What's prompting Sunac to buy 51% in world's largest building?

November 29, 2019 10:49
Having acquired several troubled projects from local governments in China in the past, Sunac has now set its sights on Chengdu's mammoth New Century Global Centre. Photo: e.chengdu.cn

Sunac China Holdings (01918.HK) has agreed to acquire 51 percent stake in the company that owns New Century Global Centre, the largest freestanding building in the world.

New Century Global Centre, located in Chengdu in China's Sichuan province, measures a staggering 19 million square feet, making it the largest in terms of floor area. 

By contrast, Burj Khalifa in Dubai, the world’s tallest building, has floor area of only 5.67 million square feet.

The mammoth development is actually a side product of the 2008 financial crisis.

At that time, the Chinese government unveiled a 4-trillion-yuan stimulus package to counter the crisis. Local governments were asked to come up with ideas to implement the plan.

Sichuan province asked local entrepreneurs to come up with proposals.

Deng Hong, chairman of Chengdu Entertainment and Travel Group, had just returned from a trip from Dubai back then, when he suggested that Chengdu could build the world’s largest building, as Dubai has the world’s tallest one.

Provincial officials liked the idea, believing the project would not only create a lot of jobs, but also become a landmark of Chengdu.

So the government gave green light to the mega project, which entailed total investment of over 40 billion yuan.

But the building failed to achieve what it set out to do. The mix of facilities, like a large indoor swimming pool and a number of office buildings, was considered odd. Design was substandard, and interior lighting was criticized for being too dim.

The place was also too large. It’s said that you would need to take a golf car if you want to go from the shopping area to grab some food in the food court on the same floor.

Nearly half of the building is vacant currently, and most shops are struggling. The operator of the project is bleeding cash due to huge investment costs and massive running expenses.

Sunac has acquired several troubled projects from local governments in the past. In exchange, local governments would usually relax certain development rules to help the company make money.

Although this particular deal does not look juicy, it may not be a bad idea for Sunac to use the investment to build up relationship with the local government.

After all, past experience suggests the company has a good chance of recuperating its investments, and good rapport with local officials could lead to much bigger long-term benefits.

This article appeared in the Hong Kong Economic Journal on Nov 28

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist