Real Estate in China is in a Downward Spiral

Chinese real estate investors have struggled with unfavorable market conditions long before the outbreak of COVID-19.

COVID-19 is only “hastening widespread structural changes” to the real estate market, as expert and journalist Mark Cooper observes.

Chinese policymakers, foreseeing dangers in the country’s financial system, have cracked down on corporate borrowing. In an effort to bolster China’s slowing economic ascent, Beijing regulators have introduced ‘de-risking’ initiatives to curb risky lending practices.

This long-term campaign has effectively reined in investors who are now limited in their borrowing and financing powers.

COVID-19 marks a compounding of pressures on the already-slowing commercial property market in China.

COVID-19 Pushes Changes in Consumer Behavior

While the Chinese commercial real estate sector is subject to nationwide regulation, it relies heavily on consumer behavior.

It comes as no surprise that consumers are acting differently amidst a global pandemic. Shopping center footfall has decreased by as much as 90%, and hotel occupancy has similarly plummeted.

Wakeman and Cushfield data reveals downward trajectories in office rentals and prices as office workers across the country are working from home.

Additionally, Real estate transactions for new construction homes in Shanghai between February and March decreased by 56% compared to last year.

Home sales, in particular, have been adversely affected. The Wall Street Journal cites a sales decrease of around 90% from the same period in 2019. Buyers and renters have been unable or unwilling to view properties, which has driven the closure of showrooms. Consumers are more likely to tighten their purse strings, further depressing the demand for new homes.

COVID-19 and its surrounding conditions have ultimately discouraged consumers from pursuing property rentals and home purchases.

Companies Adopt Reactionary Tactics

To respond to the decline in interest, real estate developers have adopted incentivization tactics to convert reluctant customers.

Forbes reports that developers have implemented drastic pricing measures to entice hesitant home buyers during this time.

Evergrande Group, the third largest Chinese developer by sales, slashed its home prices by 25% in February and 22% in March. The company successfully bucked the trend of plunging home sales.

Image Source: Caixin, Data source: CRIC, COVID-19 impact on the Chinese real estate market

Other industry leaders are extending their terms of service to entice customers. Real estate giants like Country Garden and Sinic Holdings have begun offering 30-day cancellation periods to provide a risk-free incentive for buyers.

Caixin Global also reports that property developers are stepping up their borrowing through bond sales. By issuing bonds, companies are taking advantage of lowered rates and increased liquidity to endure the housing slump.

According to Reuters, local governments are selling prime real estate to buttress their revenues. Smaller property firms are similarly liquidating their assets by selling their land.

In a show of optimism, some larger developers are shrugging off their sales decline as a short-term predicament and purchasing these freed-up properties.

As such, large development companies are either reacting to the crisis or leveraging its effects for future benefit.

Commercial Real Estate Industry Could Recover Despite COVID-19 Setbacks

A sense of optimism seems to be a common thread among commercial real estate companies and investors.

Major developers like Evergrande are undeterred by their performance in the first quarter, continuing to set their goals as high as 30% more than last year.

Analysts are also remaining hopeful about the Chinese commercial property sector. Guangzhou-based GF Securities speculates that “the outbreak has merely postponed demand in the market, demand that will return.”

The market had already seen some recovery by March, when the sales of the top 100 developers had surged 136% from February. Stay-at-home restrictions are being increasingly relaxed, and the rate of infection in China has rapidly slowed and the economy recovers. Many see this as a sign that market normalization is on the horizon.

However, China’s real estate market is one that continues to fight an uphill battle. As policymakers have committed to “prudence in the property sector,” and as COVID-19 rages on as not only a nationwide but global crisis, it may be wise to remain cautious about growth in commercial real estate.

Author: Emily Landkamer

Emily Landkamer is an Editorial Associate for Clutch, a B2B research, ratings, and reviews platform in Washington, D.C. She writes content on the accounting sector to help businesses make an informed decision about accounting and properly budget for their operations.

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This article How COVID-19 will impact commercial real estate in China is the first one to appear on Daxue Consulting - Market Research China.

The real estate market in China has been an important pillar of the Chinese economy over the last decade. Demand for new housing has been very strong in cities with rising incomes. This is associated with massive urbanization that occurred in China during the past two decades creating a constantly growing need for housing. These two factors combined with the fact that the Chinese have seen the housing market as the best place to park their savings over the past decade, especially in the high range estate, help to drive the growth of the real estate market in China. Although housing prices keep rising, the Chinese government has taken several steps to cool down the real estate development since the global economic crisis in 2016.

Real Estate Market is Under Stress

The transition from a State-controlled in the 1980s to a market-based economy has put China on a path of high growth. The real boom came in the 1990s when the housing sector was privatized. It is at this point that the real estate market in China took off, resuming the work unit system in which the apartments were awarded as the benefits associated with the employment of a person. The magnitude of this change is the key to the analysis of China’s economic growth. The real estate development in China has been one of the most important factors for economic growth in China. According to a study conducted by BBVA Research, the real estate sector in China accounted for about 5% of GDP in 2000 and has reached 13% in 2016.

The Chinese government has also tried to help with recovery plans housing sector has overcome the global economic crisis in 2016. Tightening policies to stabilize the housing market in China have been implemented by the Chinese government since late 2016. According to the big data report on the real estate market in China, the average housing price of 24 core cities in China has increased by 5.73% in between 2018 and 2019. More specifically, the housing price of Shenzhen has increased by 5.58% and Shanghai by 0.81% year-on-year, while the housing price of Beijing fell by 3.99% year-on-year and Guangzhou by approximately 3.37%.

Entering a cool down period

Although residential housing prices are still rising slowly in the past ten years, research indicates that the real estate market in China has moved into a cool down period since it’s peak in 2016, with a lower growth rate and decrease of trading volumes across the country. However, Tier 1 cities like Beijing are still witnessing a continuing expansion in high-end residential housing supply as of Q2 2019, regardless of the overall slowdown of the housing market in China.

Research also indicates that the housing price in Tier 1 cities of China is too high for people to afford based on the fact that the price-to-income ratio has past 9.0 in 2018, which means the housing development in China could lead to more negative consequences than positive. The average annual income for Chinese living in urban areas is 39,251 RMB (5648 USD) in 2018, while the price of per square meter to buy apartments in China’s Tier 1 cities like Beijing or Shanghai can hover around 28,981 RMB (4,170 USD) to 37,420 RMB (5,384 USD) on average, according to Statista.

Among all types of housing choices in China, residential housing has been the largest component of the real estate development in China with the number of 8,698 billion RMB in total capital investment in 2017. In addition, transactions in residential housing in China generated a total revenue of 12,639 billion RMB in 2018, according to National Bureau of Statistics of China. In addition, China has built apartments for more than 36 million people in low income in 2015. These cheap apartments will be rented or purchased well below the market prices, although the financing of the construction and the transparency of the assessment of candidates have faced concerns and generalized questions.

Housing Boom in the Real Estate Market in China

In 2001, the Chinese Government has set up a large number of policies to strengthen the real estate sector so that it can function as a backbone of the economy Chinese. In 2001, the investment in real estate was estimated near 624.5 billion RMB and accounted for 17% of the total capital investment. This amount increased to 71.8 billion RMB or nearly 25.3% from 2012. The real estate market in China has opened and suffered an outbreak of prices due to the huge demand coupled with the rupture of the economy growth and the increase in salaries in China.

Concerns like if China’s real estate bubble would burst have not ceased in the past years. As an attempt to stop the overheated property market, China has drawn up a set of policies, to limit the number of homes that can buy an individual, causing, discounts on interest rates and imposing property taxes on luxury homes in some cities. Policies have worked to a certain extent, but it still has an inelastic demand, due to the rapid urbanization and some cultural traditions that emphasize the importance of owning his own house or apartment after a wedding. This will situation will help the industry to keep thriving in a long-term basis.

Future Prospects

The Asia Pacific Real Estate Market Outlook 2019 presented a few possible trends of the housing development in China. According to the report, the Chinese authorities have made relatively looser housing policies, which give more freedom and flexibility for both local governments and real estate developers when implementing such policies as compared to the past three years. Additionally, despite the shock caused by the trade war between China and the U.S., the integration of the GBA (珠三角), the Shanghai-led Yangtze River Delta (长三角), and Beijing-led Jing-jin-ji Area (京津冀) are expected to keep boosting the economic development of Tier 2 and Tier 3 cites within these area. Therefore, the housing markets in these areas will possibly keep booming as well.

See also:

• The Interior Design market in China 
• How Will Strict Government Regulation Affect Real Estate in China?

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This article Overview of The Real Estate market in China is the first one to appear on Daxue Consulting - Market Research China.

Full transcript below:

Matthieu David: Hello everyone, I am Matthieu David, the founder of Daxue Consulting, a China market research company and its China marketing podcast, China Paradigm. Today, I am with Olivier Tollet. I have known you for quite a while, five or six years. You are now the Enterprise Director at Cushman & Wakefield, in charge of opening stores for two types of Carrefour, hypermarkets, very big ones like Carrefour, and Easy Carrefour, smaller ones, not convenience store, but in between. You have been in China for 14 years, a very long experience of retail in China, especially with hypermarkets and supermarkets. You are now in charge of the offices and F&B at Cushman.

The first question is, what is the current size of your business? What kind of real estate business in China do you do with Cushman, and what is the difference between Cushman in China and the West?

Olivier Tollet: With the Cushman, I am working with the Global Occupier Services, mainly dealing with offices leasing. The specificity of Cushman & Wakefield China is that we are the biggest platform with nearly 300 brokers spreading all over China, in both Tier 1 cities like Shanghai, Beijing, Tianjin, Guangzhou and T2, and T3 cities. We have 24 offices all over China and are able to serve big enterprises with quite a big footprint, such as enterprises who have needs of setting offices in Shanghai, Beijing and Tier 2, 3 cities as well. They not only have requirements for offices but also have needs for warehouses and factories. We not only have one real estate service in the Chinese market, but also other service lines specialized by sectors. An office is the main one, but we also have factories, warehouse, retail, and residential. We also provide other real estate services in the Chinese market, specialized in Project and Development Services, which is in charge of construction and fitting out. We also have service lines specialized in facility management. Once you are inside the premises, we are dealing with all the facility and building management for you. In terms of the wide range, we are actually covering all the needs around the real estate business in China.

Matthieu David: It is a much wider range than I expected. I thought you focus more on offices, but you are also dealing with warehouses, factories, and F&B.

Olivier Tollet: In Cushman, there is one department for retailers in China dealing with food and beverage, which becomes a quite hot topic now. We are also dealing with a lot of evaluations for companies that are considering to acquire, ahead of those transactions. We also deal with a lot of purchases and sales of buildings, which is quite a big part of our activities here in China. Some of the big deals happening between some big developers and significant firms in real estate business in China are involving with Cushman & Wakefield, as either an evaluation partner or a transactional partner.

Matthieu David: Can a foreign player buy easily in China? It seems much more challenging for an overseas or international player to buy a building or warehouse in China than in the West.

Olivier Tollet: It is becoming easier and easier. We see more and more firms and foreign companies buying buildings or properties here in China from the States, Europe, and Hong Kong. You can see more major transactions happening. Now, the level of real estate business in China is very comparable with major deals happening all over the world, in terms of the quality of the properties and size of the deals. You have quite a lot of big deals happening when you are looking at the urbanization parts of China. China is still the place where significant things are happening. When you read the specialized media about real estates, you can see that big parts of the major acquisition involving western firms are still happening here in China.

Matthieu David: One of the differences between real estate in China and the West is financing. I don’t know if banks in China are financing the purchase of properties as much as in the West or as for foreign players or private companies. I feel public companies are more trusted.

Olivier Tollet: If you consider the way the SOE, the Chinese public enterprises, and even the big Chinese private firms are financed here, for sure it is a little bit different from the western way. But for the western companies to acquire properties here in China, they can still get easily financed abroad and acquire properties in China in the same way. But the rules of real estate business in China here are still different compared with the western rules. You don’t acquire the land and property for an infinite time. It’s more linked to the usage rights for a certain period, but it’s still easy to acquire, develop, and promote your premises.

Matthieu David: How do you choose a location in China? What parameters do you have in mind? We are in a country where technology has taken over a lot of things, including real estate. Does it impact the way to choose a location now? Does it impact the fact that to be seen, you have to be on the street, or because you have so many apps, you can drive traffic to you? The location to be seen on the street, in a mall, in a very attractive place or to be accessible through cars and subway is not a key element anymore. What are the metrics that count to find a location now?

Olivier Tollet: You still have some basic golden rules, and one of them is still linked to transportation. When you look at the development of Chinese cities, they are still based on those huge infrastructures. If you look at the Shanghai for instance, when I arrived in Shanghai 14 years ago, I remember there were only two to three subway lines. Now there are 14 or 15 and many more elevated highways. Transportation is much easier now. All those infrastructures are also going to set up and organize the transportation and floors in cyber cities. For sure, to be close to subway lines and easily accessible will make your site, real estate property, a store, a shopping mall, or whatever much more valuable. Transportation and accessibility are still one of the keys to a good location.

This is maybe more for the macro environment. Afterward, when you go to a micro view, you are right about the technology that is reshaping retail in China. Now you have quite a lot of tools to measure the value of your sites. Many big data are available to evaluate a website. For example, the signal of mobile data passing by gives you a quite precise idea about the traffic around your site. You can also capture traffic by cameras, which will provide you with an exact number of people passing in front of a shop window. At the end of the day, you will have a very precise idea of how many people have passed in front of your future potential shop or restaurant. Besides that, based on the signal of mobile phones, the access to API can provide some more precise information, not individual information, but some more detail analysis of what kind of people or what kind of consumption habits and interests these people may have.

Matthieu David: You talked about a lot of technology to evaluate the potential of a location, but a lot of people want to ask how much would they cost? Because anything linked to big data from those devices seems expensive. We found it was quite expensive to collect all that data, considering the massive scale for the implementation. Could you give a range of prices for evaluating where to locate your shops with cameras or big data?

