Beijing tightens curbs as foreign investment soars

PUBLISHED : Friday, 18 February, 2011, 12:00am
UPDATED : Friday, 28 October, 2016, 9:17am

More foreign direct investment poured into the mainland last month, prompting an official warning on the need for tighter control on mergers and acquisitions.

Ministry of Commerce spokesman Yao Jian said yesterday that US$10.03 billion flowed into the country last month, 23.4 per cent more than a year ago. The manufacturing sector got most of the funds.

Anticipating more investment inflows, the ministry is now working on the details of a new regulatory blueprint to ensure foreign acquisitions of domestic firms do not affect national security and economic stability, he said.

Provisional rules introduced in 2006, targeting famous brand names and strategic sectors, carried stipulations on board control.

'M&A accounts for only 3 per cent of our foreign direct investments now, but this may grow by 8 per cent, 10 per cent in future,' Yao said. 'The rapidly growing trend means it is necessary to have a mechanism to scrutinise deals.'

Foreign direct investment in the mainland hit a record US$105 billion last year, but mergers and acquisitions accounted for only a small percentage compared with an average 70 per cent globally, he said.

Yao said M&A would be an efficient way to consolidate national industries. The latest rules will govern companies involved in defence, agriculture, energy, resources, infrastructure, transport, technology and equipment manufacturing.

The Ministry of Commerce and the National Development and Reform Commission will take charge of setting up a panel to vet foreign companies' proposed acquisitions of domestic companies, according to the blueprint released two weeks ago.

Yi Xianrong, an economist of government think tank Chinese Academy of Social Sciences, said the new rules were aimed partly at restricting the inflow of so-called 'hot money'. 'The new regulations helped make the merger and acquisition market more transparent and open,' he said. 'They will come in handy for industries undergoing consolidation.'

The State Administration of Foreign Exchange said yesterday that US$35.5 billion of hot money was funnelled into the mainland last year, 42 per cent more than the average in the past decade.

Last month, M2, a money supply measure that includes cash and all deposits, grew at a slower pace of 17.2 per cent, compared with 19.7 per cent in December, but still it overshot the People's Bank of China's target of 16 per cent.

New loan growth hit 1.04 trillion yuan (HK$1.23 trillion), compared with the average of 974 billion yuan for the same month in the past five years, although it was slower than economists' expectation of 1.2 trillion yuan.

Francois Renard, head of the competition sub-working group of the European Union Chamber of Commerce in China, said there were concerns about the implementation of the new M&A rules.

He said the definition of sectors governed by the rules was 'extremely broad'. He also said how the process would interact with the existing anti-monopoly law remained elusive.