China puts brakes on for­eign spend­ing spree

The Myanmar Times - - Business -

BEI­JING is tight­en­ing screen­ing on Chi­nese com­pa­nies’ overseas in­vest­ments, ac­cord­ing to the gov­ern­ment and re­ports, after a record-set­ting shop­ping spree raised con­cerns of cap­i­tal flight and reck­less spend­ing.

Au­thor­i­ties will “com­bine fa­cil­i­tat­ing for­eign in­vest­ment with guard­ing against in­vest­ment risks” by scru­ti­n­is­ing pro­posed deals, said a state­ment posted on the web­site of the Na­tional Development and Re­form Com­mis­sion, the top eco­nomic plan­ner, with­out giv­ing de­tails.

New re­stric­tions will ban most deals over US$10 bil­lion and curb in­vest­ments of more than $1 bil­lion in sec­tors un­re­lated to a com­pany’s core business, Bloomberg News re­ported.

State-owned com­pa­nies will be barred from spend­ing more than $1 bil­lion on overseas prop­erty and the rules will last un­til Septem­ber 2017, it added.

Chi­nese firms have been on a multi-bil­lion dol­lar spend­ing spree this year, cul­mi­nat­ing in state-owned ChemChina’s $43 bil­lion bid for Swiss seed gi­ant Syn­genta.

Prop­erty-to-entertainment con­glom­er­ate Wanda Group bought Hol­ly­wood stu­dio Leg­endary for $3.5 bil­lion, ap­pli­ance gi­ant Midea took over lead­ing Ger­man ro­bot­ics firm Kuka for $5 bil­lion, and in­surer-turned-hote­lier An­bang paid $6.5 bil­lion for 16 lux­ury prop­er­ties from hedge fund Black­stone.

The tight­en­ing comes after au­thor­i­ties long urged pri­vate and sta­te­owned en­ter­prises to “go abroad” to buy for­eign brands, tech­nolo­gies and re­sources in search of bet­ter re­turns and tech­no­log­i­cal know-how.

But in­creas­ing cap­i­tal out­flows from China have raised con­cerns with the yuan cur­rency weak­en­ing against the dol­lar, hit­ting a nearly eight-year low this month.

China has spent hun­dreds of bil­lions of dol­lars from its vast for­eign ex­change re­serves, the world’s largest, in its ef­forts to keep the yuan from fall­ing too rapidly.

Chi­nese in­vest­ment in non-fi­nan­cial firms surged 53 per­cent year-onyear to $146 bil­lion from Jan­uary to Oc­to­ber this year.

Such spend­ing – of­ten fu­elled by cheap credit from state-owned banks – has raised ques­tions in Bei­jing about the vi­a­bil­ity and sen­si­bil­ity of some tro­phy as­sets.

In Septem­ber a com­merce min­istry rep­re­sen­ta­tive told re­porters that “some com­pa­nies went with overseas takeovers blindly. We found some firms did not make suf­fi­cient re­search into ba­sics such as the pur­pose and ne­ces­sity of overseas M&As.”

“Some rushed to ex­pand while some were driven by ir­ra­tional rea­sons to sim­ply fol­low the craze or show off.”

An editorial in the state-run China Daily news­pa­per said the rules tar­geted “out­flows dis­guised as for­eign in­vest­ment”.

While Chi­nese in­vest­ing abroad was a “nat­u­ral development”, it cau­tioned that rush­ing overseas at a time of un­cer­tainty was ir­ra­tional, adding: “Risky overseas in­vest­ments could threaten fi­nan­cial sta­bil­ity.” –

Photo: AFP

Peo­ple walk past a bill­board advertising a new hous­ing com­plex out­side a con­struc­tion site in Bei­jing.

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