Olivier Tollet: It really depends on how deep you want to go, but if you want to have a straightforward snapshot of how many people are passing by your store and do a sample for one week or two weeks, it’s quite a reasonable price. It doesn’t cost you a lot. Based on that, you can make some more simple reports. For example, 5,000 to 10,000 people are passing by my shop window; if I apply a transformation rate of 10% or 5%, you can have your calculation. You can have it at a very reasonable price, like 1,000 Euro.

You put a device like a camera. The data is not saved individually, but your facial recognition can avoid double counting. If one person is passing back and forth, it only counts as one daily. At the end of a sample period, you have the statistics that can be split by day, time, or whatever you’re interested in. If you’re a F&B like a restaurant, you will focus maybe on some specific hours. Because for you, meal hours would be the critical periods. Based on that, you can make your study according to your data.

Of course, with a simple snapshot like this, you can only have a very basic sub data like male or female and a simple age recognition, but no more additional data. But it’s a start, and you already can evaluate and compare several locations.

Matthieu David: Have you witnessed some business cycles for retailers in China? For example, summer is better to drives sales than winter, or during Chinese New Year, there are no sales anymore.

Olivier Tollet: There are cycles for retailers in China. Actually, it depends on the format of retailers in China. For instance, for convenience stores, the best season is summer. Because in summer, you are drinking more soft drinks, having ice-creams, and looking for lighter snacks during the day. All of this is happening in summertime. You are spending a big part of your time outside, compared to winter. Definitely, summertime is a season for convenience stores. On the other hand, for big retailers in China like supermarkets, the big season will be before Chinese New Year, because it’s the time of rather big bulk purchase for the families gatherings like big meals, and sometimes also for gifts purchase. People go to supermarkets to buy all those kinds of gifts and tend to stock up some goods with the means of Chinese New Year coming up.

Now with E-commerce, you have some big events like Double 11. On the other hand, Chinese New Year is rather a low season, because all the delivery men are back home with their families and all the warehouses are closed. Most of the time during the Chinese New Year, online retailers in China are having a low-end period. Depending on the format, there are some cycles with up and downs, and it’s not the same actually.

Matthieu David: It’s interesting that some delivery cannot be accomplished, just because people go home, something which is very crucial and traditional, so they don’t work. Does it mean that, drone delivery would be a way for retailers in China to save money and make business when people are not in town? What do you think about those technology reshaping retail in China like drones?

Olivier Tollet: To be honest, at this stage, I don’t have a clear view of drone delivery. I think it has to be organized. At the scale of China, it’s hard for me to foresee. When you stand in front of red light in a city like Shanghai at the end of the day, you see these motorbikes with deliveries coming from the Internet. Now imagine that there are no more motorbikes, but drones in the sky. It’s still a question mark for me at some point. Will it be allowed? Will it work? Will the government let the sky be fulfilled with drones from these delivery companies? For me, it’s still a big question mark.

Matthieu David: If we go a bit more accurately and break down the cost of running a shop in China, we see that more technology reshaping retail in China is used to interact with consumers. We have talked about technology for evaluating the price, rent, and the potential of a location, but those technology reshaping retail in China is also used to interact with the customers by retailers in China like Hema, Yonghui, JD and so on. On the other hand, there are still many retailers in China that are not that technology-based. You go to the shop, and there are salesperson, not unmanned. You buy your products through WeChat or Alipay, which is a technology part of every shop now. Would you mind sharing with us some metrics to help us compare the economics between Hema and Yonghui? We interviewed Stephane Torck before, who used to manage cash and detailed where you are managing different shops, the franchise model, and the cost structure. Would you mind sharing your experience with the cost structure for retailers in China?

Olivier Tollet: When you compare Hema, something you have to understand first is that the online retailers in China in China are very specific. In western countries, when you order on the Internet, it came as a premium service. When you decide to order on the Internet, you have to pay the price for an additional service to be delivered to a home, which is actually the choice of the mid-to-high-level or very urban uptown clients at first.

Online retailers in China are not the same story at all. The online retailers in China appear to have more discounts with a kind of free service because at first, nobody has to pay for the delivery. Delivery is free. After purchasing the discounted items, you even have some coupons for the next purchase, because everybody is looking at gaining market share and acquiring new customers as fast as possible in this China’s new retail revolution. Developing online retailers in China is totally different from the western world. That’s why today, online retailers in China have such a big market share versus the rest of retail.

When it comes to the breakdown of more traditional retailers in China, the biggest challenge they are facing is the price you have to pay for the rent, because the real estate business in China is very expansive.

Matthieu David: I heard the price for a very high-priced Starbucks store is about 40 or 45 RMB per day per square meter. Can you give a min, max, or mean to expect if you want to get an offline retailer in China?

Olivier Tollet: It could be 40 RMB for Starbucks because the margin of coffee is quite high. It just coffee beans and water. When I was working for Easy Carrefour, a convenience store and a small-size supermarket, the price range was quite hard to be lower than 10 RMB. The maximum you could afford was around 15 or 20 RMB because otherwise, retailers in China are facing too much pressure. Even if the position of an Easy was a little bit, not premium, the margin was slightly over 40%. If you want to cover the rent, the margin gives you very small room after other expenses. It’s quite a tight exercise for retailers in China.

Matthieu David: Easy Carrefour is another supermarket format of Carrefour China. Carrefour is known for creating hypermarkets. I can’t remember how many square meters is a hypermarket and a supermarket, but Easy Carrefour has a smaller size and in the city and outside. You don’t have to drive to Easy Carrefour. It is down on the streets.

Olivier Tollet: Traditional big retailers in China like hypermarkets are around 6,000 to 10,000 square meters. Typically, they occupy two floors, one dedicated to non-food and one dedicated to grocery and fresh. Easy Carrefour is a bit more than 200 square meters. Because traditional retailers in China, like those Japanese styles, are closer to 80 square meters, Easy Carrefour is between a convenience store and a small supermarket. The concept of Easy Carrefour is to let customers choose how to use a store. For instance, they can come in the morning to have a coffee or a Baozi, a traditional Chinese dish with some meat inside. This is a very secured and short shopping. They also have the option to come back to have a lunch box with juice and yogurt and come back at night doing the shopping for cooking at home, which is more in the supermarket-style. They are not only providing the option of convenience, but also the possibility to find some goods like in the supermarkets to shop for home cooking and finding refreshments and groceries as well.

Matthieu David: You said the biggest cost is real estate service in the Chinese market. I think that is pretty common with the West as well, but maybe even higher in China. What would the second cost be?

Olivier Tollet: The real estate business in China is the biggest challenge for retailers in China. If you compare to France, for instance, France was the case of downtown Paris. Even Lyon was much more affordable. It is really specific in some big capital cities, but it is still far below Shanghai if you compare it to cities levels. The second cost is more for a global retailer in China with a global supply chain, which is the organization of the store. It involves the supply chain, which means you need to have a proper organization because a smaller retailer in China need to be supplied with a small number of goods regularly. The organization has to be very precise. Retailers in China need to have the back organization very well organized, because it has an impact on your team and labor cost, especially when you don’t have many customers in your store, your staff has to dedicate to the replenishment of your stores. These things are linked largely, so we cannot say it’s an isolated cost because your supply chain and logistics is one cost on the one hand and has to be very well organized and linked with your team in the store organization. If you have one truck coming in your store during peak time, you won’t have a staff to replenish at this time. Retailers in China have to set up a quite precise organization. If they don’t set it up correctly, it will have an impact on both the store management, the labor cost of the store, and the logistics for the whole organization.

Matthieu David: What do you mean by setting up properly? Basically, it is to be predictive, right? It is to have a good prediction of the sales, so retailers in China can replenish at the right time and so on?

Olivier Tollet: Exactly. It has to be very predictive, so retailers in China have to get the proper quantities linked to their sales at the right time in stores. When retailers in China are dealing with traffic in big cities, it’s not always that easy. Because you need to have smaller trucks to access stores in the downtown and there is uncertainty linked to the traffic to the store.

Matthieu David: What about the technology reshaping retail in China for linking with the customers? For example, people using real estate as an employee or as a client for retail for offices. Could you share with us some trends from retailers in China you have seen? To elaborate a bit more, we’ve seen a lot of hype about unmanned shops. Is it a real trend or just a hype where people want to talk about? We see a lot of hype from Hema, JD, where you get delivered from warehouses. Actually, Hema and Yonghui don’t make money. They lose money because delivery is not seen as a premium but as something common and usual to expect. Can you share with us the trends you see in technology for retailers in China, real estate business in China and offices?

Olivier Tollet: First of all, there is a big appetite for technology in China, in general. Whenever there is a tech gear, people would like to test and try. I think this is very typical in China. There is a very positive environment for technology.

Matthieu David: Which is very different from Europe, because, in Europe, you will have a lot of skeptics of not to try like an unmanned shop.

Olivier Tollet: Yes, it’s not the same approach for technology. Now, the unmanned shops became a very hot one and a half or two years ago. Every retailer in China was announcing that there would be an unmanned shop pretty soon, and I saw some prototypes at that time. But now, retailers in China are coming back from this unmanned concept, because at that time, there were still some very big limitations, especially in recognition of the items. Some prototypes were admitting that there was still a margin of error close to 15 to 20%.

Matthieu David: Wow! So, retailers in China would add the wrong price tag when replenishing?

Olivier Tollet: No, when people buy, which was a huge gap and unsustainable. Because even with the cameras on the roof and shelves, it was still difficult to make all the transactions when people were just taking a product. It was counted as a transaction to make them 100% secure. Obviously, it was not that finalized at the time. For me, there was something wrong with the concept of unmanned shops. As a customer, what you’re looking for from retailers in China is convenience. You don’t care whether there is somebody or not. It is not your priority. Because of some technical limits, at the end of the story, retailers in China were obliged to put a security guard, which was risky. In a way, the kind of convenience you gained when taking goods from the shelf, you just lost it at the gate, because the guy was scanning and making you lose the time back then just at the gate. In the end, the benefits or convenience for customers were simply not there. The debate about the future of the retail industry in China is not manned or unmanned, that was not. Retailers in China have to provide something convenient first.

Matthieu David: It was not reducing the cost that much to have unmanned, because retailers in China chose the management that was costly, even from the internal and the P&L perspective, it doesn’t affect that much the P&L, isn’t it?

Olivier Tollet: Yes. There are different directions in terms of technology reshaping retail in China. Some retailers in China are using cameras, so there is a big question about maintenance. Because as soon as you are changing an item, you have to enter something inside the database and it is quite demanding. Because to be recognized, you have to enter the item from all these dimensions aspect with pictures inside the database so that it can be recognized by the cameras and put on the shelf. So, it is quite demanding in terms of maintenance. Another technology reshaping retail in China is using some chips tag on the products, but it takes a lot of manipulation before putting the products on the shelf. Despite the price of each tag put on the product, retailers in China have to manipulate quite a lot of items before. It is not very productive. There are a lot of questions about the cost and productivity of this solution.

Matthieu David: What about customers taking retailers in China as a display of the product and experience within the shop and then buying online? A bit like the model of Hema, where customers can look at the product in stores. There’s a product experience. They buy and get delivered to home. Do you feel that’s something happening in China? Do you think that’s the future of the retail industry in China?

Olivier Tollet: The display still remains powerful for me. That’s why every retailer in China is now mentioning O2O more than pure E-commerce. It’s quite demanding to have a smart display, but in a display, you can show and tell the story. For the same unit of needs, you can have some premium brands. You can show your label versus some leading brands. You can have some promo versus normal prices. You can have some entry price versus leading brands as well. There are quite a lot of things you can tell in a display, which is quite hard to tell even on a website with content and big screens. It’s not that easy to make the link. A lot of retailers in China are discovering the advantage of using some smart displays. More and more O2O is coming now to combine in-store displays with online ordering and home delivery apps. At the end of the story, what all retailers in China are discovering is they need to let the customer choose. Customers used to know your brands through a lot of touchpoints. Nowadays, they want to decide for themselves, which touchpoints they should use to finalize your brand, order your goods, and consume.

Matthieu David: Talking about touchpoints, I remember when I was in Beijing about six years ago, I met a travel agency at the entrance of Carrefour. It decided to have shops there because the price of the traffic of renting space within the shopping area of Carrefour was lower than buying space on Baidu. When you say touchpoints, offline retailers in China are a touchpoint with the customers, which actually sometimes are cheaper than Baidu.

Talking about China’s new retail revolution, could you tell us what you think is currently really working for new retailers in China? We spoke of unmanned shops, which you are skeptical about. Hema is going at a loss, and maybe we make a profit in the future, but in China’s new retail revolution, what do you think is working now?

Olivier Tollet: Hema appeared as a disruptor. It created a big surprise and told traditional retailers in China that there are no entry barriers to retail. This is a big lesson for traditional retailers in China like Carrefour because Hema is coming from E-commerce. It has experience with E-commerce as a very small platform with logistics. It just appeared to become retailers in China. It took a lot of chauffeur from Carrefour to manage some of their first corners, but finally, everybody was thinking retail is quite a complicated market, but it proved the contrary. It showed that somebody who doesn’t know retail from day one could become a retailer in China. It did it in a very smart way that it compacted the food retail in a very modern way because it took some top products from the Internet and modernized their assortment a little bit. It was very strong in the display. It used a kind of show to show their marketing and online display. With all those stuff like preparing online orders, they are also storytelling.

They display quite a lot of fresh seafood at the entrance. It reinvented what traditional retailers in China used to do maybe 10 or 15 years ago to a more compact and modern way. It is a smart move, and it did in a quite efficient way.

Now there are many issues from the profitability side, because by providing delivery service within the next hour at almost no cost, although it changed this policy and is trying to make it less costly from its side. Today, it is trying to catch up from its internal way of coping with deliveries. Anyway, I think Hema made a breakthrough. It’s still adjusting the sale of its stores. I saw recently one of its stores become smaller, only dedicated to fresh in Zhonghai Huanyuhui in Shanghai. It is still trying new concepts, the new size of stores, and mixing O2O. Because now Alibaba has become a real conglomerate, retailers in China are only one branch of this huge group and conglomerate. They are not looking to be profitable as a retailer in China so quick. They are trying a lot of things, and maybe on the way, they will find the right format to be more stable and profitable in the long run.

