China imposes new restrictions on outbound investment

Thursday, 28 December 2017 00:13 - - {{hitsCtrl.values.hits}}

AFP: China has issued new rules increasing oversight of overseas acquisitions by its companies, as it seeks to reduce investment in assets ranging from golf courses and movie studios to football clubs.

The rules are the latest attempt to stem the tidal wave of capital that has flown out of the country in recent years, a trend which regulators fear could threaten financial stability at home. The country in August announced rules to restrict investment overseas in some previously encouraged fields such as sports clubs, real estate and entertainment after a series of high-profile investments - at questionable valuations - by some of the country’s biggest companies.

These included real estate and entertainment giant Dalian Wanda and airline operator HNA.

The new regulations, issued by the National Development and Reform Commission (NDRC), require all outbound investments by Chinese firms and their overseas subsidiaries to be registered through a new online system.

While it cancels a previous requirement for Chinese investors to report plans for any acquisitions or bids over $ 300 million, the new rules broaden supervision of foreign investments made by overseas subsidiaries of Chinese companies.

New applications should include detailed information about investors, the content and scale of the project and the amount of Chinese capital involved.

There should also be an analysis of the impact of the project on the national interest and national security. Those projects that threaten either will not be approved.

Projects must also include a statement of authenticity. Fake investments are often used as a means to evade China’s strict controls on transferring money out of the country, a problem that has bedevilled regulators.

The new rules aim to “improve full supervision over overseas investment and promote sustained healthy development of overseas investment”, according to the NDRC’s website.

They will “lower the uncertainty of outbound investment” for Chinese companies, chief economist of Industrial Bank Lu Zhengwei told AFP.

Under the new rules, companies can avoid investments unlikely to be approved by the government, Lu said.

The regulations require less reporting of information but expand the range of supervision, Ye Tan, chief economist at Huaxin Shares, told AFP.

“It’s a reform in system and procedure,” Ye said.