China’s outbound investment slumps 46pc in first half amid tighter regulations and global uncertainty

PUBLISHED : Friday, 14 July, 2017, 6:41pm
UPDATED : Friday, 14 July, 2017, 10:58pm

China’s non-financial overseas investment nearly halved in the first six months of 2017 due to tighter capital restrictions and rising global uncertainty.

Non-financial outbound direct investment fell 45.8 per cent year on year to US$48.19 billion in the first half, China’s Ministry of Commerce said on Thursday. In June alone, outbound investment dropped 11.3 per cent from a year earlier to US$13.6 billion.

At the end of 2016 Beijing introduced tighter controls over funds moving out of the country and increased scrutiny of domestic companies’ foreign investments. Last month banking regulators said they were examining bank loans taken out by the country’s top deal-making companies including Anbang Insurance, Fosun, HNA and Dalian Wanda.

“Unreasonable outbound investments have been effectively curbed,” Gao Feng, a commerce ministry spokesman, said during a press conference in Beijing on Thursday. He noted that Chinese foreign investment in industries like property, hotels, cinemas and entertainment have dropped 82.5 per cent year on year.

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In particular, investment in overseas property fell 82.1 per cent year on year in the first half, accounting for just 2 per cent of total outbound investment during the period.

Separately, data from merger and acquisition deals also confirmed the downward trend.

According to consulting firm Mergermarket, deals by Chinese companies in the hotel, property and entertainment sectors surged 233 per cent year on year in 2016, reaching US$15.86 billion across 33 different transactions.

The biggest deals included HNA acquiring a 25 per cent stake in Hilton Worldwide Holdings for US$6.5 billion and Anbang Insurance buying Strategic Hotels & Resorts for US$5.5 billion. But starting from January this year, only 14 deals with a combined value of US$1.6 billion have been recorded, the lowest since 2013.

With regulations restricting capital outflow, the mainland has seen a shift back to domestic investment activity.

“China’s stable and improved economic growth in the first six months helped strengthen domestic investors’ confidence so that more capital stayed in the country,” Gao said.

Moreover, regional conflicts, more acts of terrorism and tighter regulations on foreign capital in some countries and regions have increased global uncertainty.

“Those factors actually hindered China’s investment in overseas markets,” Gao said, without naming specific countries.

Mergermarket’s global M&A report shows 27 fewer Chinese deals with Europe in the first half of 2017, with deal value dropping 65.7 per cent to US$25.6 billion across 59 transactions. That compares with the record of US$74.8 billion across 86 deals seen in the first half of 2016.

Geopolitical concerns over Brexit and terrorism attacks have discouraged foreign capital inflow to Europe.