

China Context Economy Investment

China 30

China Logistics

China Retail

City Cobwebs

China: Emerging City Winners

0

5

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15Economic Size

Population

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Beijing

City Cobweb: Beijing

0

5

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Shanghai

City Cobweb: Shanghai

Guangzhou

0

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City Cobweb: Guangzhou

Shenzhen

0

5

10

15Economic Size

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City Cobweb: Shenzhen

Chongqing

0

5

10

15Economic Size

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City Cobweb: Chongqing

Chengdu

0

5

10

15Economic Size

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Economic Growth

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City Cobweb: Chengdu

Tianjin

0

5

10

15Economic Size

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Economic Growth

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City Cobweb: Tianjin

Wuhan

0

5

10

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Economic Growth

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City Cobweb: Wuhan

Xi'an

0

5

10

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City Cobweb: Xi’an

Hangzhou

0

5

10

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City Cobweb: Hangzhou

Suzhou

0

5

10

15Economic Size

Population

Population Growth

Economic Growth

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Innovation

Labour

Education

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City Cobweb: Suzhou

Nanjing

0

5

10

15Economic Size

Population

Population Growth

Economic Growth

Infrastructure

Openess

Innovation

Labour

Education

Residential Potential

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City Cobweb: Nanjing

Dalian

0

5

10

15Economic Size

Population

Population Growth

Economic Growth

Infrastructure

Openess

Innovation

Labour

Education

Residential Potential

Quality of life

Wealth

City Cobweb: Dalian

Xiamen

0

5

10

15Economic Size

Population

Population Growth

Economic Growth

Infrastructure

Openess

Innovation

Labour

Education

Residential Potential

Quality of life

Wealth

City Cobweb: Xiamen