ASIA - Chinese investors are capitalising on government policies aimed at stimulating domestic demand to invest in a retail sector Jones Lang Lasalle (JLL) claims is poised for a major upgrade.

Newly published JLL data show Chinese investors accounted for 79% of total sell-side market activity last year, with investors from elsewhere in the region accounting for a further 12%.

In an investment outlook published this week, analysts attribute the withdrawal of non-Asian capital to a proliferation of development projects local investors are better able to access because they have more knowledge of the market and better access to deals.

Retail accounted for 30% of retail property deals worth in aggregate RMB26.5bn (€3.1bn) last year, up from 24% in 2010.

Shopping centres accounted for 86% of retail investment capital as consumers in secondary cities as consumers gradually abandon traditional department stores. 

Investment in retail projects in relatively opaque secondary and tertiary cities accounted for more than half of transactions across property subsectors last year.

"We view this as further evidence that investors are positioning their investment strategy to capitalise on the burgeoning retail structural story that is playing out across China," said the report, adding that appetite for less mature cities did not necessarily indicate investors were being driven out of first-tier cities.

"Rather, retail sector investors and retailers alike have been consciously seeking exposure in the lower-tier cities where income growth and urbanisation are likely to outperform."

One impact of increased appetite for secondary cities is a decline in average deal size.

However, the report's authors point out that new shopping-centre development projects in these cities tend to be on a larger scale than those in major locations because of cheaper land, more available space and supportive local governments.

Head of China investment David Hand said in a statement that investors recognising long-term trends in China's retail sector would be likely to increase their weightings in 2012.

In addition to demographic trends, recent measures as part of the switch from an export-led to a demand-centric growth model have included increases in both the minimum wage and the income tax threshold.

Also mooted are cuts to import duty and the consumption tax on luxury goods.