Im­pact of cap­i­tal out­flow rules de­bated

China Daily (USA) - - ACROSS AMERICA - By PAUL WELITZKIN in New York paulwelitzkin@chi­nadai­lyusa.com

As China takes steps to con­trol the out­flow of cap­i­tal from the main­land, large-scale in­vest­ments in the US could be af­fected, while the move also may help tame ris­ing ten­sions be­tween the two coun­tries over ac­cess to Chi­nese mar­kets, ob­servers said.

Chi­nese of­fi­cials may be set­ting up new road­blocks to cap­i­tal out­flows, as of­fi­cials won’t ap­prove re­quests to ship the yuan over­seas for the pur­pose of con­vert­ing into for­eign cur­ren­cies un­less ap­pli­cants pro­vide a valid busi­ness rea­son, Bloomberg re­ported Wed­nes­day, cit­ing peo­ple fa­mil­iar with the mea­sures drafted by the Peo­ple’s Bank of China (PBOC).

Of­fi­cials from the PBOC, the Na­tional De­vel­op­ment and Re­form Com­mis­sion and other gov­ern­ment branches said Mon­day that the coun­try will con­tinue to pro­mote the healthy de­vel­op­ment of out­bound for­eign di­rect in­vest­ment (FDI) through more strin­gent screen­ing.

“It is smart to use ad­min­is­tra­tive mea­sures to re­duce cap­i­tal out­flows and de­fend the ex­change rate, be­cause China’s for­eign re­serves are drop­ping,” Ken Che­ung, a Hong Kong-based Asia cur­rency strate­gist at Mizuho Bank Ltd, told Bloomberg. “Chi­nese au­thor­i­ties un­der­stand the cap­i­tal out­flow pres­sure is per­sist­ing, but will only let it run its course at an or­derly pace.”

Jian Yang, di­rec­tor of the Cen­ter for China Fi­nan­cial Re­search at the Univer­sity of Colorado-Den­ver busi­ness school, wrote in an email that the pol­icy change on out­bound in­vest­ment prob­a­bly will have some af­fect on Chi­nese firms’ in­vest­ment in the US, par­tic­u­larly on large-scale in­vest­ment projects in the US ini­ti­ated by Chi­nese firms.

“Nev­er­the­less, the po­ten­tial im­pact might not be as bad as many might think as very large in­vest­ment projects in­clud­ing mega-merger and ac­qui­si­tions by Chi­nese firms of­ten did not ma­te­ri­al­ize due to US na­tional se­cu­rity con­cerns,” he said.

Yang also noted that many over­seas in­vest­ments failed to pro­duce value-en­hanc­ing re­sults for Chi­nese com­pa­nies, and re­search shows that un­re­lated busi­ness di­ver­si­fi­ca­tion within the same coun­try of­ten is value-de­stroy­ing.

A Rhodium Group re­port showed Chi­nese FDI in the US ex­ceeded $18 bil­lion in the first half of the year. The to­tal for 2015 was $15.3 bil­lion.

Chi­nese firms have been scoop­ing up ev­ery­thing from movie stu­dios, ap­pli­ances and a stock ex­change as the com­pa­nies try to im­prove their global com­pet­i­tive­ness and counter slow­ing growth in China.

The shop­ping spree also at­tracted po­lit­i­cal at­ten­tion as the US-China Eco­nomic and Se­cu­rity Re­view Com­mis­sion urged Congress to ban China’s state-owned firms from ac­quir­ing US com­pa­nies.

“One im­pli­ca­tion could be that with a de­cline of ma­jor Chi­nese M&A’s, the crit­i­cal at­ten­tion that Chi­nese FDI re­ceives in the US (and else­where) might lessen,” said Karl Sau­vant, a res­i­dent se­nior fel­low at the Cen­ter on Sus­tain­able In­vest­ment at Columbia Univer­sity.

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