Will China Repeat Japan's 1980s Foreign Real Estate Bust?

The recent purchase of the Waldorf Astoria by a Chinese company recalls Japanese companies' buying sprees 30 years ago. And that didn't end well.

The Waldorf-Astoria hotel is now in Chinese hands.
The Waldorf-Astoria hotel is now in Chinese hands.
Li Junjie


BEIJING — Those who study the overseas investments of Chinese enterprises are starting to get jitters. Japanese companies went on a foreign real estate buying spree in the 1980s that ended in serious losses, and the question now is whether China will repeat the same mistake.

Back then, the Mitsubishi Estate's symbolic acquisition of New York's landmark Rockefeller Center was much like Chinese company Anbang Insurance's recent $1.95 billion acquisition of New York's Waldorf-Astoria Hotel, another Manhattan landmark.

Japan's booming 1980s economy, its growing trade surpluses, and the yen's appreciation because of pressure from trade partners led the country to its highest overseas investment. Unfortunately, those acquisitions ended up mostly as huge losses later. During the high growth period, Japanese businesses were simply too optimistic. While real estate values in the United States were generally much lower than in Japan, the Japanese believed that prices would continue to rise.

Rockefeller Plaza is no longer in Japanese hands. Photo: Jeff Hitchcock

But Japan's economic bubble burst, and real estate prices plummeted. American prices and rental levels turned out to be much lower than expected. At the time, values of high-end office buildings were typically estimated to be worth 100 times their annual operating profit in Tokyo or Osaka, whereas equivalent buildings in the United States were roughly estimated to be worth about 17 times annual operating profit.

History repeating itself?

The dynamic at work then bears a striking resemblance to what's happening now with Chinese investment abroad. Whether in New York, London or Australia, Chinese investors have become the largest foreign real estate buyer. Apart from going international to gain new customers, many Chinese enterprises acquire foreign technologies or brands to promote their Chinese market.

Fosun, one of China's leading privately owned conglomerates, calls this strategy "Chinese momentum with global resources." For instance, Hony Capital's purchase of the UK Pizza Express chain and Bright Food's acquisition of UK cereal brand Weetabix are both examples of this strategy.

Certain investors are also buying low-to-medium-end hotels to attract Chinese tour groups so that they feel at home.

Based on their experience in the Chinese market, they are convinced that real estate prices abroad are too low and are therefore optimistic about appreciation. And for security reasons, many Chinese firms and private investors have a strong need to allocate their assets globally. So investment income is not their first consideration.

Finally, these companies' overseas investments are inseparable from support from Chinese banks. Under China's current conditions, certain companies have been able to obtain government support and large sums of low-cost capital to create the conditions for their overseas expansion.

But because of China's political and market factors, real estate firms in particular are the ones feeling the least safe. It is difficult to foresee a cheerful perspective for Chinese property investments abroad because, compared with local developers, they are unlikely to have a more precise judgment of local real estate trends.

Chinese firms do have the advantage of capital strength, though, which comes from their ability to obtain preferential treatment and support from Chinese authorities. If only they can avoid the pitfalls Japan suffered.

* Li Junjie is deputy director at the International Merger & Acquisition and Investment Institute of Renmin University and a partner of a well-known law firm.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!

Paying tribute to the victims of the attack in Kongsberg

Terje Bendiksby/NTB Scanpix/ZUMA
Carl-Johan Karlsson

The bow-and-arrow murder of five people in the small Norwegian city of Kongsberg this week was particularly chilling for the primitive choice of weapon. And police are now saying the attack Wednesday night is likely to be labeled an act of terrorism.

Still, even though the suspect is a Danish-born convert to Islam, police are still determining the motive. Espen Andersen Bråthen, a 37-year-old Danish national, is previously known to the police, both for reports of radicalization, as well as erratic behavior unrelated to religion.

Indeed, it remains unclear whether religious beliefs were behind the killings. In an interview with Swedish daily Dagens Nyheter, police attorney Ann Iren Svane Mathiassens said Bråthen has already confessed to the crimes, giving a detailed account of the events during a three-hour interrogation on Thursday, but motives are yet to be determined.

Investigated as terrorism 

Regardless, the murders are likely to be labeled an act of terror – mainly as the victims appear to have been randomly chosen, and were killed both in public places and inside their homes.

Mathiassens also said Bråthen will undergo a comprehensive forensic psychiatric examination, which is also a central aspect of the ongoing investigation, according to a police press conference on Friday afternoon. Bråthen will be held in custody for at least four weeks, two of which will be in isolation, and will according to a police spokesperson be moved to a psychiatric unit as soon as possible.

Witnesses have since described him as unstable and a loner.

Police received reports last year concerning potential radicalization. In 2017, Bråthen published two videos on Youtube, one in English and one in Norwegian, announcing that he's now a Muslim and describing himself as a "messenger." The year prior, he made several visits to the city's only mosque, where he said he'd received a message from above that he wished to share with the world.

Previous criminal history 

In 2012, he was convicted of aggravated theft and drug offenses, and in May last year, a restraining order was issued after Bråthen entered his parents house with a revolver, threatening to kill his father.

The mosque's chairman Oussama Tlili remembers Bråthen's first visit well, as it's rare to meet Scandinavian converts. Still, he didn't believe there was any danger and saw no reason to notify the police. Tlili's impression was rather that the man was unwell mentally, and needed help.

According to a former neighbor, Bråthen often acted erratically. During the two years she lived in the house next to him — only 50 meters from the grocery store where the attacks began — the man several times barked at her like a dog, threw trash in the streets to then pick it up, and spouted racist comments to her friend. Several other witnesses have since described him as unstable and a loner.

The man used a bow and arrow to carry the attack

Haykon Mosvold Larsen/NTB Scanpix/ZUMA

Police criticized

Norway, with one of the world's lowest crime rates, is still shaken from the attack — and also questioning what allowed the killer to hunt down and kill even after police were on the scene.

The first reports came around 6 p.m. on Wednesday that a man armed with bow and arrow was shooting inside a grocery store. Only minutes after, the police spotted the suspect; he fired several times against the patrol and then disappeared while reinforcements arrived.

The attack has also fueled a long-existing debate over whether Norwegian police should carry firearms

In the more than 30 minutes that followed before the arrest, four women and one man were killed by arrows and two other weapons — though police have yet to disclose the other arms, daily Aftenposten reports. The sleepy city's 27,000 inhabitants are left wondering how the man managed to evade a full 22 police patrols, and why reports of his radicalization weren't taken more seriously.

With five people killed and three more injured, Wednesday's killing spree is the worst attack in Norway since far-right extremist Anders Breivik massacred 77 people on the island of Utøya a decade ago.

Unarmed cops

As questions mount over the police response to the attack, with reports suggesting all five people died after law enforcement made first contact with the suspect, local police have said it's willing to submit the information needed to the Bureau of Investigation to start a probe into their conduct. Police confirmed they had fired warning shots in connection to the arrest which, under Norwegian law, often already provides a basis for an assessment.

Wednesday's bloodbath has also fueled a long-existing debate over whether Norwegian police should carry firearms — the small country being one of only 19 globally where law enforcement officers are typically unarmed, though may have access to guns and rifles in certain circumstances.

Magnus Ranstorp, a terrorism expert and professor at the Swedish Defence University, noted that police in similar neighboring countries like Sweden and Denmark carry firearms. "I struggle to understand why Norwegian police are not armed all the time," Ranstorp told Norwegian daily VG. "The lesson from Utøya is that the police must react quickly and directly respond to a perpetrator during a life-threatening incident."

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!