CapitaLand a better bet for China play

Source : Business Times – 9 Jun 2009

CAPITALAND has more assets in China than several Singapore-listed China firms (S-chips) and has set its eyes on growing further. Better yet, most of its top management executives and board members reside right here in Singapore.

This being so, investors searching hard for a better managed S-chip as a China play could look at this Singapore property group instead as it offers exposure to the Chinese economy and comes with the benefits of a blue-chip – and a strong branding.

As at last year, CapitaLand had around $6.5 billion worth of assets in China. This makes it bigger than many S-chips, such as Yanlord ($4.8 billion), Yangzijiang ($3.9 billion) and China Hongxing ($936 million).

And the Singapore group’s fortunes will be more closely linked to China’s growth in the next few years. Its China operations accounted for some 26 per cent of group assets last year and this may rise to 45 per cent in future, said group president and chief executive Liew Mun Leong last week.

Few investors will fault this strategy today when China has clearly become one of the last few economies standing strong. While the United States and other developed Western countries continue to struggle against the slowdown, China still expects to see a respectable 8 per cent growth in GDP this year.

‘The Chinese are so much faster in approving the stimulus package, approving the macroeconomic policy, making changes to government policies to encourage investment,’ Mr Liew told the press.

The rising purchasing power of the Chinese, especially those in the first and second-tier cities, will also benefit CapitaLand’s property and retail businesses.

‘Chinese consumers are prepared to spend,’ said CapitaLand China Holdings CEO Lim Ming Yan. According to him, China’s growth model is already shifting slowly from an export-reliant to a more consumption-driven one.

And demand is filtering back to the Chinese property market, said Nomura in a June 5 report. ‘We see a return of pricing power to developers on the back of robust sales volumes and a rapid depletion of inventory’.

To be fair, S-chips will benefit from these macroeconomic trends in China but some investors will still fight shy of them given cases of accounting frauds and missing CEOs. It is not fair to taint all S-chips with one broad brush but, for more risk-averse investors, Singapore blue-chips with investments in China offer them a greater peace of mind. There are several which fit this bill such the three local banks but so far, CapitaLand seems to have made more headway in cracking the Chinese market.

Of course, there will always be corporate governance risks for any company with foreign operations. Close monitoring of transactions are comparatively harder when they happen thousands of miles away.

For CapitaLand, it believes in keeping operations as localised as possible. This hiring strategy brings in people who are immediately familiar with local market conditions, which is commendable, but they may not be as acquainted with the group’s culture and corporate governance practices. CapitaLand has adopted measures such as cross-border training to build up its culture and corporate governance standards in China. It will have to maintain or even intensify these efforts as it grows further in the country.

But all said, CapitaLand offers investors a better bet than S-chips when it comes to China play.