China moves to limit state firms’ investment overseas to stem capital outflows

State Council calls for greater supervision of state assets deployed overseas to avoid losses

PUBLISHED : Thursday, 01 December, 2016, 6:59am
UPDATED : Thursday, 01 December, 2016, 6:59am

China’s central government pledged to tighten scrutiny on outbound investment by state-owned enterprises, after a buying spree overseas raised further concerns about capital outflow.

The State Council, or cabinet, required “stepped-up supervision” of state assets deployed overseas to avoid losses in a statement concluding a regular meeting on Wednesday.

The meeting called for “stronger supervision of overseas state assets, to gradually realise regular scrutiny and inspection of [state-owned] enterprises’ financing and investment overseas, change of property rights and fund management, to ensure the safe operation of overseas assets and to increase the value of assets”.

China’s foreign investment ‘shopping spree’ over as Beijing moves to slash capital outflow

The outbound investment spree by Chinese enterprises, private or state owned, has raised the security concerns in the West, and also fuelled questions about the financial transparency and profit outlook of some projects.

The statement also marked the latest effort by Beijing to strengthen capital controls since late last year when it started to counter continuous depreciation pressure of the yuan.

Earlier this week, the minutes of a central bank meeting seen by the South China Morning Post showed that the government will ban outbound investments above US$10 billion, forbid mergers and acquisitions of more than US$1 billion outside a Chinese investor’s core business and halt foreign real estate deals by SOEs involving more than US$1 billion.

China tells banks to scrutinise reasons for large capital outflows

The authorities on Tuesday vowed to crack down on false outbound investment activities while insisting that China would not change the regulatory framework for outbound investment.

Robin Xing, chief China economist at Morgan Stanley, said the intensified restrictions on outbound investment could mitigate the pressure of outflows and help to avoid high volatility in the yuan.

“But policymakers may implement more capital restriction measures if the pace of outflows accelerates again,” Xing told reporters in Beijing on Wednesday.

China’s foreign exchange reserves have fallen by US$873 billion since a high of US$3.99 trillion in June 2014. The reserves fell by US$46 billion last month, the largest drop since January.