China takes harsher tone against big dealmakers, alleging ‘asset transfer’
Overseas investments by nation’s leading companies were not aimed at making profit, state media quotes researcher as saying
China has stepped up criticism of the string of overseas deals made by some of the country’s biggest companies, amid wider concern in Beijing over capital flight.
Such deals were “not real ... they are de facto asset transfers”, state-run CCTV quoted a researcher with China’s leading think-tank as saying on Tuesday night.
“They were not meant to invest money [for profit] but to move assets abroad,” said Yin Zhongli , who works for the Chinese Academy of Social Sciences, which is affiliated with the State Council.
“Asset transfer” is a phrase that within China implies national wealth loss and can often lead to an investigation.
The comments come as the nation’s banking regulator has focused scrutiny of China’s prominent global dealmakers, including Anbang Insurance and the Dalian Wanda Group, a conglomerate that has spent more than US$5 billion in recent years on a buying spree that included American cinema chains and the Hollywood movie studio Legendary Entertainment.
The China Banking Regulatory Commission has told the nation’s largest lenders to cut off funding for six overseas purchases by Wanda, several people familiar with the matter told the South China Morning Post.
An internal document seen by the Post showed that Chinese President Xi Jinping and Premier Li Keqiang were informed about the risks associated with Wanda’s overseas investments.
The commission last month also singled out Anbang, Fosun Group, HNA Group and a Zhejiang-based company called Rossoneri Sport Investment for risk monitoring in relation to their foreign purchases.
Anbang, one of China’s most aggressive overseas investors, said last month that chairman Wu Xiaohui had stepped down amid reported official concern over its loans.
China tightly restricts movement of assets abroad, and the suggestion by state media that outbound transfers fell into this category could mark the beginning of an aggressive phase of legal scrutiny, said Hu Xingdou, a professor of economics at the Beijing Institute of Technology.
“In particular, big companies growing up with backing of some officials may see one round of investigations after another,” Hu said.
The CCTV broadcast came hours after the nation’s top economic planner also raised fresh doubts over overseas deals, which reached a high of US$170 billion last year.
“Authorities will keep close watch over the trend of irrational outbound investment in properties, hotels, cinemas, entertainment and soccer clubs to prevent risks,” Yan Chengpeng, spokesman of the National Development and Reform Commission, said in Beijing.
The five sectors were first branded main areas of “irrational investment” last November when capital outflows deteriorated rose so fast that the yuan plunged to a nearly six-year low against the US dollar and foreign exchange reserves dropped below US$3 trillion.
Outbound investment fell 45.8 per cent year on year to US$45.8 billion in the first six months of 2017, official data shows. Funds going into overseas property, a key area of concern for Beijing, fell 82.1 per cent from a year earlier, not including individual purchases.
After the leadership and top financial met over the weekend for the National Financial Work Conference and made risk prevention a policy priority, the State Administration of Foreign Exchange said it would enhance supervision of capital flows and crack down on underground banks.
Lester Ross, a partner at US law firm WilmerHale which advises on cross-border deals, said Chinese companies might end up paying a higher price in overseas deals given the added concern of foreign parties over the complicated and fast-changing approval process in China.
Previously, the main concern was payment delays owing to funding problems or forex clearance.
Foreign companies looking to sell might also be cautious that the swathe of sectors deemed at risk could expand.
“The [current] perception would be that China can at any time suddenly say this sector or that will be involved,” Ross said.
“There is a real tendency in China for officials at lower levels to overshoot what the government wants them to do ... and exercise caution over all deals,” Ross said.
