China formally laid down new rules on overseas investments, making explicit its de facto campaign against “irrational” acquisitions of assets in industries ranging from real estate and hotels, to gaming and entertainment.
The new rules coincide with a record-breaking USD816 billion in capital outflows leaving the world’s second largest economy last year, much of it transferred through Macau’s casinos.
The local gambling industry is considered to be a primary route used by high net-worth private citizens and corrupt government officials seeking to circumvent China’s strict currency controls.
The real estate, hotel and entertainment industries – now covered by the new restrictions – are also popular sectors for Chinese investment, used as a conduit for bringing capital out of the mainland.
In broadly regulating such “irrational” acquisitions of assets, Chinese authorities have set out three categories: banned, restricted and encouraged.
The banned category includes investment into the gambling and sex industries, as well as core military technology or anything contrary to the mainland’s national security.
Meanwhile, Beijing authorities are keen to promote investment supporting the nation’s ambitious Belt and Road Initiative, backed by President Xi Jinping.
Although subject to less stringent regulations, investment in property, hotel, film, entertainment and sports will be restricted to varying degrees.
China has embarked on a drive to reduce leverage in financial markets and snuff out systemic risks ahead of a Communist Party leadership transition later this year, while remaining vigilant for accelerated capital outflows that threaten to weaken the nation’s currency.
Some of the country’s most aggressive dealmakers – Anbang Insurance Group Co., Fosun International Ltd., Dalian Wanda Group Co. and HNA Group Co. – have already been the target of government pressure to scale back their foreign activities.
China’s outbound investment slumped 44.3 percent in the first seven months from a year earlier as policy makers imposed brakes on companies’ foreign acquisition following the record spending spree in 2016.
“This is the state saying we want better say over where China’s resources are going abroad,” Andrew Polk, co-founder of research firm Trivium China, told Bloomberg. “We didn’t have a clear accounting of this before, but we could piece it all together from what was said by various elements of the government. Now it’s de jure policy while previously it was de facto policy.”
“China wants its money to focus on specific sectors that can help boost long-term growth potential,” said Zhou Hao, a senior emerging-markets strategist at Commerzbank AG in Singapore. “The new policy also tries to close the loophole of suspicious capital outflows and possible money laundering.”
In a statement, China’s State Council said that the new restrictions seek to mitigate several “risks and challenges” of overseas investment.
“Profound changes are taking place in international and domestic situations, and Chinese enterprises face not just relatively good opportunities but also various risks and challenges in overseas investments,” the State Council noted.
In a separate statement, the National Development and Reform Commission, the top economic planning body, criticized “irrational” overseas investment in some sectors, while encouraging projects linked to the Belt and Road initiative.
There have been problems with overseas investments, the NDRC said, adding that some companies had made rash decisions and sustained losses. DB/Bloomberg
Banned, restricted or encouraged?
Banned: Core military technology, gambling, sex industry, investments contrary to national security.
Restricted: Property, hotels, film, entertainment, sports, obsolete equipment, investments that contravene environmental standards.
Encouraged: Investments that further Belt and Road framework, enhance China’s technical standards, research and development, oil and mining exploration, agriculture and fishing.
