16 July 2019
Wanda group is stepping up focus on entertainment and tourism-related businesses while cutting back on property development. Photo: Bloomberg
Wanda group is stepping up focus on entertainment and tourism-related businesses while cutting back on property development. Photo: Bloomberg

What does Wanda’s restructuring plan tell us?

Dalian Wanda Group, the parent company of Dalian Wanda Commercial Properties (03699.HK), has pegged its revenue target for this year at 254.3 billion yuan, down 12 percent from the year before.

Of the total, the property sector is expected to contribute 100 billion yuan, down sharply from the 164 billion yuan it accounted for in 2015.

Now, why has Wanda trimmed its expectations? Does the move suggest that China’s property sector has arrived at a crossroads?

Asset prices have correlation to monetary supply to some extent. We should bear in mind that China’s broad M2 supply growth fell to 12 to 13 percent in recent years from 20 percent in the past.

The nation’s property market has swung into oversupply from a previous situation of tight supply. It would take another three to four years to clear the high inventory.

Amid this situation, Wanda — the nation’s largest developer of commercial property — has to accelerate its transformation.

Wanda has already proposed to switch to a “light asset” path. 

The so-called light asset model means the company will shift focus to operation and management revenue rather than betting on asset price appreciation.

In the future, the developer intends to introduce more partners to build Wanda Plazas, with the cooperation ranging from land purchases to property development.

Wanda Group will only focus on brand management, securing investments and running the facilities.

As a result, Wanda will only account for 30 percent of the revenue from the projects, while the partners will take the remainder.

The group has signed three such projects, including in Beijing and Dalian.

Also, Wanda also put its own shopping malls for sale. It has already signed agreements for 20 of its 25 self-owned shopping malls.

The commercial property unit is expected to see rental income cut by two third by 2020. Property sales would represent one third or even less.

Wanda has not only slashed property sales projections substantially, it has also announced plans to spin off its commercial property projects.

The cautious stance of one the nation’s leading property developers is a sign that the mainland housing market has already arrived at an inflection point.

Online shopping has posed a great challenge for China’s commercial property sector. However, the experience of dining and seeing movies can’t be achieved online.

Given this, Wanda has been actively tapping into the offline consumption segments.

Last year, the culture unit of the group reaped revenue of nearly 65 billion yuan, up almost 30 percent from the previous year. AMC Entertainment alone generated nearly 21 billion yuan.

And its tourism unit contributed 16 billion yuan last year, and expects to boost that figure to above 100 billion yuan by 2020. By then, the group could surpass Disneyland as the world’s largest tourism company.

This article appeared in the Hong Kong Economic Journal on Feb. 17.

Translation by Julie Zhu

[Chinese version 中文版]

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Columnist at the Hong Kong Economic Journal

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