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Doing business in 1980s China

​​​18 December 2014

CHINA 20

Doing business in 1980s China

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With a real estate career spanning three decades KK Fung, managing director of Greater China, JLL has not only witnessed the birth of China's real estate market but he's been personally involved in the various stages of its rapid development. From Hong Kong - an essential gateway into mainland China - Fung shares his experiences and observations on the changing landscape that has risen from the ground up.

What was the early real estate market like in China?

China wasn't on the radar at all in the early 1980s. In Hong Kong, the first impact it made was political, when Margaret Thatcher went to meet with Deng Xiaoping to discuss the future of Hong Kong. She tripped on the steps of the Great Hall of the People in Beijing and it was all over the front page of the newspapers – it was seen as a sign that the negotiations had failed.

China was just pulling its socks up and the economy was still very small.

But China was also starting to get attention for the potential impact it would have on business.

By the mid-80s, JLL had started venturing into China, helping the Chinese government with the valuation of property and land. We didn't get fees for these projects; we were just trying to see what doing business in China involved. At the time, it was unusual for the Chinese government to pay a private company for services.

In 1988, we picked up our first commercial project in Beijing, a leasing project and we sent in a small team from Hong Kong. The project, Liangmahe, still stands today, it's located along the Third Ring Road. It was a joint venture between the local government and a foreign investor.

What was breaking into the early China market like?

We started in China on consulting and valuation projects to build our relationship with the Chinese government; and to hold the hands of MNCs venturing into China. We were like a bridge, helping them find office space. Although at the time there really wasn't much choice - no prime Grade A, B or C office. Many clients started up operations in a hotel room.

In Shanghai, our first project was the conversion of a museum into office space. This was the Shanghai Museum, then housed in a building constructed in the 1930s. It was built as an office but after the communist government took over, it was converted into a museum. With the opening up, the government started to get rid of state-owned property by granting long leases to foreign investors. The new landlord knew JLL from Hong Kong.

From the late '80s to early '90s, we concentrated on leasing projects. We saw more opportunity as China grew and became more open, so we sent four people to Shanghai to open our first office in China in 1994. That's when we started doing what we do now - office leasing and property management - and growing our portfolio. We kept growing and now Shanghai has become the most profitable office for us in China.

How has JLL's client base in China changed?

We see many more Chinese companies taking Grade A office space now both in the core and secondary cities. Chinese companies have become major players in the economy and are among our major clients.

Our consultancy work with the Chinese government continues, and we are paid. Some of the contracts are very big as well, and the fees are sizeable. That is a major change: the government has become more receptive to awarding contracts and is more willing to pay fees for good service.​

What challenges do businesses face in China?

People say China is difficult because its economy is policy-driven and it's not really a market economy, although it has already changed dramatically. On one hand, it's true that the government changes policies from time to time; but on the other hand it can be positive because you have that strict guidance.

For example, when the government said it would grow the economy through urbanisation and more people will be moved into cities, we saw the rise of the second-tier cities. In the 1990s, the phrase "tier two cities" was unheard of, now they are becoming increasingly important.

From then, JLL also widened its footprint and from the original office in Shanghai, we now have a total of 12 offices across China. This is the result of the growth of the Chinese economy as well as the direction set by the government.