China's SAFE eyes American real estate, reports say

Updated: 2013-05-28 10:52

By Joseph Boris in Washington (China Daily)

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China's official overseer of foreign-currency reserves is considering real estate and other investments in the United States, according to American news reports.

Bloomberg News on Monday cited two people with direct knowledge of the situation as saying that the State Administration of Foreign Exchange, or SAFE, began studying the possibility of investing in US real estate after noting signs of a recovery in the country's property market.

China may acquire real estate, invest in real estate funds or buy stakes in property companies, according to Bloomberg's sources, who requested anonymity because they weren't authorized to speak publicly about the matter. The safety of the investments will be SAFE's top priority, the sources said.

Last week, the Wall Street Journal, citing people with knowledge of the matter, reported that SAFE had opened a New York office from which it plans to invest in US assets including real estate and private equity. According to the Journal, the recently established operation on Manhattan's Fifth Avenue is meant as a launch pad for so-called alternative investments and complements a separate SAFE office in New York that for years has focused on buying US government debt, along with corporate bonds and asset-backed securities.

At $3.4 trillion, China's reserve of foreign currencies is the largest in the world, more than a third of which is invested in US Treasury bonds and other issues. China is also the biggest single foreign creditor of the US government, and in March it reduced its Treasury holdings by 0.1 percent, to $1.25 trillion.

The reduction, though slight, was the latest signal that the Chinese government, mainly through SAFE, is seeking to diversify away from US government debt.

It also coincides with increasing expectations among investors that the Federal Reserve, the US central bank, could begin this year to unwind its $85 billion-a-month Treasury bond-buying program - known as quantitative easing - intended to kick-start the American economy. If the Fed withdraws from what is now its third round of "QE" would likely depress demand for Treasurys, and therefore their value.

Last Wednesday, Fed Chairman Ben Bernanke told a key committee in Congress that a wind-down could begin at one of the central bank's "next few meetings" in coming months, if the US economy continues to improve. He cautioned, however, that he was reluctant to act prematurely.

According to the newspaper, the agency's new New York operation has about a dozen staff members. SAFE officials in recent weeks have met with Wall Street banks about potential investment opportunities.

With prices rising, along with levels of building and home purchases, the housing market is likely to be a major driver of the US economy this year.

Prices for single-family homes increased in 89 percent of US cities during the first quarter, reflecting stronger recovery in the housing market after a five-year slump, the National Association of Realtors said this month. On Thursday, the Commerce Department reported that US sales of new homes increased 2.3 percent in April - the second-fastest pace since July 2008 - while prices reached a record median price of $271,600, up 15 percent from last year's first quarter.

(China Daily USA 05/28/2013 page2)