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zhang yuliangCan Greenland boss Zhang Yuliang become an online finance innovator?

China’s largest property developer is branching out into online finance in a move that could potentially give the state-owned firm one of the most modern financing systems in the world.

On Thursday, Greenland Hong Kong Holdings, a subsidiary of the Shanghai-based real estate giant held the official opening ceremony for Greenland Financial Information Services Limited, a new business set up to market loans and other financial products to Chinese consumers over the Internet.

The direct to consumer financing model could rapidly replace the network of trust financing that has long fuelled China’s real estate industry, and if developed into a platform for trading securitised rights to cashflows, could become an online substitute for real estate investment trusts, or REITs.

Greenland and Wanda Selling Their Debt Directly to Consumers

Wang JianlinWanda chairman Wang Jianlin says his online financial platform will be just fine.

At the ceremony last week in Shanghai, Greenland signed a cooperation agreement with mainland financial institutions, Shanghai Lujiazui International Financial Asset Exchange, Zhong An Online P&C Insurance, and China Orient Asset Management Holding, to cooperate on building platforms and products for the new financial services company.

According to a statement by Greenland, the new company’s goal is to achieve turnover on its platform of more than RMB100 billion, and a user base of three million people in the next three years. At the opening event, chairman Zhang Yuliang said that Greenland is striving “for innovations as a real estate company making bold attempts in asset securitization and development of inclusive finance.”

Greenland cooperated with Alibaba’s Ant Financial service and Ping An’s wealth management sales platform in April this year to sell its first online debt product. In that initial foray into Internet finance, the developer raised RMB 200 million ($32 million) from Chinese retail investors in just 30 minutes.

China’s largest commercial developer, Dalian Wanda, has also declared its intentions to sell financing for its projects online, seeing the Internet channel as a way to help finance 900 new malls that the company has planned for the mainland.

Wanda says that it is going one step further with its platform, and will allow buyers to transfer title to their purchases, leading Wanda chairman Wang Jianlin to compare the financing system to a REIT.

Greenland Planning a Range of Financial Products

According to Greenland officials, its new online financing platform will offer a variety of products and services for both retail investors and corporate clients. In a statement, Jack Yang, president of the newly formed financial subsidiary said, “Greenland Financial Services will provide financing and investment platforms that will be open to both individual and institutional investors.”

These products are said to include vehicles for public-private partnerships (PPP funds), real estate funds, special opportunity funds, and a platform based on property-related internet finance. In addition to improving Greenland’s capital channel, the company has indicated that it would market the platform as a service to other real estate developers and investors.

Online Financing Could Undercut Trust Industry

The appeal of setting up online financing vehicles by developers such as Greenland and Wanda is obvious, given how these companies have been squeezed between declining sales, expensive trust financing and the vagaries of borrowing from China’s state-run banks.

Alibaba’s Yu’e Bao online money market fund has been a hit with Chinese consumers, who invested RMB574 billion ($92.6 billion) through the platform during the first 12 months after it was introduced in 2013. Mainland savers have long suffered from a state-run banking system whose interest rates on deposits currently run close to zero percent and consistently lag behind inflation.

Given this need for higher yields, and Chinese consumers’ taste for real estate investments, the warm reception for Greenland’s first product is not surprising, and Wanda can likely expect a similar response.

For consumers an online product from a recognised brand could also be deemed more credible than dealing with the notoriously opaque wealth management products offered through China’s shadow banking industry. And for developers, these online financing products offer an alternative to high interest trust loans.

Could Online Financing Substitute for REITs?

China has been struggling to bring REITs to market for ten years now, and in 2014 introduced the first prototype effort. However, the new financing platforms being developed by Greenland and Wanda, should they prove successful, could make REITs obsolete before they are ever brought to the mainland market in a meaningful way.

For Wanda to offer buyers of its online finance products the right to transfer titles to these securities as Wang Jianlin has indicated, it would need to secure approval from the China Securities Regulatory Commission, a significant regulatory hurdle. However, by granting companies such as Alibaba, Greenland and Wanda the right to do online finance at all, Chinese authorities are showing some willingness to shake up the country’s turgid state-run finance world.

And China’s big developers may be well-equipped to win approvals in new areas. Both Greenland and Wanda have built their empires based on their ability to procure land and financing from the government at terms that other companies cannot match. Should these real estate giants be successful in applying these government relations skills to their new online finance ventures, China could soon leave the world of trust financing behind, and skip over REITs to build a corporate to consumer finance platform of first-order efficiency.

Before this happens, China will need to find some way to ensure the transparency of online finance products in general, and Internet financing for real estate in particular. Not an easy task in such a rapidly changing environment, but for China’s biggest developers, the benefits of lower cost financing and potential profits from a new business line should make the effort worthwhile.

Could Greenland’s Online Finance Platform Replace REITs?

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