Excem matures some projects to construct apartment buildings in China

Excem matures growing its real estate business in China. The Spaniard group could even build apartments in the Asian country.
At least that’s what assured to Eastwind Tucho Iglesias, China Managing Director of the company. The Spaniard multinational started off business in China during the year 1980. Iglesias joied Excem in 2003.
Headquartered in Shanghai, he not only oversees the business lines of Excem, which are already operative inside The Great Wall, but also assumes the challenge of finding new opportunities for the group, mainly in the fields of government consultancy, the real estate and the concrete sectors.

According to the figures provided by Iglesias, Excem Group’s revenues amount around €300 million, of which €15 million, round a 5%, come from China. In terms of income by countries, France and Israel are located in the first and second place, above this Asian country and Indonesia widely below. Within the lines of business, operational within The Great Wall, the traditional, ‘trading’ of cement and technologies, are located respectively in the first and second place by billing, whereas investments and consultancy to governments are respectively in the last and before last place.

Latinoamérica y China, dos de los mercados emergentes en los que opera Excem. Fotografías procedentes de la web de la compañía.
Latin America and China, tow of the developing regions where Excem group operates. Photos sourced from Excem Group’s website.

“We operate two grinding mills in Spain, with a capacity to produce 600,000 tonnes per year and we import around 600,000 tons of clinker. But the amount fluctuates a lot. This is what we imported last year but the situation can change and we can import a half or double this quantity. We buy to supply our grinding mills located in Spain and the excess is sold in Spain in Italy and other countries “, Tucho Iglesias points.

Talking about Excem Technologies, this lawyer, devoted to the company world by vocation and who was in 2003 responsible for organizing the tour of the Real Madrid F.C. in China, said: “Most of the employees of Excem in China are working in the technologies division. In it we market technological solutions, which have not been developed by us, but by some of our clients. We market solutions for security systems, telecomunications…Within this division it was stablished China Fivehundred some 8 years ago.

This business line was named in that way, because our clients are Chinese companies that are included within the ranking of the first 500 enterprises the country -China-. We had an agreement with Huawei until 2007 and now one of our clients is Nurtec, for example. The investment business is the last place by revenues “because we have not yet begun. The business inside this division are all in project. But as soon as we begin, I feel confident the division will reach the second place”, the China Managing Director of Excem says.

When Eastwind asked, when will Excem begin to carry out the new investment projects?, Tucho Iglesias replied: “One of the things that one must have is patience. I feel comforted, when I see such large groups, as Governo (belonging to the second weatlthiest man in London), which spent 3 years analysing and analysing,with a team of 5 people dedicated to this task, until it began an investment project in China.

“We have been analyzing just for one year, …but in 2008, sure…In fact we have already taken part in some projects buildings for renting, in the case of large enterprises or large institutions that have needed in a certain momet some room…hotels…, but as far as taking part in a construction -building- project, still not”.

Far beyond cement trading

Speaking of the new areas of expansion, this Managing Director in his 29’s said: “We realized that we should seize all the knowledge that has treasured Excem for years. And our core business has always been the concrete trading. We have a good relationship with manufacturers.

“China is the first cement producer in the world, with 1,500 million tonnes. This country is also the first exporter. It exports 40 million tonnes and this is a lot. Only to give you an idea of what this figures represents, Thailand is the second exporter with 14 million tonnes, those are 2007 figures, and Japan is the third with 10 million tonnes.

There are more than 5,000 cement factories operating in China at the moment. Many of the manufacturers are independent, small and medium-sized firms. The Chinese Government believes that this is not competitive. In addition, many of these factories use the wet pound system, which pollutes a lot.
With the new ‘go green’ policy, the Government has issued new regulations by which all factories have to come to an upgrade. And those that do not reach a minimum level of production must be closed or else get merged with others. All this facts generate a lot of movements in the market. The Government has set standards from minimum levels of production to, particularly, maximum levels of pollution. The Government wants above all migrating from the wet pound to the dry process.

Algunas de las áreas industriales en las que Grupo Excem opera en el mundo. De izquierda a derecha : Carbón, petróleo y cemento. Fotografías procedentes de la web de Excem.
Some of the iindustry fields, Excem Group operates in. Left to right: coal, oil and concrete. Photos sourced at Excem Group’s website.

“Here we have detected an opportunity, because many of the small mills will need to merge with others that already have a level and, moreover, this companies will want to enter the stock exchange market, as some are already doing in fact. Other companies are going to need funds in order to improve their production system or moving from one system to the other. And in this scenario we can offer financing, but also our knowledge, our experience “.

Is Excem offering also its know how in the management field?, asked Eastwind. “Yes”, answered Tucho Iglesias, and continued: “That is an area, in which we have not yet begun to invest, because there is still a lot of analysis needed, but we have a team already working on it. We have relationships and we are now designing a project to be introduced, because we are not going to invest alone. There are also investors who want to take part in this project along with us… “.

Investment in real estate

This young manager, who is already working for 5 years in Asia, the last two precisely in China, has detected another opportunity for investment in the real state market: “In China the price is now at the same level of Spain in the 96’s. No matter if people think that the prices have risen a lot, I believe that there is still room for them to rise even more. I’ve got this intuition and then… there are data…Yes, the prices have risen a lot, but they have not reached their top limit, especially in second level cities or in cities like Shanghai.

“In addition we see that investors are showing their interest…There’s only one problem, how to enter. But the interest shown by investors in entering China is there. The main thing is finding good opportunities, to find the right local partner or having our own infrastructure to develop the project and, finally, the issue is finding the most interesting legal fyscal formula”.
Will the money come from abroad?, asks Eastwind. “Yes”, answered the interviewee.

“At the time of implementing the investment project Excem would hire a local construction company, although there is plenty of room in the field of design for the collaboration with Western architecture bureaus. We would choose “a local construction company” said Iglesias, and continued, ” each project would be tendered out by us there and we woud choose the best construction company. The same for the design of the project. When I say there, I mean with a international architecture bureau that operates in China, as well.

“Nobody would be discriminated. In the case we work with a Spanish architects bureau  we are going to understand better each other, so this can happen as well”.

High end projects in Shanghai and affordable flats in second level cities

The China Managing Director of Excem defined the positioning that the company points at within the real estate sector: “We want to invest, but also co-promote with the local partner and, at the same time, we are going to undertake the administration and maintenance of the property… but not in the same way that this is done in Spain.

“I’m speaking of a high quality administration of the property, offering services such as a 24 hours janitor, who even would help you bringing your  bags to your home, a bit in The NY Fifth Avenue way, although this has nothing to do with luxury”…”Now we are considering several different projects. We consider one in Shanghai like this

“But in the second level cities the projects are focused on affordable properties, flats at a reasonable price. In the project in Shanghai, we are pointing at a ‘high end’ level, which means total comfort, a building in a very good location, top qualities, but not luxury at all”… Foreign investment has always tended to build luxury properties.

Nanjing Road (Shanghai). Photo by Agnieszka Bojczuk. To watch the original image, click here https://commons.wikimedia.org/wiki/File:Shanghai_-_Nanjing_Road.jpeg
Nanjing Road (Shanghai). Photo by Agnieszka Bojczuk. To watch the original image, click here

“The Chinese Government doesn’t want 400 square meters flats, which cause to divide the cake in so great pieces that then there is no room left for the 18 million people, who live in Shanghai today and that may well be the double in the next 20 years. Where will they live?. Then, we do not wish to enter in the luxury segment. We are not talking about too large flats or luxury at all. We are offering a different concept. We are talking of restoring old buildings, buildings with an historical value”.

Just for companies located in China and only under license

When eastwind asked, which entry barriers and restrictions may a foreign company find to operate in the Chinese real estate market?, Tucho Iglesias answered: “There are legal barriers for entry. There are limitations to foreign investment. For example, since July 2006 or 2007, a foreign company can no longer buy a property in China.

“One establish a company in a fyscal paradise, then the company purchases some properties in China. Then the company is sold, not the Chinese properties, but the company as a whole so that no tax is paid in China, because there is no  change in the name of the owner in China, the change in the ownership happens abroad. That’s why the Chinese Government decides that they can operate in the Chinese real estate market just Chinese companies or foreign firms that have constituted a society in China, either a joint-venture, or a wholy foreign owned enterprise (wfoe) based in China. That is the first restriction.

“In addition a wfoe now cannot  just buy a property in China, it needs a license to do it. And the Chinese Government has imposed restrictions to grant these licenses.

“Despite all these legal measures, the real estate boom and the warming of the Chinese economy continues, so more restrictions have been imposed. I am speaking only of restrictions at the corporate level. Then I will talk about other restrictions at the personal level, which also have influenced the real estate market “.

Restrictions on the funding field

Some legal limits to get funding add to the legal barriers already mentioned. Tucho Iglesias explains: “First of all, the chance of obtaining funding inside China has been restricted. Banks are just allowed to grant money to this real estate projects within some amount limits. The Government has also imposed to the banks the obligation to increase their reserve assets, so they count with less liquidity… At the beginning, this generated in the local promoters the need to get foreign funding.
And this need attracted more foreign investment. That was precisely what the Chinese Government didn’t want at all. How was this avoided?. If you are a foreign company, you cannot get the funding from your matrix, or from a foreign bank. You must get the funding from your own capital.

