Min­istry’s new guide­line tight­ens up re­quire­ments on a slew of mea­sures

China Daily (Hong Kong) - - BUSINESS - By LI XIANG lix­i­ang@chi­nadaily.com.cn

China has tight­ened scru­tiny of over­seas in­vest­ment by State-owned en­ter­prises, or­der­ing them to im­prove in­vest­ment de­ci­sion-mak­ing, strengthen in­ter­nal au­dit­ing and carry out re­spon­si­ble due dili­gence, ac­cord­ing to a guide­line is­sued by the Min­istry of Fi­nance on Wed­nes­day.

The SOEs are re­quired to set up proper de­ci­sion-mak­ing sys­tems and to carry out fi­nan­cial fea­si­bil­ity stud­ies on over­seas projects be­fore mak­ing any in­vest­ment de­ci­sion. They are also or­dered to send on-site in­spec­tion and au­dit­ing teams to eval­u­ate over­seas projects that in­volve ma­jor losses and risks, the guide­line said.

Com­pa­nies are also asked to bet­ter man­age their cap­i­tal flow, cost con­trol, div­i­dend dis­tri­bu­tion, for­eign ex­change and fi­nan­cial in­for­ma­tion for their over­seas projects. The min­istry also re­quired SOEs to set up an eval­u­a­tion sys­tem on over­seas in­vest­ment and in­crease ac­count­abil­ity of poor and failed in­vest­ment de­ci­sions.

The guide­line is aimed at strength­en­ing the man­age­ment of SOEs’ over­seas projects, in­creas­ing in­vest­ment ef­fi­ciency and lift­ing State cap­i­tal’s ca­pa­bil­ity to serve the “go­ing global” strat­egy and the Belt and Road Ini­tia­tive, the min­istry said in a state­ment pub­lished on its web­site.

Poor as­set qual­ity, weak prof­itabil­ity and low in­vest­ment re­turns are the main prob­lems re­lated to SOEs’ over­seas in­vest­ment and they are di­rectly re­lated to SOEs’ poor man­age­ment of fi­nan­cial risks and care­less de­ci­sion-mak­ing, the min­istry said.

Xu Baoli, direc­tor of the re­search cen­ter at the Sta­te­Owned Assets Su­per­vi­sion and Ad­min­is­tra­tion Com­mis­sion, said the move is of “great sig­nif­i­cance” as the coun­try is push­ing the Belt and Road Ini­tia­tive that will in­volve mas­sive SOE in­vest­ment in coun­tries and re­gions with high po­lit­i­cal and eco­nomic risks.

“Greater out­bound in­vest­ment by SOEs is go­ing to take place and many of them lack the abil­ity to prop­erly man­age risks,” Xu said.

“And the lack of ac­count­abil­ity of se­nior ex­ec­u­tives for poor or failed in­vest­ment is one of the rea­sons that lead to rad­i­cal de­ci­sion-mak­ing and loss-mak­ing deals.”

The tighter reg­u­la­tion on SOEs’ over­seas in­vest­ment also showed the gov­ern­ment’s in­ten­tion to ad­dress the de­clin­ing for­eign ex­change re­serves and con­tain cross-bor­der fi­nan­cial risks, Xu added.

China’s non-fi­nan­cial out­bound di­rect in­vest­ment fell 45.8 per­cent year-on-year to $48.19 bil­lion in the first half of the year, the first de­cline since 2015, of­fi­cial data showed, as the gov­ern­ment moved to curb rad­i­cal and risky in­vest­ment by Chi­nese com­pa­nies in sec­tors such as prop­erty, ho­tel, sports and en­ter­tain­ment.

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