Matthieu David: You are in a lot of segments like offices, warehousing, factories, retail. Where do you see that technology has reshaped retail in China the most? Warehousing should need a lot of technology as well. Which segment do you see that technology is now really changing the game?

Olivier Tollet: Everywhere. After joining Cushman, I was very surprised because I’m currently in office in High Road. I was very surprised to see the big data in the real estate business in China. IoT is everywhere. Even construction is using what they call the BIM, the Building Integrated Modeling. When I talked with some colleagues in Europe, they told me they are thinking of using this kind of huge big database for building maintenance. It’s part of our plans, but in China, it’s already happening. All the components of a building are registered in a huge database. It takes two to three years of manpower to build up this kind of huge database with all the components, so even the small pipes or pumps are recorded inside. It’s in 3D, and you have all the information and components of the building.

I saw some facility management people navigating inside the building, using their software, clicking on one small part of the building, and seeing if this pump has been maintained that day or the maintenance report. It looks like something little bit futuristic, but it’s already happening here in China. It’s quite surprising. If you also take some hot topics like workplace strategy as well, when we are leasing some new spaces to companies, they also conduct some studies to arrange their workplace according to which place they should dedicate to individual workstations, a collaborative place, common areas, pantries and so on. This kind of studies now can be made very easily, because they have a lot of data with the badges of their staff, so they can know precisely who is entering the building during which hours. They can have sensors on the desk to know precisely who is occupying which desk at what time and so on. You can arrange after space and optimize your area according to the current usage of your space.

Five years ago, people in the real estate business in China were only looking at square meters, and now you are telling people that you don’t need 1,000 square meters, but only 800 square meters, because you only need to dedicate this percentage for individual workstations, this percentage for collaborative space and so on. We have entered a very advanced age of designing and space allocation for offices. Technology is now everywhere. When it makes sense and has some clear output on optimization and business orientations, it is definitely used.

Matthieu David: You talked in some articles published on LinkedIn, and you began to mention a little bit about this new way of using space, offices, interacting with your office like co-working, co-living and interacting with retailers in China like pop-up stores. The link between all of them is sharing. You don’t rent the entire space. For co-working, you just rent a specific desk. For co-living, you rent a space, because you like the standards of living, security, and services they can provide to you. Retailers in China open a pop-up shop because they don’t want to pay for the price of rent for one year or two years and put a deposit of two or three months to start the business. Could you share about those trends which are within the sharing economy, co-working, co-living, pop-up shop?

Olivier Tollet: If we have to find common ground, I think there is a feeling of belonging to a community and becoming more efficient by belonging to this community. The world is more open. The competition is a little bit fiercer than a few years ago. The cycles also are a little bit shorter. You’re looking at joining forces, advice, solutions, sharing some smart ideas. Solid, definite, long-term options are no longer what people are looking for. People are more looking for working in a project team, finding the right competencies at the right time, and being able to tackle their issues in the most efficient way. They don’t look for big organizations. They just want to identify the right people who can help them solve their problems in a quick and efficient way.

Matthieu David: It makes sense for co-working space and co-living space. You want to be with people whom you have links with. What about pop up shops? Do you see them as a real real estate business in China now? Do you think that there are strategies from retailers in China building at the pop-up shop? Is this something accidental? From time to time, there are new pop-up shops, but they are not built on a strong strategy.

Olivier Tollet: For me, pop-up shops should be part of a broader strategy. They can be good leverage for retailers in China, especially if they want to test a product or approach a specific client because they don’t have to bear the burden of a shop for that. A pop-up shop can do both by the way, offline and online. It can be a part of a test and trial strategy. You can also recruit customers or colleagues during a pop-up shop for another step of your strategy. I don’t see it as a final stage, but inside a more global strategy, I definitely believe it can make sense.

Matthieu David: My concern about the pop-up shop is that there is no platform for retailers in China to set up your shops. I don’t think there’s any easy way to do it, except contacting the malls, department stores, cities or districts to understand if they’re going to have an event or something going on somewhere else. Do you have any experience of it?

Olivier Tollet: Some of the developers and landlords are more experienced and keener on doing and promoting pop-up shops. Maybe some of them are quite advanced on this. Pop-up shops and malls can find common ground because shopping malls today have a challenge. They have to rely much more on experience or animation. They cannot be the same as 5 or 10 years ago. They have to renew themselves. Pop-up shops for them can also be a way to appear differently every 15 days or every month. It’s also for them a smart way to make people come again to say that next month; we will be different because we will have new retailers in China. Some malls are already playing this, but maybe not all of them. There should be something a little bit more institutionalized that pop-up stores could become a segment of shopping malls to say we have some place that will be turning thematic. The reason why it’s a little bit fragmented and chaotic today is that it requires a lot of energy from the shopping mall. Maybe they don’t have the team to manage this kind of spaces.

Matthieu David: Still looking for the Airbnb of pop-up shops.

Olivier Tollet: Yes, exactly. It may be one direction for the future of the retail industry in China because both retailers in China and malls have the interest to work in this direction.

Matthieu David: The last question is we know that when Decathlon, for instance, started selling in China, they sold pants. But actually, the Chinese don’t wear pants in the countryside or camping, but they are using them in the park to protect from the sun. I would like to know if you have some stories like these at Carrefour, where a product became something different from what you were expecting, or something very surprising that you witnessed in China. The same as P&G, in order to enter the Chinese market, they advertised to those “A Yi” who were leading Tai Chi in the morning to advertise their products, because they were KOL, Key Opinion Leaders at that time. Do you have some funny, interesting, surprising stories to share?

We have surprising stories about wine when Carrefour introduced wine in China and making it more visible or imported products, and attitudes or behavior in the shop like Ikea, where you saw some Chinese are sleeping on the bed, and some other stories.

Olivier Tollet: What always surprises me in the shops, especially at fresh sections, is people sorting the dry goods. Some are sorting the raisins like the dry grapes. They are sorting them one by one. I don’t know how much time they need to get 500 grams of plastic bags. They are usually some old grandpas and grandmas, and it happens almost in every shop that I visited at the time. They are very careful. They got the best of our assortment, but they spent one hour in front of them selves. Part of the success of Carrefour at the time lies in the cultural proximity, the love for food actually. Because even though we are very local, French and Chinese people love eating and food. Whenever we do wine tasting or French imported products tastings, even when people don’t know how to eat this kind of product or how to drink wine, of course, we still have the same people mixing wine with some soft drinks, but at least there is the same passion for food and drinks, and they are willing to try and taste. This is one of the common passions between French and Chinese people.

Another surprising thing was when I started Easy Carrefour, I really insisted on having some wine by the plastic glass imported from France. The cost was rather high because it was something like 38 RMB per glass. It makes a little bit high cost, but actually, it was a hit, because it was still a way for a young Chinese couple to discover wine. It maybe was not very fantastic quality wine, but it was a hit, and we were short of glasses of wine. A lot of young Chinese couples still bought two cups of wine to try at dinner back home. It was a nicely-designed glass, and everybody was saying. We are not going to sell, because it’s too expensive. It was a way to discover and access the French wine for young Chinese couples. It was a part of the unexpected successes.

Matthieu David: Very interesting. Thanks for your time. I hope you enjoyed the talk. I hope everyone enjoyed it as well. Bye, everyone.

Olivier Tollet: My pleasure. Bye, bye Matthieu. Bye, everyone.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

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This article Podcast transcript #52: How retailers in China should prepare for the revolution of the industry is the first one to appear on Daxue Consulting - Market Research China.

Full transcript below:

Matthieu David: Hello everyone. I am Matthieu David, the founder of Daxue Consulting, a strategic market research company based in China, and this China marketing podcast, China Paradigm. Today, I am with Shiny Cheng. You are the founder of Shinjia. In Chinese, Shinijia is a way of saying “a comfortable house for you” or “a more comfortable house.”

I am not totally sure about this, but in Shanghai, under your management, you have more than 1000 apartments that you are renting out. They are beautifully furnished and already furnished and renovated. I saw the pictures. Actually, it looks like they are pictures of the most beautiful Airbnb you can find. 

You started the apartment renting business in China about seven years ago. You started without investment, fully bootstrapped. And now, you have a footing in Shanghai. And as I was saying, you have 1000 apartments under your management. You started the apartment renting business in China very young. I feel it’s nearly just after graduation. That’s something that I’d like to know more of as well. Thank you very much for being with us on a Saturday. That’s why there aren’t many people in your office currently. For people listening to us, we are recording the video for this interview as well. My first question is, what’s the market sizing of your apartment renting business in China? It could be in terms of revenue, the number of people, or the number of apartments. Is it 1000 or more?

Shiny Cheng: Okay. Thank you, Matthew. Hi, I am Shiny. Actually, it’s not 1,000 apartments. Sorry. I want to correct that. It is 1,000 apartment rooms. 

Matthieu David: I see. 

Shiny Cheng: Basically, my apartment renting business in China is about co-living apartments. So, we provide a very good and unique design at a very good price. We provide shared apartment rooms to young professionals, students, and also international young workers are living in Shanghai who want to find roommates in China. Most of the apartments are in the downtown of the city. 

Actually, I started my apartment renting business in China when I was 23 years old. So, I just came to Shanghai after university. I couldn’t find the ideal apartment I wanted to live in. I wanted to live in a downtown apartment in Shanghai. The rental was always increasing. So, I couldn’t find them. My ideal apartment has a good price and also a good design. So, this was my problem back then. 

So, I started rental housing in China, and I did the interior design. And also, I chose a very good location. And I had my roommates, so I did not need to pay the rent for rental housing in China. I found out this was a good business opportunity. 

Matthieu David: So, what you are saying is that you didn’t have to pay the rent for rental housing in China because you found roommates who were paying a bit of a markup. So, they were paying for you, right? 

Shiny Cheng: Yes, because I made the apartment nicer. I added value to it. 

Matthieu David: I see. 

Shiny Cheng: Actually, in the beginning, there were 95% foreigners in Shanghai. But now, it’s like 70% of Chinese who are living in my apartment. 

Matthieu David: Wow. 

Shiny Cheng: They now like my apartment more. And also, we didn’t do any marketing in China. We just started advertising three months ago. Already, it’s 70% of Chinese people living here. 

Matthieu David: Impressive.

Shiny Cheng: Yeah. Like many startups had huge investments, but I didn’t have that time. Eight years ago, I didn’t even know what an investment was.  I was very brave with the first apartment I rented for apartment renting business in China. It was quite risky. I got the key from the agent, and then I said I could give him a double agency fee if he gave me the key for three days. 

And in the three days, I did the decoration very fast and rented it out. Then, I paid the owner the rent for rental housing in China. Probably, if I had ¥20,000 in my hand, I could do the next one. So, it’s a lot of cash flow. So, it’s like you can start from zero. We have our decoration team. We have designers. We also have a factory for the furnishing. So, it’s a lot of work. It’s not like doing everything yourself in the beginning. There is a lot of cashflows involved. Yeah.

Matthieu David: I see. So, if I understand well, you have 1,000 rooms. So, it’s a bit less than 1,000 apartments. Maybe 700 apartments. 

Shiny Cheng: No, it’s like 200 apartments but 1,000 rooms. 

Matthieu David: Okay. So, on average, you have five rooms per apartment. 

Shiny Cheng: More than 200. Maybe, 400-500. 

Matthieu David: I see. 

Shiny Cheng: Now, it’s like probably 900 rooms. It’s between 900-1000 rooms. But generally, it’s more than four rooms in one apartment. 

Matthieu David: I see. It’s a very interesting format because I believe the four or five rooms are more difficult to start rental housing in China to one single person. And actually, you are making it easier for the landlord to start rental housing in China to 4-5 people through your platform. You don’t have to take care of so many people. So, as I understand in terms of your business model, people pay you or your platform directly. I went on your website, and for each apartment, there is contact. There is a specific person in charge. I don’t know if it’s someone already living in the apartment which is going to be in charge of the others or someone from your company. But basically, they contact this person. They pay you. And then, you have the rent for rental housing in China you pay to the landlord. I believe that it’s a long-term lease, like three or five years, because you renovate it. So, you have to have stability on the lease. And that’s your business model, isn’t it? 

Shiny Cheng: Yeah, people pay me directly because I’ve started rental housing in China from the owner for ten years. The people you contact for an apartment are my salespeople. Also, people can list apartments on the website. So, some people are also listing their own apartment on our website. But in the beginning, we only used this within ourselves. Now, people from outside also sometimes use our website to list their apartments or look for roommates because this is only for roommates.

Matthieu David: I see. 

Shiny Cheng: Now, we are also trying to create a roommates’ platform.

Matthieu David: That’s something which makes me a bit confused because I saw a button which said I could add my own apartment. And from my understanding, you were managing the apartments from A to Z. So, I understand that’s a new feature. How much do you charge in terms of commission for them? 

Shiny Cheng: There is no commission on that. They can just list on the website. It’s in the trial stage. We are just testing it out. Also, it’s not my main apartment renting business in China. The cash flow is coming from my existing apartment renting business in China. Currently, traffic isn’t much. But in the future, when we do more promotions, I want to create a handyman app so that if people have any problem in the house, they can order from the online marketplace in China. So, it’s a very simple MVP. 

Matthieu David: For people listening to us who don’t know, MVP means minimum viable product. 

Shiny Cheng: They pay service charges to us. We don’t charge any commission.

Matthieu David: I see. I want to make sure that I’m not missing anything from your business model. I feel that the rent for rental housing in China is not the only thing you provide. I am sure that you also provide other services. Am I correct that it’s more than just the rent for rental housing in China? I am sure that you are not only providing the place. Could you tell us everything you provide? What’s your value proposition? 

Shiny Cheng: We help with the product design and renovation for the owners. Usually, the apartments in the downtown are very ugly because owners are buying the apartments not to live in them but as an investment. So, we provide renovation and management for the landlord. We also provide handymen as well as cleaning services to our tenants. So, the landlord doesn’t need to take care of all the problems of the house. 

Matthieu David: I see. So, can we say that you provide cleaning and internet services? You have someone you can call for any issue which is happening. So, if someone has a problem with their washing machine or anything, you would be there to answer in Chinese and English. 

Shiny Cheng: Sometimes, the owners let us manage any problems the tenants might have. 

Matthieu David: So, the value proposition is on both sides. So, the tenant rents rental housing in China, and the owner of the apartment doesn’t have to care about anything.

Shiny Cheng: Yes. So, in the future, we can make money from both sides if they want maintenance service. 

Matthieu David: I see. I understand. In terms of client acquisition, you said you didn’t do any marketing. Actually, I went on your website and analyzed it. I used a software called SimilarWeb—I don’t know if you know it—and I found out that indeed your traffic on the website is not very high as you mentioned before. 40% of the traffic is people directly going on your website because they already know it. So, it’s not like a first acquisition. You get about 15%, which are links sending you traffic and 47% from Google by doing research. This is data from SimilarWeb. Most people who want to find roommates in China find your website through research about the online marketplace in China. So how do you find clients? Usually, before I interview people, I get a good sense of how they acquire clients. But in your case, it’s much more difficult. How do you get your clients? 

Shiny Cheng: Yeah, that’s a good question. Actually, my website is MVP. It’s not meant for getting clients at all. Because I am not a tech person, I’m still looking for a technology partner for this roommates’ platform. I didn’t find one when I started. So, I didn’t do a lot of promotion and other technology-related activities on my platform. That was my weakness. So, in the beginning, we did some promotions on some international websites in Shanghai. It’s called Smartshanghai.com. And also, I was promoting on Facebook. But actually, to be honest, I think 80% of our clients are acquired through referrals. They are neither from Smartshangai.com nor Facebook. Only 20% are acquired from online marketplaces in China. My salespeople have been at my company for eight years. So, they have many connections. And their connections introduce clients to my company. We weren’t promoting on Chinese websites, but we’ve started to promote in China. And now, so many Chinese love our apartments. Last year, we had 30% of our tenants being Chinese. But now, around 70% of people living in our apartments are Chinese. 

Matthieu David: Was it 30% last year or in the beginning?

Shiny Cheng: In the beginning, it was around 5%. The percentage of Chinese tenants in our apartments was less than 5%.

Matthieu David: So, within one year, there was an exponential increase in the percentage of Chinese tenants.

Shiny Cheng: In seven years, the number of Chinese tenants increased from 5% to 60%-70% now.

Matthieu David: I see. So young Chinese people working in Shanghai and not from Shanghai who are struggling to find apartments downtown and don’t want to live very far go to you because it’s much more convenient to share an apartment. It is safer going through you. I believe that’s also a value proposition you bring. 

Shiny Cheng: I think it’s also because the Chinese economy is improving and the salaries of young people are increasing. So, the apartments become more affordable. They want a good location, good quality, and good service in an apartment. And also, they want to find roommates in China someone who are international. 

Matthieu David: Interesting.

Shiny Cheng: I think most of my Chinese clients are also international who want to find roommates in China from other countries. Some are working with international companies. 

Matthieu David: I see. So, most of your apartments are in Jing’an which is one of the most famous districts where people want to live. It’s a very nice district but very expensive at the same time. And it’s very interesting when you say that people who want to find roommates in China from other countries—whoever they are, Chinese or non-Chinese—will tend to go to you. So, 70% of your tenants are Chinese, but you define them with an international mindset because actually, they may live with people from different countries.

Shiny Cheng: Yeah, exactly. Some Chinese told us since they had been studying in America, Europe, or Australia for four years, when they come back, it’s hard for them to have Chinese roommates. They want to find roommates in China from other countries. After studying abroad for so many years, they realize some cultural changes as well. So, the Chinese love us because of the international community. 

Matthieu David: I see. I am on your website at the same time, and I see the pictures. I feel that you made a lot of effort on pictures. Your story and what I see on the online marketplaces in China reminds me of two things. The founders of Airbnb found their first client because they advertised on Craigslist. So, let’s say they didn’t advertise on SmartShanghai.com, which is basically the same as Craigslist for foreigners here. So, they had to go through another platform to get their clients at the beginning because their platform was not very famous. That’s the first similarity I am seeing with your apartment renting business in China. The second point is that Airbnb took off when the pictures were good, bright, and beautiful. When I go on your website, I feel that you made a lot of effort on the pictures. Am I correct that you made a lot of effort on the pictures and so on to start rental housing in China? 

Shiny Cheng: Yeah. Exactly. Yeah. Every single picture is taken by a professional photographer. There are many clients who even say when they walk into the apartments; they are even more beautiful than they are in pictures. We really care about every detail. So, both the products and the pictures are good. Actually, the vacancy rate is around 4%. 

Matthieu David: The vacancy rate is around 4%. So, the occupation rate is 96%, which is extremely high. 

Shiny Cheng: It’s much higher than the average rate of around 50% in the industry. I think this is because of the quality of the apartment and photos. 

Matthieu David: To describe the apartments and the pictures I see on the website to people who are listening to us and those watching us as well, you paint the apartments in different colors as well to create more volume, I believe. The furniture is modern and a bit vintage. You have paintings and photographs on the walls. They are well-decorated with flowers. The lighting is very colorful, which makes the apartment much brighter. 

Shiny Cheng: Yeah, exactly. We really care about these details because our clients are young. They are mostly students or just working for a year or two. So, their salaries are not that high. They are probably paying half of their salaries for the rent of rental housing in China. In this industry, people don’t usually do the decoration of very good quality because that means higher costs. Because it’s a shared apartment, my clients can only afford around 4,000. If they could afford around ¥5,000, probably they would start rental housing in China to rent a single apartment. They will not rent a shared apartment. So, for us, if we improve quality, it means our profit margin will be lesser.

The owner of a popular Chinese platform even said what I am doing is very dangerous because he thinks that I spend too much money on decoration. Actually, he said, it’s quite a ridiculous industry. But now, many people in the industry are suffering. And I am very happy because I have a 96% occupancy rate. This is because of the investment I made in quality. Actually, it’s really paid off. Many people thought what I was doing wasn’t right because people were spending less on quality while I was spending more. To them, it wasn’t very healthy. Many people thought I was doing a very risky apartment renting business in China. So far, what I did has brought very good results. 

Matthieu David: And your apartment renting business in China is only in Shanghai and mainly in Jing’an. Is that correct?

Shiny Cheng: Yeah, mainly in Jing’an. It’s also in People’s Square, Xujiahui, and other places. Actually, there are many places, but 70%-80% of them are based in Jing’an. Other areas also have at least 100-200 rooms. 

Matthieu David: Got It. So now, I understand. You get a few of your clients on online marketplaces in China from third-party platforms such as smartshanghai.com and so on, but you get most of your clients through word of mouth. That’s what, at EO, we call Net Promoter Score (NPS). You have a very high Net Promoter Score. People recommend you. Right?

Shiny Cheng: Yeah, exactly. Also, we have sales.

Matthieu David: How does this work? 

Shiny Cheng: People who see the advertisements on websites come to see the apartments. Also, people who refer their friends take them to view the apartments.

Matthieu David: Okay. But these sales don’t generate new leads. It takes care of the leads, which are inbound or reaching out to you.

Shiny Cheng: No, it generates new leads. They promote our website on their social media platforms.

Matthieu David: I see. So, it’s more marketing than direct sales.

Shiny Cheng: But we don’t have much staff doing that. We have three full-time salespeople and two part-time salespeople.

Matthieu David: How many people do you have in your team? 

Shiny Cheng: They are 30 in total.

Matthieu David: 30. And you said that the main function is sales. I understand that it’s about 10%. Then you have decoration. Could you break down what the functions are in your team? 

Shiny Cheng: More than 70% of my team management in China are into product design.

Matthieu David: Product? 

Shiny Cheng: Yeah, product. I am referring to designers, project managers, and so on. Around 70% of my team is part of the product team. The marketing team makes up around just 10%. The product team makes up 70% of my team. The service team is around 30% of my team.

Matthieu David: Okay. Interesting. 

Shiny Cheng: Product comes top, followed by service, and then marketing. I am not doing a lot of marketing. Actually, I am terrible at marketing. 

Matthieu David: Before we started, you mentioned three challenges of doing business in China you are facing. One is the regulations. It will be interesting to understand why you mentioned regulations. Another one is cashflow. I think you already mentioned that. We understand why cash flow is an issue because you have to renovate before people start rental housing in China. That’s the cost, right? 

Shiny Cheng: Yeah.

Matthieu David: And the location is one as well. As far as I understand, to find the locations and maybe negotiating the contract are challenges of doing business in China as well. So, could you go more in-depth on those challenges of doing business in China?

Shiny Cheng: Location is one of the big challenges of doing business in China, especially in my industry. The economy of Shanghai is improving every year. So, people like going to Shanghai. It’s the number one destination for people from other cities. Every year, almost six million people are looking for apartments in Shanghai.

Matthieu David: Wow. So, it’s like 20%-25% of the population who are moving from one apartment to the other.

Shiny Cheng: Yeah, they are looking for apartments. People already living in Shanghai are moving apartments, and people now coming to Shanghai want to find a new apartment.  The apartment renting business in China, especially in Shanghai is very crazy. In the last three years, it’s been very easy to get investment from banks. It’s very easy to get money from investors because the market size is so huge. The needs are huge. So, many companies are coming up. Even bigger companies like Alibaba and Jindong are all investing in the apartment renting business in China. The last few years have been crazy. Generally, a lot of companies which are doing rental housing in China are coming up. So, the apartment renting business in China has been very competitive. Many rental companies are looking for good locations for apartments because the industry is very hot. 

Matthieu David: I see. So, a lot of companies are looking for the same locations. So, you have to fight to get them. That’s the challenges of doing business in China. 

Shiny Cheng: And because we are fighting for the same locations, the price keeps getting higher. I think in the last three years, prices of rental housing in China have almost doubled. When I first started doing this in Jing’ a which happens to be the best location, the rent of rental housing in China was only ¥7,000, but now it’s at least ¥15,000. So, in the last six years, it’s definitely more than doubled. This is because every year, about six million people are looking for apartments.

Matthieu David: So, the difficulty, I believe, is also to negotiate a 10-year contract because you have a 10-year contract with the owner. And you will certainly negotiate an increase in price as well. So, all those kinds of terms will be quite difficult to negotiate with as well. 

Shiny Cheng: Yeah. The owners are becoming very smart. So, they don’t want sig for ten years. Now, it’s not easy to find apartments in good locations because while we want a 10-year contract, not many owners are willing to give us such contracts. 

Matthieu David: You mentioned regulations as another challenge of doing business in China. We know that you have a very different model from Airbnb. I understand that, but you are in the same space, which is rental housing in China. Actually, you rent places that you don’t own, which I think has a similarity to Airbnb. And we know that Airbnb is facing a lot of challenges of doing business in China in terms of regulations all over the world. They are facing challenges in the US. It’s the same in Europe and, I believe, in China as well. What specifically do you face in terms of challenges of doing business in China in regulations?

Shiny Cheng: In the beginning, regulations were tough for us because we always rented a three-bedroom apartment, but there will be just one living room and a bedroom. It was not legal. But from 2013, government documents said this is legal, which makes my apartment renting business in China open to everyone. Because our quality meets Airbnb’s standards, I am thinking about reserving 20% of my apartment rooms for Airbnb business as well because Airbnb has regulation issues in China. 

Matthieu David: Because it’s short-term and there are issues with short-term, isn’t it? 

Shiny Cheng: And also, I am thinking about having a co-living hotel or building. I am thinking about having one building for that, but there are regulatory issues. It’s easier to do that in Hong Kong than in Shanghai because Hong Kong has a smaller space. However, in China, the regulations are very difficult. Even if you get a hotel, you cannot do co-living apartments inside them. Maybe you can do co-working, but you cannot do co-living. There are so many regulations. 

Matthieu David: I see. 

Shiny Cheng: I was looking for co-living buildings to invest in, but it’s so hard to find one.

Matthieu David: How do you get informed of the regulations? Do you have a lawyer with you? Do you have someone in your team management in China looking at it or you do it yourself? How do you make sure they are up-to-date and you understand them?

Shiny Cheng: We have our industry group, so we talk about this a lot. We talk about Airbnb, capsule hotels, and different co-living buildings. However, for my kind of apartment renting business in China, we have no regulatory problems. I want to do a different style of co-living, like capsule hotels. While it’s okay in Hong Kong, it isn’t in mainland China.

Matthieu David: For people listening to us, regulatory breaches can totally change the business landscape in China. Some time ago, I saw shops and restaurants closed because they were not authorized to rent out to businesses. 

Shiny Cheng: So, I think regulation is a problem for scaling up. My current apartment renting business in China is okay. Everything is okay. I want to do more businesses, but regulations are my challenges of doing business in China.

Matthieu David: When you are starting an apartment renting business in China, you need an investment. Have you gotten any investment so far?

Shiny Cheng:  I have not gotten any investment.

Matthieu David: So, you own 100% of the company.

Shiny Cheng:  Yeah, 100%. I hope I can give my shares out. It’s better to get partners. Maybe in the future, if I need a roommates’ platform, I would need investment. I would need a Chief Technology Officer (CTO), a Chief Marketing Officer (CMO), and an investor for my platform. 

Matthieu David: Maybe, some people listening to us need to reach out to you to become your CTO and CMO. Before we started, you sent a document to me, which actually summarized your challenges of doing business in China and also, what you mentioned as your failure and lesson. In your failures, you mentioned not establishing formal management processes from the start. I understand that it’s important to have processes and training, but when you start, you don’t think about it because you think about the cash flow. You want to make sure that everything is going well. So, is it really a failure from the start? Is it not a failure when you develop it or when you move from 100 to 200 to 300 rooms? 

Shiny Cheng: I started my apartment renting business in China at 23, and I didn’t have any management skills from my university. I was studying Mandarin.

Matthieu David: You studied in Hainan, right. You studied on the island of Hainan, as far as I understand. You taught Chinese in Shanghai. You started as a Chinese teacher.

Shiny Cheng:  Yes, I started as a Chinese teacher. So, I had been a Chinese teacher for one year. It was my job. So, I didn’t have any entrepreneurship skills, but I wanted to be an entrepreneur while I was at university. I didn’t want to teach. In the University, I always dreamed of being an entrepreneur. So, after university, even when I was a teacher, I was into sales. I was looking for an opportunity to be an entrepreneur. Then I found this opportunity. So, I always wanted to be an entrepreneur, but I didn’t have this kind of skill. I didn’t learn it in school. So, I learned it from my experience. In the first three to four years, people were quitting. There were factions within the team management in China, and people were talking behind each other.

My team management in China was a mess. The culture was not good. The company process was a mess. We didn’t have many SOPs. So, I joined the Entrepreneur Organisation (EO). And then, I met many entrepreneurs. Some had 10 years of experience. Some even had more than 10 years of experience. They were very professional entrepreneurs who were very successful at what they did. So, they shared their management skills and knowledge, and I learned from them. Also, the whole E.O set-up is pretty amazing. I got a lot of training from EO, so I became very, very professional. Then, I started to establish my company culture. These are core values, mission, and vision of my company. I created the environment for my company. And then, I created many SOPs for the management of my company. 

Matthieu David: What do you mean by SOP? I am not sure everyone understands what SOP means. 

Shiny Cheng: It’s the process for each department. So, I learned it from experience and practice. So, now, everything is going in the right direction. 

Matthieu David: Who were the first people that you hired? You said that it was a mess in the first three years. Which functions did you hire first during the first two years? What did you hire them for? Did you hire them to decorate? Did you hire them to take the pictures? For what functions did you hire your salespeople? 

Shiny Cheng: Salespeople like the designer, project manager, and the QC. 

Matthieu David: Quality Control? 

Shiny Cheng: Yeah, Quality Control.  I also hired a finance team, service team, cleaners, handymen, and workmen. So, these were the people I hired, but I am not good at management. 

Matthieu David: How do you assess you are not good at team management in China? 

Shiny Cheng: Because people were quitting and always leaving. This is because the culture of the company was very negative.

Shiny Cheng: They were talking behind each other and complaining. I didn’t hire the right people. Also, the company process was not very organized. Actually, it’s my fault. Everything was my fault because I was not good at managing. In the beginning, I was working from 5 a.m. to 11 p.m. every day. Everything depended on me, and I didn’t know team management in China. So, I fired the whole team management in China, leaving only one person. 

Matthieu David: Really? Did you fire everyone except just one person? 

Shiny Cheng: Yes, because there was so much negative talk amongst them. So, I fired the whole team management in China.

Matthieu David: When was it?  

Shiny Cheng: Four years ago. 

Matthieu David: Just before you join EO?

Shiny Cheng: Before joining EO. Later on, after that, I joined the EO. I think it’s very good timing. And then, I started my new team management in China and chose people who had the same values as my company. I chose them very carefully. So, I hired very slowly and fired very fast. If I found they weren’t very good, I fired them very fast. When hiring people, I pay much attention to their values and attitude. I wasn’t paying that much attention to values and attitude earlier. After values and attitude, I look at their skills and experience or performance.  

Matthieu David: Interesting. 

Shiny Cheng: I also go to many places to learn. I visit the US and many other countries to learn more about entrepreneurship and management. 

Matthieu David: Where did you go?

Shiny Cheng: I just went to Malaysia for a master class. 

Matthieu David: With EO? 

Shiny Cheng: Yeah, EO as well. Yeah, I have had a lot of training from EO, but I still need to practice more.

Matthieu David: I see. You said the biggest lesson is building culture and vision. You have already talked a little bit about it. Building culture and vision is the most significant change for my company. How did you build that? It’s very easy to wake up each morning and say “This is my vision and my culture,” but it should relate to what your company really is. So how did you build it? Did you build it because it’s what you want to be in 10 years, or it’s the mindset of your team management in China, or it’s because of your own personality? How did you build this culture and vision? How did you define it? So, the key question here is how you defined it. 

Shiny Cheng: It’s a very good question. In the beginning, I chose around 3-4 key people in my team management in China, and then we had a meeting together where we worked on the mission, values, and core values of the company. And then I ask the members in team management in China questions like why they joined the company and why they are doing what they are doing every day. So, I will ask them these kinds of questions. Also, I will ask them what’s standing in the way of their success and how they plan to reach this success. So, these are the kind of questions I ask my groups. When they answer these questions, we are then able to define why they are working in the company. For example, if someone is working because they want to share the warmth and love, we get to know the personality of that person beyond apartment renting business in China. Through this, not only are we able to know about their brains but their hearts as well. We are working because we want to share love and warmth. So, we define our mission as sharing love and warmth. 

Matthieu David: I understand that. But did you find that it was a common point with all of them or you had very diverse answers? Were the answers similar or they were very diverse, and you had to re-work several times on the values?

Shiny Cheng: It’s called a strategy summit. We hold this meeting every year. Every year, we review our culture and plan for the culture and goal of the following year. Our first core value is gratitude. The second one is proactiveness. The third is to be first before any. So, these are our core values. Thirst for learning is also one of our core values. On Mondays from 9 am to 11 am, we dedicate that time for reading and sharing only. So, we’re really working on our values, and the people can feel that. So, when new staff joins, they can feel the culture. 

Matthieu David: Do you do the Monday gatherings with the entire team management in China or it’s in small groups? 

Shiny Cheng: Entire team management in China, but we divide them into different groups.

Matthieu David: You divide them into different groups, right? Okay. 

Shiny Cheng: Yeah, we divide them into three groups, which are the marketing, product, and service groups. They will then share the reading.

Matthieu David: I see. So, do you have books you suggest? Are they business books or novels?

Shiny Cheng: It could be any book, but they are mostly professional books and also business development books. The manager or any staff can also recommend a book. Sometimes, we also watch a video or listen to the audio. We don’t always read books. 

Matthieu David: There’s one question I realize I didn’t ask you about the business model. What kind of contract do you sign with your clients? Is it the same as a typical lease contract in China? Do you pay one month’s deposit and then you pay for rental housing in China every three months? Do you have another system for them? 

Shiny Cheng: Usually, they pay one year. The second one is they pay 1.5 deposit and one month rent for per rental housing in China.

Matthieu David: So, they pay month by month, right? Three months by three months. 

Shiny Cheng: Yes, every three months. 

Matthieu David: I see. So, you have a little bit of cash flow issue on these payment terms. It’s not only about decoration. It’s also about the cash in and cashes out you have. But because the deposit is 1.5 months and you need to pay for the first month, you need three months. So, it’s 2.5 versus three months. So, you still lower the cash flow issue a bit with this deposit. I see. I understand. 

Also, you talked to me about your life motto. I’d really be happy if you could talk more about it. Could you explain to us further what your life motto is? It seems that you have invested a lot of energy, time, and thinking in your vision, values, and life motto. So, I’m pretty sure there is a lot behind this. Could you tell us more?

Shiny Cheng: I think this is very powerful. Energy is very powerful because when I was in university, I dreamt about my life today. This was my dream at the university. I grew up in a small village in China. 

Matthieu David: Where? 

Shiny Cheng: Gansu Province. There is a city called Lintan. After Lintan, there is a smaller city called Heshui. After Heshui comes to a small village which happens to be my hometown, it was very poor when I was living there. My whole family was very poor. Also, my parents left me when I was a child because my father didn’t want to take the responsibility of raising me. He gave me to my grandmother because my mother died when I was 10 months old. My father then married a new wife, and they left me. They almost didn’t take any responsibility towards me. My grandmother was also very poor. For one year, I didn’t have even have fruits. Buying milk and fruits then was very expensive. So, when I was a student in my hometown, I used to watch people who could afford fruits, milk, and everything else and I wanted to be like them. I still remember when my grandmother takes me to the city, and we would take the train. On the train, I was always the kid who couldn’t pay for the ticket, so my grandmother had to put me underneath her seat. All this while, I was watching other children who enjoyed time with their families. They could have snacks anytime they wanted.

During that time, I wanted to have all those, but I couldn’t get anything. It was terrible. And it is for this reason that I really wanted to be an entrepreneur. I really wanted to get what I needed. I felt without. Even in school, I was the poorest. Amongst my classmates, the money I got every month was the lowest. So, I felt very ashamed at that time. So, when I was at university, I already had my dream. I was super certain about my dream of being an entrepreneur. Maybe, I could be a teacher or anything else, but I was 100% sure I wanted to be an entrepreneur. And actually, it’s happening now. I travel around the world. I am free. I can do more apartment renting business in China. There are more opportunities in the future. Comparing then to now, it’s totally different. This is what I imagined when I was a child and also at the university. So, energy is a very powerful thing. 

Matthieu David: Do you think your experience as a child living with very little still influences your decision-making? Do you think it influences you as well as not to take any investment but to stay independent and manage cash flow? Do you think it actually influenced positively your way of growing the company? Let me share my experience with you. In my case, I went to middle school in a somewhat deprived area. It enabled me to love people. When I was a student, I was teaching people from those deprived areas to be to gain admission to famous schools. That had a positive impact on my life because I was more generous. And I feel that, actually, that’s what you just said as well. In terms of management, do you think your childhood experience is still influencing you? 

Shiny Cheng: Exactly. Every single time. Every second. Yeah. I think that’s also why I am what I am now. My past shaped my present. I’m very ambitious. I want to do more apartment renting business in China. I’ve always wanted to be number one in my industry. I want to be the best. I don’t want to stop. I’ve always hungry for learning and more opportunities. This is because I was very needy during my childhood. Sometimes, I am also insecure. That’s why you said I don’t want investment. I don’t want to rely on someone. I always want to be in control. I am afraid of losing control when there is an investment. So, I think my childhood somewhat influenced this. I am 31 now. Before turning 30, I was always needy. But now, I feel like, actually, love doesn’t come from what I want. Love comes from what I am giving. So now, actually, I have started to change my mindset. I should embrace and accept myself. The most important thing, in the beginning, is giving to people. In my co-living apartments, I really want to give value first and then get the money back. But now, I am practicing more and more of this in my life. Also, I do Yoga and other spiritual activities. I do meditation, as well. So now, I’m starting to learn how to give back. 

Matthieu David: What are the next steps for Shinijia and also, yourself?

Shiny Cheng: Next step? A roommates’ platform for finding roommates in China. I have always wanted a platform. It’s very challenging for me. I find technology very interesting. I am learning. I’ve started to learn it. I am also looking at more real estate investments. I have also invested in a small coffee company. I also want to join a startup group. I want to learn how to invest. I would like to invest in some small, innovative, and interesting companies. Yeah. 

Matthieu David: I see. Congratulations. I’m very, very impressed. I didn’t know as much of your apartment renting business in China that I do now. I am very impressed by what you did, your personality, and your company. I hope I can interview many more Chinese entrepreneurs like you. I really enjoyed the talk, and I think a lot of people did enjoy it as well. 

Shiny Cheng: My voice is not very good. 

Matthieu David: The content is perfect. The content is very interesting. 

Shiny Cheng: Yeah, I hope you guys can understand my poor English. My Chinglish, actually. 

Matthieu David: That’s a great interview. Thank you very much. I hope everyone enjoyed the talk. Bye-bye, everyone.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

Do not hesitate to reach out our project managers at dx@daxue-consulting.com to get all answers to your questions

This article Podcast transcript #50: Behind the scenes of an apartment renting business in China is the first one to appear on Daxue Consulting - Market Research China.

• 1:24 The size of the business and what’s the difference between Cushman in China and in the west
• 5:31 Can a foreign player easily buy buildings in China
• 9:32 How does the company choose the locations in China
• 14:38 How much it would cost for the technology for evaluation of a location
• 18:23 The cycle of retail in China offline
• 24:25 The insights of breakdowns of economies of shops
• 27:57 Price to expect to get a location in China
• 32:45 What is the second cost for shops
• 36:47 Technology links to the client end and the trends in Technology in real estate, retail and offices
• 44:37 Is displaying in the shop, buy online and deliver online the future of retail?
• 48:30 What is currently really working for the “New Retail”
• 54:40 Technology is really changing the game in every segment
• 1:00:45 Trends in sharing economy like co-living, co-working and pop-up shops
• 1:03:49 Is pop-up business real business now
• 1:05:47 Will Cushman & Wakefield work on pop-up shops
• 1:10:50 An interesting story about promotion

 Who is disrupting China’s retail industry now?

One relevant episode

We believe, that China, with 20% of world population and as the second world economy, is impacting every single business, small to big. That is why it is a new paradigm. How does China impact your business is the ultimate question we will answer through those podcasts.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

This article China Paradigm 52: Choosing the right commercial property and real estate in China is the first one to appear on Daxue Consulting - Market Research China.

• 1:45 What’s the size of the business
• 7:15 The business model of Shinijia
• 8:57 How much does the company charge for commissions from renters
• 10:50 What service does the company provide and its value proposition
• 13:35 How does the company get its clients
• 25:12 The breakdown of the function of the team
• 26:36 Challenges the company faces
• 30:50 What specific challenges does the company face in terms of regulations
• 37:58 How to learn from the failure at the beginning phase of the business
• 39:56 The functions of the first person the CEO hired
• 40:39 How does the CEO assess good management
• 43:43 How to build, define vision and culture
• 49:26 What kind of contract does the company sign with their clients
• 50:35 The life motto and the personal life experience of the CEO
• 58:31 The next step for Shinijia and the CEO herself

 Chinese rental housing market, a more complicated market than it seems

One relevant episode

We believe, that China, with 20% of world population and as the second world economy, is impacting every single business, small to big. That is why it is a new paradigm. How does China impact your business is the ultimate question we will answer through those podcasts.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

This article China Paradigm 50: How to start an international co-living apartment renting business in China is the first one to appear on Daxue Consulting - Market Research China.

Matthieu David: Hi Everyone, I’m Matthieu David, and I’m running this China marketing podcast, China paradigm. I’m learning today with J.X. Paulin. J.X has been in China for 25 years. If I calculate right since 1992 and you have been funding the company DBX in interior design, with about…. What’s the number like 250,000 square meters delivered over the last 12 years, and DBX according to your website was founded in 1958. So you have to explain something on that because you don’t seem that old. I’d like to run this interview and to understand better about what it is about starting a business in China, especially when you have been in China since 1992.

Very few foreigners were in China at the time, three years back from 1992, a lot of foreigners traveled to China, and also I discovered that you had a lot to teach us. You came to my office like I thought a month ago, and I thought I knew what you were doing. I thought I knew what you did before, and then so much more. I found out that you have several expenses, several lives in China, which are very intense and I got you on the phone recently for my own office because I needed advice, and I was amazed by your ability to find the right way of talking to me. Welcome to the show J.X and thanks for participating in this China Business podcast!

J.X. Paulin: Thanks for having me here. Actually you were not right on the date. Let me put it this way. First the history of DBX International, the full story is related to my family. My grandad was in construction, my mom was in construction and back in the days you had company, and they were doing construction and architecture. My mom came to China in 92, for a project, and then she basically she let me come to China in 94. Okay. Myself I came in 94, and basically I was not interested in running any kind of architecture or any kind of construction business. As you mentioned, I had many lives. I worked in an entertainment business, managing the biggest club in Shanghai, back in the days, was a fantastic experience. I’ve seen things that few foreigners have seen and few Chinese have seen, and it was a great time, and then I moved to consulting, marketing consulting and management consulting, as you see that was my strong point. Then I became a chief representative for a French company that was also into the market entry for French small enterprises based in western France, and then in 2002, I was offered a position in the top three design and build company in Shanghai. And honestly, I moved in because he wanted a deputy general manager, and I was put in management. I moved in, and I get called by, I would say my family spirits ago, in 2004 and I have to go before I created DBX International.

What my mom said, “Listen, you know what, we going to buy your business back with my partner, I would name your name, and it turned out that we didn’t even use our money, so we created this, but it was important for the Chinese to understand that this company was not just created in 2004, 2005, it was important to say, “Okay” then again, when you come to our new work site now that we have 12 years history, I don’t see you have any mention of it.

Matthieu David: Okay. Yes I went through the website through Linkedin so that I could find, and yes it was 1958, which is surprising and yes, can help to begin the conversation, so, interesting point, so why did you leverage from your most rental assets? Was it purely for branding to other Chinese clients or did you leverage something?

J.X. Paulin: It was purely branding to our Chinese clients, we didn’t use any assets basically, because it was not adapted to change market. That’s it. We really started a business in China with my partner, my Chinese partner, carrying your bags, and you’re around meetings, and luckily for me, I had a good network at the time of recent agent. I had a good network of clients, so we started the company in China with our clients already. Many clients follow me, and that’s it. But when we met a new client, new Chinese client, it was important for them to think that okay, we didn’t just pop up on the marketplace. So, it was in a way to reassure them.

Matthieu David: Okay, I usually begin with a question about the size of a company and metrics on the company. What was the metric actually to be founded in 1958, so can you share with us some metrics about company like the turnover, the number of people, a number of projects, I get when you review some of the guideline, 250,000 square meters delivered about 15 designers, and 100 workers, if the numbers are still correct on the website. Could you give us numbers of revenues first?

J.X. Paulin: Okay. So, basically the numbers are still correct. What we did is, when I worked before in the previous company called CTN, when I was a deputy general manager, this company was huge. We had 200 full-time workers. We had 70 staff, and when I created DBX International, when I found my Chinese partner, and we told ourselves, “Listen, we’ll never be that big because it was just not logical to be that big. We have a different way of managing people. The most important thing was to ensure the clients quality and design quality. So, we had a tight team of designers like special forces. Each designer could do everything, from concept, to design, to trading, to photos of each site, each project, and we build on this kind of management. We had a team of 15 employees at the most. Some years, we have 8, 10, 15, and then what we had, we had hundreds of workers, sometimes, even more, working for us. So the beauty of it was because we were busy, because we had good business, and we still have, they were not on the payroll, but they were only mainly doing a project.

So that allows us to basically have more revenue in terms of net profits instead of my own old companies that were just like that’s what going on there, like 200 employees onto the workers. So what we did in 2008, we did our best year. We did 6 million US dollars, and we look at it for 15 seconds. It was like we manage our team; it was really internal controls. So, each designer had its own freedom of doing the project. Of course, I was the one who led the project, but he had his own freedom. He could do within a certain time frame, but he could basically go on site or go and have a coffee with friends, but as long as the job was done, it was great.

Matthieu David: Okay, I see. You were founded in 2004 and five years after you reached 60 million US revenues.

J.X. Paulin: We almost double our turnover issue. It was great. 2005 we did great, 2006 good, 2007 was good, 2008 was the peak. We took heat during the financial crisis like everyone, but even though we only felt the heat until 2010, and because we diversify, we went into a light industrial project. DBX was mainly built to answer office demand. Office designer demand, and then what I did is go into light industrial, so it’s 10,000 square meter project, and then, of course, I expanded into Africa.

Matthieu David: Okay. We will go back on Africa. First, I’m very interested to understand the beginning because I always felt that it’s very rare to a foreigner involve in a real estate business in China. I feel it’s a very local business for every country; it’s very local for every country should local players into real estate, into this managing workers, right. One of the workers, well, suddenly don’t speak a word in English or may have the first foreigners in the industry. How did you manage it? What were the difficulties? How did you find difficulties? Or it was pretty easy for you? Could you tell us more about it?

J.X. Paulin: Well, first of all, you do have foreigners for any industry, China. There were plenty of foreigners in 2014; I would say you had a princess of real estate. For instance, you have guys who were really famous in doing this job, all these great guys who are in real estate businesses in Shanghai, Anthony Cos, etc. Anthony Cos is a managing director. This guy work in real estate. Now, when it comes to design and built, and as you mentioned construction, you indeed a few foreigners, a few Westerners in this field. We have Singaporean, we have Hongkonese of course, maybe, but we have few foreigners. Back in 2003. I went through a course in law and safety. It was mandatory for occupying my position to do it, and I was indeed the only foreigner, only westerners in this course of 40 people. We had Singaporean, we had Hongkonese, so we’re owners or PN, but I was the only westerner, taking Chinese course on the law and safety. As I had a previous background in a diverse industry, managing workers was not a shock. It was just like, interesting, challenging, and once again I had a good project manager with me for many years, and he was doing the management, I was managing him, and he was managing the rest. It was great years. The biggest challenge for me was to ensure the quality of the clients. That’s the integrity of the brand and the integrity of the project. That’s it.

Matthieu David: So, how would you ensure it?

J.X. Paulin: Being there every day on site! No, what happens is that, when you manage workers, when you work on site, at the end of the day you have to be on site, because for any construction worker, you’re telling, “Oh, you doing a project for Microsoft.” Who doesn’t know Microsoft? So the only ways he understands that this project is important for the company if he or she sees his boss on site, that’s it. You have a commitment toward your company, you have a commitment towards your clients, to be on site, and to show the workers “You know what? You have to care about it because I care about,”. It’s okay, right in the morning, I would time my team meeting with my staff, working as a project, looking at the critical line, what happened, what might happen, and meet some suppliers, some real estate agent, and during the afternoon, taking my car, traveling around Shanghai, and just like visiting sites.

Matthieu David: You mentioned timing. You mentioned like the availability to visit sites and to be, I would say a bit intense on work. I think that’s what you want to convey on the website; the contact form is saying that you are available until 6:00 PM and more if needed, I know we can if needed. Is it part of what you sell? The constant, constant availability and that you’re very intense on the product.

J.X. Paulin: Well, it is. I don’t think China is so challenging. It’s a market that is still changing. I don’t think that you can succeed if you’re not available for your clients, period. You have to, especially back in the days when the real estate was at its peak. We had no weekends. You have to answer a pitch, you have to answer on Monday, and it’s given to you on Friday. You’ll have to work during the weekend. I don’t think we can consider a weekend. It’s more project based. That’s a way I trained my team, to see this. It’s project based. It’s not time-based. It’s not a job from nine to six. We have a mission to complete. We have a project to complete, and that’s it. So, basically, if it requires us to come on Sunday, we’ll come on Sunday if it requires us to wake up at 9.

Matthieu David: So, to come back at what DBX is doing, you are not looking for office space, so I have to find a reason that, that was for the office space. Once I found that in the office space or different office spaces I like, then I go to you and I ask you if you can design it and again, what I found out in your book on the website, in your sales process, is that you are offering your free consultation.

The free consultation consist in: I provide to you the information for you to give us advice on how to organize a place or if it’s a good place for us or not, and then I can sign the lease, because if you’re confident that you can do the work and you can rearrange it, and with the price you would have given to me. Is it what you do in terms of the sales process and then once we signed with you, you’ll take in charge of construction, or even take in charge the phone lines and so on. When did you stop? You don’t help people find the office, and then you keep the key to your clients to use the office on their one redesign then, right? Am I correct? Can you tell us more about what does it take? When did you stop your services, until where it goes?

J.X. Paulin: Well, basically it’s like I have been North in China for 23 years and having a company for 40 years. Basically, when do we stop? We stopped basically when typically it’s, as you mentioned, it’s when you have the location, then you contact us. What we could do and what we do often is, once you think about moving out, you better call us. Why? Because honestly, you have, a few business owners have a clear idea of how much space you really need. Okay, first of all. Do we have to think about what is the new workplace strategy that you need to apply? How you need to seek your business in the next five years, that’s what you used to see before. And then again, of course, because we had a really good knowledge of each building in Shanghai, we can tell you okay, you can go to these firms, the rent might be cheaper, but in fact you might face a more expensive price of fitting out or more specific cost of renovating the air conditioner for instance. So, that’s the thing.

We really come as a consultant on this part, but we do not want to step on the real estate in China or the agent footstep, but we come here to tell you, ‘you know what, we don’t really care where you’re going, we just tell you’… Because we’ve got so many projects in grade A, grade B, grade B- and super great offices. We also know what you are in terms of industry and what maybe you should look at. We also understand what the new employees, what’s the willingness of them,  , because, at the end of the day, we also want to design a place for them. We said, basically Matthew, ‘okay, your team will need more space, more ceiling, you might want to come closer to the subway to forget about grade A, think of grade B, but because you will have fewer costs when it comes to renovating, or change the air conditioning, blah blah blah. We design, we fill out, and we put everything we have, we do order fire, air conditioning, IT installation, security, furniture, of course, plantation. We also help you with your move basically, and when we’re done, we give you a budget. It’s a bit of a plug and play.

Matthieu David: Okay. I see, and you know all the regulations for fire, you know all the regulations you have to comply to. I understand. What is Fill out by the way, on your website? What do you mean?

J.X. Paulin: Basically, what we do when we call to fill out if you know this, we take a bear show, like a concrete bear showplace and we build the interior. We have plenty of carpets, so we built a wall, the seating, the lights, that’s what we call Fill Out.

Matthieu David: I see. Could you give a case you’re on, especially, you think would be very interesting for people listening to us to, that could help them understand your business and how maybe some of the challenges is that some of the clients may have faced, so a case study that would be an example to visualize.

J.X. Paulin: We have many cases. The first one will be for the same time you’re working, what we could secure environments, for example, the locals of the French consulate in Shanghai, and we have been working with them for six years. It’s hard to create a secure environment, and of course, it comes to requirements. That was interesting; we work with of course the French chamber of commerce, we’ve been there to support the design since 2006 until now. With the French chamber of commerce, what happened? For instance, I don’t remember when I think it was 2012. When the director of the French chamber of commerce in Shanghai they had some problems of water with the neighbor upstairs.

Basically, it was a 1,400 centimeters water problem. When you send me first. Generally, we sit down with them, we just talk about how we’re going to do? How long would it take us? How we can come out to meet the space so people can still work when we renovate the space, and this is what we do. Okay. I like to say that DBX international is a bespoke designer and built. We were never built to be like a mother, but what we do is that bespoke tailor. We design and build spaces that fits you, and it’s the same. Any kind of requirements. When we get fact to read at the same, when you come to see us to suit factories, we’ll not say, “Let’s see how much money you’re going to make.” We’re going to sit down and say, “Okay, let’s see what is practical? What should we do? What shouldn’t you do? Unless I think is the best practice. What is your budget? Let’s work around your budget, to make sure that you can operate.

Matthieu David: Yeah, I saw on your website, you mentioned your budget in China. You mentioned your budget is unique, which is a surprising, interesting way to mention that actually you can indeed find something which can fit within the budget of your clients. Okay, I understand.

J.X. Paulin: Let me come back to this. When I say the budget is unique and it’s true. Your budget at Daxue Consulting will never be the same as all the Bank of Rothschild. That’s the thing, but our job is to make sure that we cut up to your business, we give you the best of what you can afford, and if we cannot, we don’t want you to be sorry for it. It’s okay. We want you and your team to be comfortable to have such well-being and to operate perfectly in your space, and when we say that each project is unique, that’s real.

Matthieu David: Yeah. Interesting, can you tell us more about your association with your Chinese? We have seen in China a lot of companies failing because of partnership or misunderstanding because of partnership. I can’t really state when you look at the hotels which cannot own the building, that can only manage it. There are always some tensions between the guy who owns the building and the guy who manage the building; I guess real estate in China has been an example of failing partnerships. It depends. We just picked up real estate as a big industry. Could you tell us more about how you make successful, about finding a Chinese partner?

J.X. Paulin: It’s something really interesting because many people will know when I meet people and say, “Oh, you know, when you work with Chinese, you have to send the contract. You have to make sure blah, blah, blah.” I started DBX out of a handshake with my Chinese business partner. You just shook hand and you know we’re going to work for 10 years or more, and we’re going to create what we become: top one design brief French company for real estate, and we, from the beginning, really split our role, she was in charge of the finance and she was in charge of making sure that we have the best price for a supplier, and I was in charge of the rest: operation, design, construction, quotation, and everything. It made the work so easily. It also was like, we had no issue, no legal issue, or whatever because we were working towards the same goal. Look, right, because it made a solution.

Matthieu David: How did you meet, how did you find your Chinese partner, because, you did that on a handshake?

