SM Investments Corp, the Philippines' largest conglomerate controlled by the country's wealthiest family, is betting on mainland China as a significant growth driver, particularly in the commercial property market. Despite recent economic challenges and strained diplomatic relations between the two nations, the group views China’s massive population and consumer base as a key opportunity.
Franklin Gomez, Executive Vice-President in charge of finance at SM Investments, emphasized the strategic importance of China during an interview in Hong Kong on Wednesday. “Our investments in China have been largely opportunistic”, Gomez stated. “We have not lost sight of the fact that China has more than a billion consumers, and they will continue to be a formidable market force”.
SM Investments has a significant presence in China through its 49.7% stake in SM Prime, a subsidiary that owns and operates eight shopping malls in lower-tier cities across the mainland. These malls collectively span 17.2 million square feet (1.6 million square meters) of retail space, with an average occupancy rate of around 85%. Gomez highlighted plans to increase occupancy rates and expand floor space in their flagship mall as part of their growth strategy.
However, China’s economic landscape has been turbulent. The nation’s post-pandemic recovery has been hampered by a prolonged property crisis and a sluggish stock market, leading to weakened investment and consumer confidence. In the most recent quarter, China’s economy grew by 4.7%, a slowdown from the 5.3% annual growth rate recorded in the first quarter of the year.
Complicating matters are the long-standing territorial disputes between China and the Philippines in the South China Sea, which have kept diplomatic relations tense. Despite these geopolitical challenges, Gomez suggested that business operations remain stable. “It is best left to the experts in our government to find meaningful and peaceful solutions to ease the tensions”, he said. “As far as the business community is concerned, the last thing we need at the moment is large-scale disruptions”.
Gomez acknowledged that the group’s expansion in China has been 'very selective', with a focus on secondary and tertiary cities rather than primary urban centers. “We are not in primary cities because that is where we feel we can make a difference. Our malls are profitable, with healthy occupancy rates”, he explained. Despite this, China currently contributes only 3% to SM Investments' overall revenue.
SM Investments, which is the most valuable company listed on the Philippine Stock Exchange, has diverse interests spanning banking, retail, and real estate. The conglomerate was founded in 1958 by Xiamen-born billionaire Henry Sy Sr., who passed away in 2019. Last month, the group successfully raised $500 million from an offshore bond offering, attracting $1.6 billion in orders from investors. This marked SM Investments’ largest offshore bond issue since 2014.