Newspaper from Guangzhou where an information on Tucho Iglesias and his views was published. Photo provided by Tucho Iglesias.
Newspaper from Guangzhou where an information on Tucho Iglesias and his views was published. Photo provided by Tucho Iglesias.

“So, being a company, one can no longer get in debt through a loan, but you have to inject capital. The company is not allowed to increase its capital equity as well. So, if you think that you are going to spend eg. €20 million, you must establish a company with €20 million capital equity. Then, if you find that the project will cost more, you cannot increase the capital. In addition, when the project is finished, one must liquidate the company to bag the benefits “.

Limits on the demand side

According to the China Managing Director of Excem, the Chinese Government has curbed the purchase of real estate properties by foreigners and hampered the chance to obtain second and third mortgages by its nationals: “Years before, one could buy as many houses that one wanted, no matter if living or not in China. Now one must be living in the country legally for at least one year to buy no more than one property. Why?. Because  the idea behind is that you are buying just for your personal use. There’s no problem at all to get in debt with banks,being a foreigner.

“In the case of the Chinese citizens, there are no limit in the number of houses that they can buy, but not the same for the mortgages. They get less and less interesting for them, because from the second mortgage the interest rate rises (the basic rate) and the value of the loan gets reduced. For example, in the first mortgage they can request up to a 70% of the value of the property, but in the second only a 50%. In addition the interest rates keep on rising and rising (they are already above the 11%) “.

A country with potential, ‘if you’ve got a B plan’

When Eastwind raises the question, is China a safe country for the foreign investors from the legal and the political point of view?, Tucho Iglesias assures: “China has potential and if it were a totally free market there’s no doubt. But one must bear always in mind that there is some risk. It is not a legal risk, because any rule, once enters into force, is complied, but in some way there’s a political risk. For example your house never is going to be expropriated …No expropriations. The property right is included as a right in the Chinese Ground Law, there is also a property law, which has recently been reformed. Under the property law one has some very clear rights, at a level comparable to the European Union. The security when one is buying a flat is total. A solicitor is required for the transaction, there’s no problem.

Tucho Iglesias (China Managing Director, Excem). © Eastwind.
Tucho Iglesias (China Managing Director, Excem). © Eastwind.

“I would have a problem of lack of security if I had no means of controlling that so called insecurity. But one can know what the Government is thinking, one can keep informed. People talk a lot about lack of security but one can foresee the upcoming events in China. They speak in the press or, if one has friends in a particular department, one gets informed on all that stuff. Not everything happens all of a sudden, it is not that kind of lack of security. All it is needed is staying well informed. And also be flexible, this is very important.
You must have a B and a C plan. I mean, in case it happens, what it is said that may happen, what are we going to do. We must be proactive and be flexible to get adapted “.

Madrid at the Shanghai World Exhibition 2010

After 10 years doing business within The Great Wall, Excem established a Chinese society in 1991, eyeing to operate in this Asian country. By then, the company already had a wide network of contacts, both among the hierarchies of the central Government and the local authorities.

Its good “diplomatic” work allows the company now offering with a strong basement a line of consultancy services to governments and companies. As Tucho Iglesias told us: “In this 15 years Excem has developed a lot its good relationship with the Chinese Government (central, provincial and local). And this is in fact very necessary, because in China relationships are very important. It is not enough to stay in the country a week, get many promises and then not tracking them. Monitoring is very important everywhere, but in China much more.

“We realized that we had gained a very important added value, which was, not only being able to introduce, to identificate projects and collaboration opportunities, but also the added value of being there day by day. Within this line of consultancy we identified for the municipality of Madrid a project with the Shanghai World Exhibition 2010. First of all, we realized that we had not done anything for the 2008 Olympic Games. In fact, we missed the train. We then decided that we were not missing the train in the case of the World Exhibition 2010.

“We began to build our relationship with the Shanghai World Exhibition 2010 two years ago, both with the leaders of individual firms, that take part at the World Exhibition, and with associated companies, etc. The idea was getting to know very well the project, what wanted the Government. We have also played the role of consultants for them in Shanghai Vision, which consist in giving a vision of Shanghai through 8 movies filmed by the Shanghai Film Group, something like the Hollywood Studios of the city.

“They were producing some kind of documentaries to promote Shanghai abroad and this way promoting the World Exhibition, but they were doing Chinese, they were working from their perspective. So they wanted to have a foreign partner to give them the point of view of a foreigner. We were contacted because of that. During a year we kept on going with them to the Studios, telling them whether the action was very slow or else, it was not very slow, whether the argument was interesting for us or not. Because the idea was to distribute the films all over the world. It was a very nice project and our collaboration was highly valued. It was there that we knew what The World Exhibition 2010 is.

