Beijing’s strict capital controls are delaying belt and road project approvals
Mainland firms now need up to three times longer to gain approval for their investments in the government’s trade plan
China’s strict capital controls are delaying the approval process for mainland companies to finance projects under the government’s “One Belt, One Road” initiative, according to industry players.
“Mainland private companies now need at least three to six months to get approval from Beijing for them to get the money out of the country to finance many of the One Belt, One Road projects,” said Clement Chan Kam-wing, managing director of accounting firm BDO.
“China has not banned such investment but the authorities have demanded more documentation and explanation as to how the money would be used, particularly for large amounts, above US$5 million.”
“Beijing does not want companies using these types of investment as an excuse to bring money out of the country to hedge against the loss in the valuation of the yuan. This has naturally delayed the approval process and is likely to continue this year until China reviews its capital control policies.”
This has hurt belt and road projects. Initiated by Beijing in 2013, the belt and road plan is aimed at building railways, ports, airports, roads and other infrastructure in 60 countries neighbouring China and in other parts of Asia, the Middle East and Europe to boost trade flow and economic growth.
“Mainland companies now need to structure their investment appropriately if they want to get approval from the authorities to invest in One Belt, One Road projects, under the tougher scrutiny of the capital control measures,” Yeap said.
As an example, he said several years ago mainland companies could easily get approval to invest in power plants with no need to provide much explanation.
Nowadays, they need to show the authorities that their proposed investments are sensible. This may include proving that the power plant is in an ideal location, that the investment amount is reasonable and that local people will be able to afford to pay their electricity bill once the plant is operational.
“I do not see a slowdown of investment in One Belt, One Road from mainland firms but they would all need to show that they are making sensible investment in these projects,” Yeap said.