Knowledge is power in overseas investment

A comprehensive understanding of the local market, regulations and business culture is crucial for Chinese companies that invest in overseas projects, especially when it comes to property.

As every market is unique, it is essential for Chinese companies to determine the specifics of each market. It is also the best way to get accustomed to local requirements and circumstances.

In recent years, European property has been a hot area for Chinese companies. Many Chinese developers are being driven by challenges in the domestic market and global branding needs.

Europe was the most popular destination for Chinese overseas property investment in 2014, accounting for $5.5 billion, Jones Lang LaSalle Inc, a professional services and investment management company specializing in real estate, said in a report. London topped the list of cities with $4 billion, followed by Sydney and New York City.

But the European property market is complex and legally demanding. Chinese investors must carefully investigate each market and do business in the European way, meaning that they are fully compliant with all legal and ethical requirements and the business culture.

Failure to do this can mean trouble. For example, a plan valued at 500 million pounds ($772 million) involving a Chinese developer rebuilding London's famed Crystal Palace appears to have fallen apart in mid-February. The plan by Shanghai-based Zhongrong Property Group Co Ltd was abandoned after the local Bromley Council, which had to approve the bid, refused to renew an exclusive development deal.

The main problems were different business cultures, local procedures and appeals.

Privately held Zhongrong Property Group announced in July 2013 that it would replicate the building in a park. It asked the Bromley Council for a 125-year lease with 100 percent control of the land and building before committing to the proposed development.

But the plans would have required the repeal of the 1990 Crystal Palace Act, which restricts construction in the park.

The council was unlikely to agree without being fully confident about the proposals, as it is the custodian of the park. Local residents also campaigned for noncommercial use for the segment of the park in question.

The differences did not arise because Zhongrong was from China. Property experts noted that similar problems arose when a wave of Japanese companies initially invested in the United Kingdom.

The way to avoid these problems is to do what a European company would do. As newcomers to the European property market, Chinese companies need more experience in negotiating with local institutions, making use of local advice and ensuring that investment is conducted in a transparent way.

In another case, Chinese commercial developer Advanced Business Park's project in London's Royal Albert Dock experienced difficulties. Its relationship with a local promotion agency was questioned and investigated by British media last year. But ABP stressed that it went through a transparent tender process.

Being scrutinized is normal when a foreign company first enters a market anywhere.

A full understanding of the European market includes knowledge of the local media, especially British media organizations, which have global influence.

Chinese companies always need to prepare a media plan and get proper counsel, even if they think their investment will be positive for the local economy.

Property developers from the Chinese mainland, including Dalian Wanda Group Co, are moving to globalize their portfolios to ensure long-term returns as the domestic property market cools.

Chinese companies' investment in Europe will continue and perhaps even rise. But no matter how many Chinese companies are involved, and regardless of where they invest, they need to understand the market and make proper preparations.

Contact the writer at zhangchunyan@chinadaily.com.cn

A poster that reads "Creating London's next financial district and Asian Business Port" on derelict land at the Royal Albert Dock in east London. In recent years, European property has been a hot area for Chinese companies. Reuters