The World Exhibitions are designed for countries (are countries as a whole those involved in the World Exhibitions). But Shanghai World Exhibition 2010 offers for the first time the UBPA (Urban Best Practice Area), a space which is open for the individual participation of cities. When we saw this, we thought that it was very interesting and we made a proposition to the Madrid Council in June last year”.

The House of Bamboo, the project by the Madrid City Council, who was selected to take part at the UBPA at The Shanghai World Exhibition 2010. © Madrid City Council.
The House of Bamboo, the project by the Madrid City Council, who was selected to take part at the UBPA at The Shanghai World Exhibition 2010. © Madrid City Council.

On 2nd April it was officially announced that Madrid has been chosen as one of the cities that are going to take part in the UBPA at The Shanghai World Exhibition 2010. To the good work done by the City Council of Madrid, introducing the House of Bamboo, it was added the good work of Tucho Iglesias and his team, not only at the time of identifying the opportunity, but also at the time of tracking the good progress of the Madrid proposal day by day. Eastwind has published a wide report on this point on the Eastwind flash sent on 2nd April 2008 to our readers. There can be found an even wider report on this matter on the Eastwind newsletter 2008 7th-3rd April.

A bet on local management, at Shanghai and Guangzhou

Excem China accounts at present with two offices, one in Beijing and another one in Shanghai. A team of 10 people work in them. When Eastwind raises the question, to which extent is it integrated the local management in the structure of Excem?, Iglesias points: “I can tell that we’ve already hired a person, who is called Rebeca Fang, a Chinese woman who has been working for 8 years in the Spanish Consulate in China.

“She has always been the right hand of the four Consuls, since it was opened the Consulate of Spain. Just imagine, leaving aside the fact that she understands and talks a perfect Spanish, how experienced she is. She knows very well the mentality of the Spaniard State because all its members have visited the Consulate, from the King and the Queen, to the Presidents, the Ministers, and she has done  the translations for all of them. The King and Queen of Spain just want her to do this work for them and nobody else, because she is very accurate. And when there has happened some tense situation, any conflict with the Chinese Government, she has always been there. It seemed to us the right person. We feel very happy to have hired her. I fully trust on her.

“At the moment she is the Vice Director, she has a very important job, she is the second manager in importance

Tucho Iglesias (China Managing Director, Excem) y Rebeca Fang (Deputy Director Excem China). Image provided by Tucho Iglesias.
Tucho Iglesias (China Managing Director, Excem) y Rebeca Fang (Deputy Director Excem China). Image provided by Tucho Iglesias.

right after me. Although she is in charge of supervising all our activities in China, she is very focussed on developing this new line of business, the consultancy for governments, which includes The Shanghai World Exhibition 2010 as star project, although we can do more things and indeed we are doing more things “.

The China Managing Director of Excem told Eastwind also about the bet on Shanghai and the second level cities: “In 2008 there is much interest in Beijing” – for the Olympic Games-” but as soon as the Olympic Games end all this interest is going to focuss on Shanghai by The World Exhibition 2010. We must bear in mind that the Chinese economy is a controlled economy. If we were talking about a free economy, I believe that Shanghai would develop more quickly…because there is a great difference in everything, per capita income, development of the city, prices. At this moment Shanghai has more potential. Many times, I am asked whether Shanghai is expensive, but this city can’t be compared to Madrid. It must be compared to New York or Hong Kong. I mean, taking into account the potential not the prices.

“For example, the price of a small apartment in Hong Kong can reach the $20,000  and in Shanghai an apartment with the same features may well cost you an equivalent to $5,000-6,000.”

Right to left: Rebeca Fang (Deputy Director Excem China), Tucho Iglesias (China Managing Director, Excem Group) and Zhang Guangning (Major of Guangzhou). Image provided by Tucho Iglesias
Right to left: Rebeca Fang (Deputy Director Excem China), Tucho Iglesias (China Managing Director, Excem Group) and Zhang Guangning (Major of Guangzhou). Image provided by Tucho Iglesias

…” Now we are also developing a good relationship with the town of Guangzhou. And why Guangzhou?. Because it is a city of second level. And they are very fashionable now the second level cities in China. Among these second level cities, Guangzhou is the most dynamic. The inhabitants of this city are considered as the Jews of China, so good they are in business, so ready, such good entrepreneurs. They are also called so, by the way they have managed to migrate abroad. To give you an idea, almost the 80% of the Chinese people now living in Spain come from this city. For all these reasons it seemed to us very important to build a good relationship with this municipality, because we believe that can provide many chances, both at the political, the corporate and the cultural levels”.

Image over the headline.- Tucho Iglesias (China Managing Director, Excem). © Eastwind.

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