China further limits overseas investment to reduce risk
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 to hotels and entertainment.
The authorities set out three categories—banned, restricted and encouraged—outlawing investments in gambling and sex industries, while backing companies to support the nation’s ambitious “Belt and Road” initiative backed by President Xi Jinping, the State Council said in a statement on Friday. Property, hotel, film, entertainment and sports investments will now be subject to restrictions, the statement said.
“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, China’s Cabinet, said in the statement.
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, Fosun International, Dalian Wanda Group and HNA Group —have already been the target of government pressure to scale back their foreign activities.
“This is the state saying we want better say over where China’s resources are going abroad,” said Andrew Polk, cofounder of research firm Trivium China in Beijing. “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.”
The People’s Bank of China imposed controls as the amount of money flowing out last year topped $816 billion, according to data compiled by Bloomberg, with Macau casinos considered a primary route used by private citizens and corrupt government officials alike. In the presence of controls, China’s capital account and foreign exchange reserves have stabilised this year. That said, officials are wary that business activity could undermine the stability of the capital account, as well as introduce risks into the banking sector.
The banking regulator this year asked lenders to provide loan information on the country’s top deal-making companies, and is examining examples of acquisitions gone awry by those firms to assess potential risks to the financial sector, people familiar with the matter said.