China economy

Beijing claims win against ‘irrational’ outbound cash, stopping ‘crocodiles’ and ‘ants’ in their tracks

PUBLISHED : Monday, 31 July, 2017, 7:50pm
UPDATED : Monday, 31 July, 2017, 11:23pm

China has staunched the flow of “irrational” offshore investment, a Chinese official said on Monday, after outbound deals, measured in yuan, plunged 42.9 per cent in the first half.

“There was an outstanding problem of irrational outbound investment by a few companies last year, so we worked with other regulators to determine if the deals were genuine,” vice-commerce minister Qian Keming said in Beijing. “The irrational investment has now been effectively curbed.”

Beijing’s success in stopping the flow was the result of an abrupt reversal in its approach to the country’s global dealmakers, known as “crocodiles”, and members of the public trying to get their wealth offshore, known as “ants”.

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After once encouraging offshore investment, Chinese authorities forced companies like Dalian Wanda Group, Anbang Insurance Group and HNA Group to retreat from their aggressive overseas spending sprees.

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In an interview with Chinese financial magazine Caixin two weeks ago, Wanda chairman Wang Jianlin said the company’s investment would comply with instructions from the state and focus on China.

That’s a sharp contrast from two years ago when Wang told an audience at Harvard University that he decided where Wanda would invest.

Guo Guangchang, chairman of Chinese conglomerate Fosun International and another active global investor, said on Saturday that Beijing’s tough rules on overseas deals were “essential and timely” so that foreigners would not treat Chinese investment as “silly money”.

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Along with added scrutiny of corporate offshore purchases, authorities have been clamping down on individuals trying to skirt the annual US$50,000 per capita quota on moving cash offshore.

The State Administration of Foreign Exchange (SAFE) has intermittently published lists of “typical cases” of individuals and companies caught violating the forex rules.

The latest came last week and included 25 cases.

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In one case, a person was fined 542,500 yuan (US$80,500) for using the bank accounts of 69 mainland residents and their forex quotas to remit US$3.5 million worth of funds abroad. Another was fined 120,000 yuan for using 18 mainland residents’ identities to remit US$891,500 into his Hong Kong account.

SAFE has also started to fine banks that fail to spot such irregularities.

Societe Generale China economist Claire Huang said SAFE was taking a tougher line than before.

“In the past, [SAFE} might have just rung up the banks to give them a warning,” Huang said.

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China’s foreign exchange reserves, a barometer of capital outflows, have stabilised at a level slightly above US$3 trillion over the past months.

But the central government denied it had changed its outbound investment policy.

Qian said the government would continue to encourage “qualified domestic companies with the right conditions” to venture abroad, especially if the investments dovetailed with China’s Belt and Road Initiative and drive to upgrade industry.

“This policy hasn’t changed and it won’t change,” Qian said.