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European luxury brands see good growth

By Lin Wenjie in Hong Kong | China Daily | Updated: 2018-02-06 10:51

Demand for European luxury goods is expected to continue in China, but in a more rational way, due to the ongoing efforts by the central government to curb capital outflows, industry experts said.

Italian football clubs, German enterprises and prime UK real estate in the luxury sector were among the top investment choices for Chinese companies in the last few years until the pace of outbound acquisitions slowed down.

Anthony Indaimo, partner of international commercial law firm Withers, sees Chinese money still looking for European luxury brands, because Western brands, particularly those made in Italy, are seen as ultra-luxurious with a minimum 30 percent price premium in China.

"Chinese companies want to make that money, so they will buy an Italian brand and sell its products in China. Although overseas acquisitions have slowed down, the sentiment is still there, as long as you invest at the right price and at the right time," Indaimo said.

Prime real estate in the United Kingdom is another kind of luxury purchase that Chinese investors continue to chase, as the depreciation of the sterling after Britain's exit from the European Union has offered foreign investors lower prices.

"The rental yields of UK properties may be very conservative, but the Chinese buyers are actually looking for capital appreciation and diversification of their asset portfolios."

Chinese investors overpaid in many outbound acquisition deals amid a weakening renminbi in the past years, which raised suspicions of capital flight. This prompted the central government to strictly scrutinize overseas transactions, aiming to balance the outflow and inflow of capital.

Several ongoing outbound acquisitions were halted under the heightened scrutiny, and an increasing number of foreign sellers began to worry that the Chinese buyers would have to pull out of a deal because they can't send funds overseas. As a result, some foreign sellers deliberately invited Chinese companies to bid for assets just to prop up prices.

Indaimo believes that with the Chinese companies becoming more experienced in executing takeovers and arranging acquisition financing, cross-border transaction rules, norms and standards will be developed between Chinese and Western companies over time.

"The trend for now is that the Chinese are much aware of what is required in an overseas transaction, they have more understanding of the needs of European sellers," he said.

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