China to issue first overseas investment rules, identify priority industries

China is expected to issue its first regulation on overseas investments this year to guide Chinese investors and discourage risks and “irrational” investments.

Initiated by the Ministry of Commerce ( MOFCOM) and the National Development and Reform Commission, the regulation will provide guidance to investments in other countries and regions, identify the industries that the Chinese government will encourage and those that the government will ban, the Economic Information newspaper quoted an anonymous insider as saying on Tuesday.

The news comes as China tightened capital controls to ease capital outflow pressure.

Expected to be released by the end of 2017, the regulation will define overseas investments, approval procedures, financing, profit sharing and tax policies.

“China will encourage investments that bring social and economic benefits or conform to the direction of the One Belt and One Road initiative, as well as discourage and reinforce inspections on blind and unsound investments,” the anonymous insider said.

It will also ban and punish investors who violate domestic and foreign laws.

Bai Ming, a research fellow at the Chinese Academy of International Trade and Economic Cooperation, told the Global Times that the regulation will serve the Chinese economic transformation, redirect China from a big manufacturer to a world manufacturing powerhouse, and set China’s position in globalization.

China’s overseas investments have grown over the past years but still lag behind in terms of quality. Providing a guide to investments would maximize domestic companies’ earnings and resources, and help them avoid unnecessarily impeding world markets, Bai said.

The State- level regulation will protect the interests of Chinese assets in foreign nations, which is likely to explain how Chinese companies can protect themselves from political and economic risks, he noted.

“China is likely to intensify restrictions on unqualified investments, but will make investment approval smoother for projects encouraged by the government,” Bai said.

Chinese firms invested about 1.1 trillion yuan ($ 170 billion) in 164 countries and regions in 2016, a year- on- year increase of 44.1 percent, said MOFCOM.