Beijing tightens rules on overseas investments to lower risks

PUBLISHED : Friday, 09 January, 2009, 12:00am
UPDATED : Friday, 09 January, 2009, 12:00am

The Ministry of Commerce has released draft rules tightening supervision on overseas investments by mainland firms amid concerns about losses as the financial crisis deepens.

The draft rules said overseas investments exceeding US$100 million must be approved by the ministry. Approval is also required for investments in countries that have no diplomatic relations with China, and in overseas infrastructure projects in high-risk areas.

Overseas investments of between US$10 million and US$100 million as well as all those in the energy, mining and property sectors regardless of size will also need approval at provincial level, with an exception for central government enterprises.

Mei Xinyu, a researcher at the Chinese Academy of International Trade and Economic Co-operation under the ministry, said the rules would provide proper guidance to avoid unnecessary risk and reckless overseas investments.

Beijing has encouraged domestic companies to invest overseas in recent years to ease the appreciation pressure on the yuan and secure natural resources.

But unlike previous rules, the new draft rules do not specifically mention government support and encouragement for firms with comparative advantages to invest abroad.

As of late 2007, more than 7,000 firms were putting their money in offshore projects, with the direct investment funds amounting to US$117.9 billion, according to ministry data.

With asset values plunging worldwide, heavy paper losses have been incurred by some high-profile entities, including the US$200 billion sovereign wealth fund China Investment Corp and Ping An Insurance (Group).

Mr Mei said given the nation's tremendous foreign reserves, mainland companies would continue to invest overseas in the next few years, especially with the rest of the world in financial doldrums.

China's foreign reserves, the world's largest, stood at US$1.906 trillion at the end of September, when official figures were last reported.

State Administration of Foreign Exchange official Cai Qinsheng said last month that the reserves had fallen below US$1.9 trillion.

SAFE said on Monday that China had introduced an overseas direct investment information system to help businesses invest overseas and bolster risk supervision.

Safety device

The new rules aim to help firms avoid reckless overseas investments

The Ministry of Commerce must approve overseas investments above, in US$: $100m