China economy

Overseas real estate and soccer clubs in crosshairs as China ramps up investment clampdown

Hong Kong property could take a hit as State Council slaps restrictions on dealmakers

PUBLISHED : Friday, 18 August, 2017, 6:20pm
UPDATED : Friday, 18 August, 2017, 11:42pm

Chinese investors will have to get special approval from Beijing to put their money in overseas property and sports clubs under tough new restrictions released on Friday.

Amid fears of broader financial insecurity, the State Council said companies would also need regulatory approval for outbound investments in hotels, the film industry and other forms of entertainment on its new formal restricted list.

Similar restrictions apply for companies setting up overseas equity funds or investment vehicles not tied to specific projects.

China has launched a campaign to curb “irrational overseas investment” and aggressive dealmakers such as Anbang Insurance Group, Fosun International, Dalian Wanda Group and HNA Group Co have been under pressure. The list issued on Friday formally set the boundary for Chinese outbound investment.

Tao Jingzhou, managing partner of a law firm Dechert, said the rules marked a major retreat from the overseas investment push promoted over the last few years.

“It indicates the government is very worried about capital outflows and that many private businesses are transferring assets abroad,” Tao said.

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The fallout from the rules might also be felt in Hong Kong, a popular destination for mainland investment.

“There are an estimated HK$50 billion in investment properties, including hotels and grade-A office buildings available for sale on the market now. Those are targeted at mainland corporate buyers,” Vincent Cheung, from Colliers International, said.

Among those up for sale are The Excelsior hotel in Causeway Bay and the Langham Place office tower in Mong Kok.

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

Amid the raft of new restrictions, Beijing signalled strong backing for its “Belt and Road Initiative” and pursuit of high technology. It said it supported stronger tie-ups with foreign hi-tech and advanced manufacturing firms, and encouraged domestic firms to set up research centres overseas.

The country’s top planner, the National Development and Reform Commission, fleshed out the thinking behind the State Council’s decision, saying some companies had incurred huge losses through inadequate planning and assessment of overseas investment.

Those investments, particularly in property, had triggered capital outflows and endangered financial security, it said.

The commission also said companies had ignored environmental, energy consumption and safety standards offshore, tarnishing China’s reputation. Those kinds of investments would be restricted.

The new rules already appear to be taking effect, with investment bankers at state-owned banks in Hong Kong notified in the past few days about the tightened restrictions on cross-border investment.

One banking source said on Friday that investments in overseas office properties were now off limits.

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The source added that the State Council’s restrictions were likely to stay in place for the longer term because they had greater weight than previous directives from regulators.

On December 6, the State Administration of Foreign Exchange teamed up with the NDRC, the Ministry of Finance and the central bank to warn that they would “closely monitor irrational investment in real estate, hospitality, movie theatres, entertainment, and sports clubs”.

Much of that heat has been on global dealmakers, including Dalian Wanda Group, which has spent more than US$5 billion buying assets such a US cinema chain and a Hollywood movie studio.

In all, Chinese companies spent a record US$170 billion on offshore assets last year.

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But the spree has generated frictions in other countries about national security and Beijing’s limits on foreign investment in China.

Chinese authorities have since clamped down on the spending, resulting in a 44.3 per cent fall in outbound investment to US$57.2 billion in first seven months of this year.

The decline was particularly sharp in overseas property and sport, were investment was down more than 81 per cent.

Additional reporting by Sidney Leng, Xie Yu and Sandy Li