Beijing has imposed new rules on overseas-registered state companies requiring them to seek approval from the government for large-scale asset restructuring and capital deployment. The move is expected to affect red chips and other mainland-based companies in Hong Kong, according to analysts. They said the rules - aimed at tightening the government's grip on state assets - would put mainland companies overseas at a disadvantage when competing in the fast-changing international market. Mainland companies have already suffered from an exacerbated credit squeeze and negative investor sentiment after the collapse of Guangdong International Trust and Investment in October last year. Under a circular issued by four mainland regulators - among them the Ministry of Finance - overseas-registered companies are required to apply for approval before being eligible to issue corporate bonds or stocks, the China Financial and Economic News reported yesterday. The paper, controlled by the Ministry of Finance, said approval was needed for any planned investment exceeding 50 per cent of an enterprise's net assets, or to increase or reduce capital as well as to sell shares to foreign investors which would result in the loss of the government's control in the company. Plans for spin-offs, mergers, restructurings, sales or bankruptcy were also subject to the requirement, the paper said. In addition to the Ministry of Finance, the circular was jointly issued by the foreign ministry, the State Administration of Foreign Exchange and the General Administration of Customs. The paper said: 'If necessary, the plans will be submitted to the State Council for permission.' The policy was 'aimed at standardising the management of state-owned assets abroad, safeguarding their legal interest, guaranteeing their security and integrity and maintaining their value', it said. The paper said the government lacked effective controls of enterprises abroad. News of the rules came just days after reports that the mainland sought to amend existing laws to make it easier for managers of state firms to be liable for investment failures and be prosecuted under 'economic crimes'. The new rules appear to have caught both red-chip executives and analysts by surprise. A red-chip executive said: 'It doesn't make sense. It contradicts . . . the principles of [a] free market economy. It's also difficult to enforce.' A Peking University professor, Song Guoqing, said: 'This is an old issue regarding Beijing's concerns that state assets will be cheaply sold through asset restructurings and asset transfers.' Standard Chartered senior economist Liao Qun said following years of lax enforcement of red-chip regulations, the policy would help put things back in the right order. 'Some of the companies overseas have not been running properly and seriously, highlighted by the the fallout of Guangdong International Trust and Investment and Guangdong Enterprises (Holdings),' Mr Liao said. Mainland-backed companies have mushroomed in the SAR during the past 10 years, reaching more than 1,800 in number. These companies have assets worth $1.6 trillion in sectors ranging from trade, finance, transport, tourism, manufacturing, construction and property.