China’s rapid recovery from the COVID-19 pandemic is a testament to the resilience of the country and its economy, and validates American alternative investment giant Blackstone Group’s bet on it.
“The China economic miracle is the greatest economic miracle in history,” said Tony James, executive vice-chairman at Blackstone. “I think it’s going to be the only major country to have [positive] growth this year.”
Blackstone, which manages the world’s largest realty fund with $20.5 billion raised last year, has investments in China spanning property and private equity sectors. Its portfolio in the country includes Mapletree Business City Shanghai, and VivoCity Shanghai, acquired for $1.25 billion from Singapore’s Mapletree Investments last year.
According to a Reuters report in March, Blackstone held talks to privatise Hong Kong-listed property developer SOHO China in a $4 billion deal. The transaction was reportedly stalled, owing to the uncertainties brought about by the COVID-19 pandemic.
“We have a lot invested. We’re believers in China long term,” James was quoted as saying to CNBC on the sidelines of its Singapore Summit.
In the interview, James also cautioned that businesses across the board are facing headwinds on multiple fronts that are going to weigh on earnings growth.
“There’s higher taxes; their operating costs because of COVID are up; their supply chains are going to be less efficient; deglobalisation will hurt productivity; state and local employment will be under pressure because of the [government budget] deficits.”
Consequently, equity returns are expected to be “anaemic” over the next five to ten years, he said.
At the same time, record-low interest rates are fuelling corporate activity. “If you’re going to go out and buy something, now’s a good time in terms of your cost to capital,” James said.
A result of this is consolidation, driven by leaders in each sector that have emerged also in part due to the disruptions caused by the COVID-19 crisis.
“They were the companies that could afford to invest in new products, R&D, new capex, customer relationships, keeping their employees,” James said.
“We’re in a bit of a world where the winners have access to great amounts of cheap capital. And it’s a time where they have been rewarded through consolidations.”