J.X. Paulin: Yeah. Basically, we’ve met at a Chinese company. We met working together for a previous owner.

Matthieu David: Okay, and when you were working together? What did the person that you had, you enjoyed the most working with? Was it a person you trusted most? Was, is a person who actually you felt was the most ambitious? What made you think she was the right partner?

J.X. Paulin: What makes me think she was the right partner actually, before that, nothing. I mean, she was the one convincing toward to open DBX.

Matthieu David: I understand. Your revenues, so you were basically so involved in the company before that you knew everything about this company, you were managing it, and she saw you as the one who could bring business, and she doesn’t know how to bring business, but she knows how to manage it. So, then she thought it was complimentary, and she told you as a local Chinese that we dream of let’s start a business in China. How is it in the type of structure? That’s something which is very often asked. I mean, is it purely Chinese company against the State? I’ve got to be a lot of workers, how is it organized?

J.X. Paulin: They’re a purely Chinese company.

Matthieu David: Okay. So, you trusted her that she would meet your agreement?

J.X. Paulin: Yeah.

Matthieu David: Okay, for people who are very aware of this, you had in China differences between Chinese Equity company, foreign equity company, and when both of them are now emerging, it’s called a joint venture, and it’s got a bigger work. And some industries are forbidden like foreign businesses in China. Aren’t you into a design firm, right? Could you have started it on your own?

J.X. Paulin: No, we couldn’t have. We could have started the new design firm only but not in construction.

Matthieu David: I see, and you didn’t think about having two businesses?

J.X. Paulin: No. Honestly, we get caught into action. We started really fast, and believe me though when you’re busy building your business, you’re never really busy release your paperwork. And you have to keep in mind something, and that’s something that I advise I give anybody that wants to start a business in China, finding a Chinese partner. What you have to make sure, you have to make sure that at the end of the month or end of two months, you don’t leave too much money on the bank account, because at the end of the quotation moves your partnership. That is safe, but when you have nothing to steal from, not that much money on the bank account, that will be of course, if you had like, or if you had 10 million running on the bank account something might happen.

Matthieu David: Okay. Okay. So, you are not the owner of the company a bit like other people who buy shares of Baidu on the Nasdaq actually they don’t want the company in China because the from the default, for education and teaching is operator for foreigners, because they just own the contract which started VIP and that’s what you did, but you have some way balance of power. It’s more like checks and balances, and the company can run without you, or there is a deal between your two partners. Did you sleep well?

J.X. Paulin: Yes, I did. You know, basically, we have to put everything into perspective. I was the one who owns maybe 85% of all businesses, so I agree with that if something would occur, I could leave the company and open one with an ex-associate and still make money, so, it was not an issue. Now, you have to be confident on what you have and to make sure once again that you don’t leave that much money on the bank account, on the company bank account. Otherwise, you might end up with nightmares. But once again my Chinese partner was really trustworthy. You have to work your way. Of course, we had clashes. We disagreed. We are like brothers and sisters, and that’s it. That we run the company together, and we headstrong, we’re stressing. That’s life.

Matthieu David: You were speaking to each other in English or Chinese right away?

J.X. Paulin: Chinese.

Matthieu David: Okay. You’re not afraid to misunderstand things from her, to misunderstand things, to over-interpret your Chinese was good enough, or you couldn’t understand fine what she was saying and not be scared to misunderstand. Because some aspects may be very technical, right. Like payment terms, like construction, the risk to maintain part of the construction, insurance and so on and maybe technical.

J.X. Paulin: You have to remember that I moved to China in 94. At that time, few Chinese spoke English or French, so I had to speak Chinese. I had to learn Chinese. And in my first job when I was working in business, no staff was speaking English, so my Chinese was still back in the early ‘99, you see I was dreaming in Chinese already. So I’ve always been working in a purely Chinese environment because the only people that I spoke in English were my foreign workers.

Matthieu: Okay. You learn Chinese on your own, or you took the classes?

J.X. Paulin: I went to university and then after that masters.

Matthieu David: Three months and then after on your own. Okay. You’re not typing, right?

J.X. Paulin: I speak, and I type, yeah.

Matthieu David: That’s more difficult to write, okay. I understand. So, I went on your website and looked at the code and see if you were using digital tools to get clients and so on. I’ve seen some interesting tools you’re using that optimize your website. You have a Facebook pixel, but I don’t see a lot of what you’re doing online. How do you get your clients? I get this stuff online, maybe offline, right.

J.X. Paulin: I must admit that on DBX, we aren’t big on digital, why? Because we are already into the Chinese market, and it’s more like a referral. Real estate marketing in China works like that. People will give us a referral. Like you, if I go to your office, Matthieu, you’re going to introduce me to somebody else. We’ve only worked with real estate agents; we work with lawyers. We could use of course internet digital tools to drive more clients. To drive more traffic to our site, because then the game we’re doing it abroad would not make sense. We have to do it for China, on Baidu and everything, and I don’t see it will create more traffic because, at the end of the day, this is really a training square of syncing like you always say. So, like, let’s see if I call your director of human resource and start giving a DBX International if I”d say that okay, I’ve been introduced by a friend. Okay, that’s it — the funny thing, more men that we had barely go and seen our website.

Matthieu David: Okay. I thought you are using your website as a brochure; you can send to them? This is what our work cases are. This is what we did before, but no actually, it’s with email, not with paper. Okay. I understand. I think you are a very social person. Did you learn that somewhere? Or did you just like practicing, and because of your business needed you to be or it’s your character?

J.X. Paulin: I think it’s a character.

Matthieu David: Because some people have to learn about it. Learning about negotiation, learning how to behave with people, reading a lot of books actually written mainly by American authors about how to behave and so on and they have patterns, the same patterns. Have you find some patterns on how to convert a referral you get. Do you have a set process of following? Or is it on intuition and feeling during meetings?

J.X. Paulin: I will not say intuition, it’s just what we say, it’s everyone trial. Of course, we have to have some behavior analytics and to analyze behavior and with that being said, I will always tell my team, “Okay, this is what I’ve done. It hasn’t worked, but maybe work on you.” Means that nothing is covered installed. That when they are free to try something else, but of course when you look at how we approach clients, nothing is systematic, how we do, how to win the applause or maybe present things, when you do presentation, the order of the slide, when you want to show it’s based on human behavior.

Matthieu David: You’re saying it’s not systematic. You have not systematized too much of business. Even the approach of client, you’re going to prepare for specific clients, specific foundation, like what you’re telling me, right?

J.X. Paulin: Yeah, because each client is different. We work with great names. Basically, it doesn’t care to go, that you want to run a big real estate company in China. Doesn’t care that you’re not the greater, the bigger firm in China. What he wants to see if you’ve done some luxury brand before, period, and so, that still we have to work on a different approach. We have to show them different things.

What is systematic is what we show to the client, the approach. It’s going to be based on these requirements on this DNA, and his industry DNA, or even on where or he or she comes from. Because once again, if I meet an American and tell you, “Oh, we found a French consultancy.” Okay, good, go on, but if I tell you, “oh, you know, it’s been the biggest real estate, industrial real estate in the US, you would say, “Oh, great.” I have this example. Once I was at the gym, and I was talking to a guy coming from Singapore, and we were talking and I said I work for design and build firms. “Which one is it?” I say, “DBX,.” He didn’t know. We’ve done Air France, we’ve done Blah, blah, blah, and I’ve tried to really call which Korean company we’ve done, I say, “Oh, we’ve done PSA.” PSA, Singapore, Port Authority. Huge, and then again look at me saying“Wow, you must be so good.” Because it was like, to me it was a small three harvest a project where that, but for the Singaporean guy, it was like a name and we’ve done many Singapore company, like a huge name, like we’ve done NCS, whatever, but each if you’re attending to a French guy or a French lady, she will ring a bell, but to a Singaporean it was like, “Wow, you must be so good at this.”

Matthieu David: Sure. It’s a cultural understanding. It’s contextualization. You contextualize the speech for each client. I see, but is it your team can do it, or you are the one who does a lot?

J.X. Paulin: They can do. I’ve learned this approach even in China as I say when you do a product for Microsoft or Apple, and the worker doesn’t care. You have to build into the basic, to make it more understanding, become understand into our own concept, and once you applied, assume you need to apply in many aspects when you meet people, to make people understand. And so once you teach your team to do it, they can do it perfectly. It’s normal.

Matthieu David: Okay, because I see a lot of businesses in China which rely a lot on the founders, the founder of the founders, and I feel that dealing with your clients is a lot about a memory about the past, all right? I thought that the best person who could talk about the best project it’s yourself, so that was my question about. Have you found a way that your team can talk about the project you did before or you still have to supervise and mentioned civil product? Are you work still on projects?

J.X. Paulin: I have to be in town, when it comes to concept, or managing big projects or managing complex projects, because you see a profession gets better with age, when you’re an architect or interior designer, consultant, we get better with age, because we’ve seen so many things. We can basically say, “You know what, don’t do this because you’ll have more impact on this one.” We can– When I see a layout, I can tell you, “Okay, well you shouldn’t do it because this doesn’t make sense,” because I can project your company in five years time, so to say, and it takes experience to do so, not because I was the greatest architect, I’m the greatest, I’m the smartest man in our earth, it’s just because I’ve done so many projects before, so it continues and actually in the next five years, you’ll see a lot more like this, even in the next two years.

Matthieu David: Yeah, the projects. That’s why it’s the value of the company is yourself. It’s sometimes difficult to disconnect value of your company and the value of yourself, and that’s something you wanted to, to disconnect the fact, yours and self because you’ve got into the company so they can sometimes go, right? So, is it the case?

J.X. Paulin: Yeah. Yes, it is, but as soon as you make some compromise. You know as I told you, I ventured to Africa in 2010, and some things that time I stopped to try more and more, and my business took a hit in China because I was no longer more important, but you see, I believe in putting my team into the dirt were like, “You know what? You have to be able to handle this challenge.” I’m going to give you this; I’m going to try to tell me this is like not, and do it. In China, there’s a lot of learning by doing, and of course they’ve done mistakes, and when they’ve done great things, I’m sure that it’s a greater achievement that they have done in a way, until they learn their own way, but truly once again when it comes to complex or high profile clients, I have to be answered.

Matthieu David: How many projects were it in this year when you reached 6 million dollars? What’s the average size?

J.X. Paulin: We used to do like 20,000 square meters a year, and as soon as the average size, maybe 1,005, and also we’re talking about what, 10, like 15 projects.

Matthieu David: So, when you say the turnover when you’re talking about the turnover, you put also the cost of construction, all the purchase that you have to do for electricity and so on. This is within your turnover, right?

J.X. Paulin: When I’m talking about the turnover it’s how much money you generate.

Matthieu David: It’s over 6 million, and inside this turnover, you’ll have to pay for the workers, for the construction, for the material to build the new office, right? It’s pretty heavy in terms of cost, isn’t it?

J.X. Paulin: Yes, of course, we are looking at the cost that they can grow up to 80% of it.

Matthieu David: Okay, I see. It’s like advertising when we interview when you point out advertising that tells us the budget that they have to give to Weibo and Wechat, and then they get basically the fees on it, but okay, I understand. It seems that’s a topic you want us to talk about since the beginning and I tried to focus on China first. Anyway, how is it about being a foreigner? Living in China as a foreigner, did you feel it help you to do real estate business in China? Do you feel it slowed you to a new world? What’re your feelings like?

J.X. Paulin: I feel like, you know I lived in Beijing for a year. I think they are different cities to live in. Now I moved to Singapore. Shanghai is a great city for foreigners. It’s challenging, but when it comes to business, I will always say that China is a game of rules. We have one set of rules for Chinese and one set of foreigners.

Matthieu David: It’s my feeling as well as the rules are not the same, but you have to know the rules and sometimes can be positive, sometimes can be negative when starting a business in China.  I use a word like Chinese tend not to be xenophobic or xenophilic. They react to people differently. You will never be Chinese. I will never be Chinese, and I would be treated differently, but that doesn’t mean bad or not good. Which is something different in France I think because other countries sometimes being a foreigner, they’ll see as negative, and there’s no real, yeah, good sides of being a foreigner, but here in China, that there’s an upside world, and okay so, coming back to our business.

You said that from June 10^th you began to investigate to get into Africa.  We talked about your interest in IT, and how it influenced the way you managed DBX International. I think it would be a very interesting topic to look at and how you go on, you investigate another domain, another field, and which can influence to your main business, that is to say, real estate in China, but let’s go back on this later on. I don’t want to focus on that. So, about Africa, why did you do that?

J.X. Paulin: Basically, I’m from Togo, and as I was, like as a company was running and I was pretty pleased with what we’ve done. I said, let’s try to go back and see if what I’ve learned could benefit Africa in any way. So, I traveled to Liberia, to Gabon, I traveled to 16 African countries until now, and it was great. The beauty of Africa in a way, it’s like China, at different years.

Matthieu David: You said, in one article, it’s China in 1990^th.

J.X. Paulin: Yeah, correct. Yeah, because when you go to, let’s say you go to Accra in Ghana, you will see like Shanghai in 2005. You go to Nairobi in Kenya you will say, “Oh, it was like Shanghai in 2010.” You go to Johannesburg, “It was like Shanghai two years ago.” You go to Liberia; it’s like wow. Liberia is like Shanghai in the 80s. So, it’s different. In terms of real estate, in terms of potential, in terms of youth, it’s incredible. That being said, I think they will not be any other market in China in terms of size, dimension, unity, it’s unique, but Africa definitely there’s huge opportunities, huge opportunities, real estate. It’s difficult. Africa is another beast, but it’s great.

Matthieu David: I try to understand the motivation as well behind it. You say you are from Togo, but you’re French, right?

J.X. Paulin: Yes I am. I’m both.

Matthieu David: Yeah. So, I feel there’s a lot of people who actually have an international background, and they are in some way attracted to go back to the roots. Was it because of China, which was reflecting you those roots? Or was it  something you always had into you to go to do something for Africa, to do something in Africa, because you said something interesting, you said, “I want to do something for Africa.” You didn’t say I want to do something in Africa. That means I think that the motivation behind it seems to be beyond business. Is it something that after your successful job in China, you wanted to do something else in Africa? Can you tell us more about the motivation?

J.X. Paulin: Yes it is but you see when I moved to China in 94, I wrote a letter to my mom, and I said, “You know what, Africans have to learn from China.” In 94. It’s like we have to stop looking at Europe as a role model, and we have to learn from China. So to me, after many years in China, I said, “You know what? Well, I’ve learned things. I’ve learned many things when I start my business in China, and I see where to apply it in Africa in many ways,” and it’s true and I’m convinced that the future of Africa will lie in its relationship with Asia.

Matthieu David: Why do you think that the development of Africa will be linked more to Asia than the West?

J.X. Paulin: Because the West sees Africa for its past when Asia sees Africa for its future. You see it’s different. When you go to France, you talk to guys or ladies, they tend to see Africa like as it used to be, and when you speak to a Chinese, you would see that they see Africa as it should become.

Matthieu David: Okay. So let’s get specific on what you did in Africa. What did you do? Did you realize some development? Did you develop?

J.X. Paulin: Yeah, so what we did basically we worked with a different department, with private investors as well and government people to work on the reinstatement of distressed assets like distressed buildings. In Liberia, for instance, it was really interesting how we work out with a design. We design our work on small regional city pending. We work on social housing in Gabon; we work at a university. How to renovate the university in Gabon as well with private investors in Cameroon, in Ouganda. It’s really interesting.

When you come from a Chinese background, and when you have the speed with you, ideas and when you’ve done these jobs so many times, you come with fresh ideas and a fresh way of doing stuff. People might say, “Oh, this is impossible,” as if, of course, it’s possible. You just have to twist it a bit, do this, do that and stop looking for perfection. It doesn’t exist. Be pragmatic.

Matthieu David: I understand you can leverage your experience you have on 20 years or 15 years in build, but do you feel that you can leverage the relationship with China like sourcing materials or sourcing products or it’s more experience.

J.X. Paulin: It’s everything: the experience, general knowledge, the relationships that I have in China, and it’s not what I believe, it’s what I’ve done. I would really leverage my knowledge and my experience and my relationship to export things like electronic goods, and hopefully next year we’ll work more on the projects.

Matthieu David: How do you find a project in Africa? Because you don’t have an office, right?

J.X. Paulin: We opened a company in Gabon, but we had to shut it down because the cost of running was too expensive, and it wasn’t a big market. Basically, how we found the project is just by the network of relationships that I’ve created over there. My friends that refer to us, and at the end of the day, you don’t have that many, black dudes that have successful businesses in China, that come back to Africa.

Matthieu David: You’re unique, and people might talk about you. People may remember you easily because of your story.

J.X. Paulin: I think when you come with the will of doing something. We have many people from the diaspora that come back to Africa and coming from Europe and seeing things, once again as past, but coming from China, even if when you go to Africa, we want to disrupt things, because every day we are facing disruption in China. So, when you come, you come with your ideas, so we don’t have that many people, I would say you don’t have that many Afro Asian as I call myself and a bunch of Africans that have been raised in China, that come back to Africa with the will and the ability to change things, to do things. I will not be so pretentious to say that we’re going to change things, but definitely, we’re going to work together to build new things.

Matthieu David: Talking about the diaspora, China has relied on the diaspora to someway develop part of the economy. But I always feel that there is a part of the diaspora which is, Chinese diaspora, which is very disconnected now to the Chinese economy and they don’t understand China anymore when they come back, especially after one or two generations. And there is the diaspora of Chinese who went abroad to study, and then come back to the country like 10, 15 years after. What do you feel about Africa? Do you feel the same segmentation can make sense or because the situation is different the diaspora can play a different role in Africa?

J.X. Paulin: I see the situation is maybe the same. I believe that we have the eldest generation, people like my Dad that moved to France to study and eventually at the end went back to Africa but didn’t really work or do something. But, now you have, I would say my generation that wants to do something. So they go to France, they study, they really want to do something, and once again you have to understand that there is different Africa.

There is the francophone Africa as a French-speaking Africa, and there is English speaking Africa, which is totally different when we talk about business. In Francophone Africa, people that are 50, 60, the only dream that they had is they wanted to become a minister. People that are in the 30s like you, 40s like me, we want to be businessmen. We want to make business, and so difference lays there. So, we really want to do something, but before there seems “Okay, I want to become a businessman. I want to become a minister.” So the interests are different.

Matthieu David: Yes, I see. You see the segmentation more in terms of age than in terms of what people did before, okay, I see.

J.X. Paulin: Basically, more in terms of age, and when you move to English speaking Africa, most of the diaspora which is there, they are businessmen. They’ve seen the opportunities. They see, okay, what happened you know is, they’re looking at things that their parents would never look at, like agriculture. Their parents would never look at agriculture. You know I met a guy from Zambia, and he had a business in the passion fruit, and he was doing great. So, you see all these kind of things. He was raised in London, but that didn’t stop him from doing agricultural business in Zambia.

Matthieu David: Yeah, I see. Before we close, you went into tech in Africa, and we talked a lot about it, and could you tell us more about what you did and how it influenced your main business? Because I still feel your main business is still DBX, and how this deep dive into tech mobile, the internet probably, changed your perception on DBX International?

J.X. Paulin: Actually, I moved into tech in Africa as a good Chinese. I saw an opportunity, and I just moved into it. My business acumen has been sharpened in China, so as a Chinese businessman. I was working on a design in a big project for the Ministry of Education in Gabon, I saw a huge lack in education, in tools to indicate young Africans and huge needs for it.

I also saw the lack of data, when we talk about data, and data is the new oil that we have, and you don’t know anything about these students, but I got 200 million of them just they will become the next middle class. So I started the social media that were part of giving them the knowledge that they don’t have and also giving them the ability to connect together, and for us because of your way to acquire data. And it was great because it put me in front of the reality of the internet in emerging markets.

When you take, let’s say, Cameroon only has 20% internet penetration. When you put ads on Facebook and hoping to succeed, it doesn’t work like that. So, it really allowed me to see a different approach and to create offline communities which are really interesting, and we know the way we enroll people, and we enroll them by making them filling forms. It’s like, “What?” Yes, it works crazy because they were so huge of filling forms. We were supposed to enroll thousand of them, just filling forms, giving us information on their phone numbers, and mail, and what they like and things like this. So it was great. Real estate marketing is really different there. What it gave me for DBX, it allowed me to move into the tech world, which I was out. I’m techy but I was not into it, and it allowed me actually to push the momentum. You would see next year; we’re working on a new project. We will still be in Africa, it will be heavily of design-build, but it will incorporate tech as well, so it’s going to be fine.

Matthieu David: I feel that moving from one industry to another. Basically, you have worked in two different industries. One which is construction and design-build, and then after what social media, within the social media. It’s different, and in some way, you don’t really leverage your experience. Do you feel it’s good because it opens your eyes or it’s a mistake that still makes you doubt? What’s your take on it? If you have to advise other entrepreneurs who may be felt to be involved with the business and want to get a new momentum with another very, very sexy and very exciting industry?

J.X. Paulin: In a way, if you look at numbers, it was a mistake, because it did slow DBX down because I did really focus for one year. I was managing the team in India, a managing team in Cameroon, overseeing my Chinese team in DBX, it was like a bit of split, and yes, we took a hit. We took a hit on the numbers. That being said, in two years from now, as seeing if it would have been a smart idea for me to move into this state one, because now I know we, last year two of my staff, two of my teammates in DBX International started a tech project that I was overseeing, and we could never have started it if I didn’t have some knowledge on the internet that they required. Now I can talk about tech; I can talk about blockchain, I can talk about things because I know how it works and I know how we can work in emerging markets.

Matthieu David: Okay. Coming to an end, I think it’s one hour already actually. How do you like it? Did you think we missed some part of a business, what’s your feedback?

J.X. Paulin: It’s pretty hard to come back to ask someone about these 24 years, 23 years of life, of progression experience and even for DBX International, it’s like since 2004, it’s really hard, but you did ask good questions, as the only thing for anybody that wants to start a business in China, and since it’s great, it’s never too late, you just have to think if it’s now you have to understand that you will take some hit. It’ll never easy, but it’s feasible.

Matthieu David: Thank you very much. Thank you very much for your time, and I really enjoyed talking to you as always, and I’m looking forward to sending you this China marketing podcast, China Paradigm. Thanks, J.X. Bye everyone.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

This article Podcast transcript #2: How to reach 6 million USD sales without initial investment in the real estate industry in China is the first one to appear on Daxue Consulting - Market Research China.

The number of Chinese women purchasing properties is rapidly growing, according to a report released by the real estate information platform BEIKE (贝壳找房 Beike zhaofang) in March 2019. This report analyzed over 60,000 second-hand housing transactions in 2018 from 12 major cities in China – including Beijing, Shanghai, Shenzhen and Hangzhou – and found out that the female homeowner ratio in China reached 46.7% in 2018 (from the age group of 18 to 50), while the number was only by 5% as of 2016. 

Tang, a real estate salesperson from Guangzhou told Southern Weekly in an interview: “I’ve been working in real estate for 3 years; I can feel the increase of Chinese women purchasing homes. They are from all over the country and have different jobs and needs, but most of them are young – the majority are millennials. These female buyers are often well-educated and from wealthy families, and interestingly, many of them are single.”

Considering the custom of men providing marital homes, this trend of young women buying houses is worth shedding some light on. Why are more and more women in China purchasing properties? How can they afford the eye-popping price of Chinese housing? What mindset and mentality does this phenomenon reflect? And what impact does it have on the Chinese society? This article reveals some interesting insights into China’s real estate market from a unique angle.

Chinese women are searching for security from properties rather than marriage

China’s economic boom has created a generation of educated, independent, and career-driven women. Unlike their mothers or grandmothers, women from today’s generation – at least those who live and work in big cities – have changed their attitude towards traditional Chinese gender norms. Many Chinese women are taking high-paid jobs and becoming financially more independent. As a result, the self-esteem of urban women is high enough that more and more of them are no longer searching for life security from marriage. Instead of waiting for a future husband to provide them with a home, they rather purchase one themselves. With a property, Chinese women feel more confident to marry for love, rather than wealth. On the other hand, for those who moving to big cities to create a better life, owning a home also enable them to avoid the instability caused by tenement and gives them a strong sense of settling down.

The impact of the One-Child Policy on China’s real estate market

An HSBC study showed that 70% of Chinese millennials are homeowners, while the number is much lower in other countries: e.g., 41% in France, 35% in the US and 31% in the UK respectively. There is more: according to the BEIKE report, more than one-third single female homeowners over 30 pulled off a home purchase without a loan and more than a quarter own two properties or more. How is that possible considering the extremely high housing price in China compared to wages?

The One-Child Policy has played a crucial role. According to the same report, up to 45% of Chinese female homeowners over 30 have received financial support from their parents. Also, another 26% of them have purchased their properties by having support from their and their spouses’ parents. That leaves only 29% who afford their properties completely by their own. In general, Chinese parents are used to being involved in their children’s lives to a great extent. From marriage to home buying, they give advice, and, in some cases, they are the real decision-makers. Nevertheless, Chinese parents are extremely supportive for their children’s families. Many of them take care of the grandchildren full-time after their retirement and undertake the down payment or sometimes even more of their millennial children’s home. That puts millennials from the One-Child Policy to a more advantageous position on the real estate market in China.

Although the tradition expects men to provide homes, the mentality is shifting over the last years. Many parents are having a different attitude towards that issue: they do no longer mind being the provider of their millennial daughter’s marital home. Moreover, for many young women striving for a better life in big cities, a real estate means a settled place for themselves as well as their parents. A home purchase is often an investment for the whole family: it can be a spot for the family reunion when the left-behind parents come to visit their daughters in the city. Some parents from the older generation also plan to move in with their millennial children to take care of them and their grandchildren.

The subtle influence of China’s Marriage Law on the trend of women buying houses

The change of Chinese Marriage Law in 2011 – requiring physical proof of monetary contribution – has diminished women’s ability to claim their rightful part of the marital property in the case of divorce. This especially puts women and her family in a disadvantageous position. The tradition of men providing marital home does not mean that women do not undertake monetary responsibility. Typically, the family of bride-to-be needs to give the so-called betrothal gift (彩礼 in Chinese, Caili), which can be cars, furniture, gold or cash varied from region to region. While men can easily leave “safe and sound” in the case of divorce, women and their family can lose all they have contributed. The change of Chinese Marriage Law has seemly forced many women and their family to invest in their own homes.

The reaction from China’s real estate market

In general, women place more importance in the appearance of a home, including interior decor and landscape. In recognition of the growing role of women as home buyers in China, developers have placed more emphasis on the presentation of show houses, including elements such as interior finishing. Moreover, life convenience such as access to public transit and educational facilities for children are important for female home buyers in China. According to the BEIKE report, 64.4% of houses owned by women over 30 have easy access to subway and 36.6% providing access to schools which is a significant challenge many Chinese families are facing. Zhang Fan, vice-president of Boill Holding Group, a Shanghai-based developer, said women were less concerned about the size of a home, as long as there were neighboring green areas, and close access to amenities like rail transit, shops, and hospitals.

Reflections and suggestions

Both the BEIKE report and many journalistic reports emphasized the growing purchase power of single women in China and indicated the increasing independence and liberty of women in China. However, some people are worried that this topic has been overused for commercial purposes. They assume that real estate developers are hyping this phenomenon as a strategy targeting single women. We have to keep in mind that Chinese consumers have become more mature and rational during the last decade. Marketers should be careful of using ‘home-owning’ as a criteria for a woman’s independence. This would only be another stereotype forced upon women. Rather, it is not a woman’s marital status or what materials she possesses that decides whether she is independent or not.

Author: Chencen Zhu

If you want to know more about the modern property market in China, to collect first-hand Chinese consumer insights about the real estate industry and to size your consumers demand, please do not hesitate to contact our team directly at dx@daxueconsulting.com.

This article Latest housing report 2019: Female homeowner ratio on the rise in China | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.