China economy

Is Beijing finally letting Chinese firms off the overseas investment leash?

After taking aim at ‘irrational’ offshore investment, China says it’s now willing to support private players venturing abroad

PUBLISHED : Sunday, 26 November, 2017, 3:58pm
UPDATED : Sunday, 26 November, 2017, 10:28pm

Beijing is signalling that it might start encouraging private manufacturers to expand overseas again, now that the peak of the capital exodus appears to be over.

In a joint guideline released last week, 16 Chinese ministries pledged to support private manufacturers through industrial upgrades and offshore growth. The pledges include help for the businesses to register trademarks overseas.

Under the guideline, Beijing will also nudge banks to aid private businesses in their offshore ventures, and companies and financial institutions that qualify for overseas investment will be “encouraged to raise funds both at home and abroad”.

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

In addition, the authorities will support private companies using offshore assets, including equity stakes and ownership of mines, as collateral for credit.

The guideline’s wording contrasted sharply with Beijing’s harsh criticism over “irrational investment” late last year when massive capital outflows sent the yuan down and forced the central bank to burn through billions in foreign exchange reserves to prop up the Chinese currency.

Much of the official criticism was aimed at last year’s record high US$170 billion outward investment in hotels, cinemas, entertainment and sports clubs, among other things, prompting the central government to crack down on the purchases.

Some big deal makers such as Anbang Insurance, which bought the Waldorf Astoria hotel in New York, and Dalian Wanda, which bought cinema business IMAX and developed properties globally, were investigated over the summer.

Anbang Insurance chairman Wu Xiaohui was taken away in June to “assist” in an investigation and has not been seen in public since. Wanda has shelved its five flagship overseas property projects, priced at US$5 billion.

At the same time, Beijing is not blocking overseas deals that could make China more competitive internationally.

Bank of Communications senior analyst Liu Xuezhi said the joint guideline did not represent a policy reversal because the ministries had continued to stress the need for orderly expansion.

China to curb ‘irrational’ overseas investment by domestic firms in ‘Belt and Road’ projects

But stability in cross-border capital outflows and a rising yuan had created a favourable climate for Beijing to advance other policy goals, such as the internationalisation of Chinese firms and the “Belt and Road Initiative”, Liu said.

The initiative, China’s plan to bolster trade and its economic influence throughout Asia to Europe, continues to attract government support. Although China’s investment in 53 countries along the belt and road routes fell 7.4 per cent year on year to US$11.2 billion in the first 10 months of this year, that was minor compared to a 40.9 per cent drop in the overall outbound total to US$86.3 billion in the same period.

“Going global is inevitable as China moves from being the world’s factory to an industrial power,” Liu said. “It also provides a new area of growth when private firms are squeezed by financing and economic structural adjustment at home.”

Earlier this year, the State Council, China’s cabinet, issued new guidelines for overseas investment by Chinese firms. While investment in trophy projects would be discouraged, it said, overseas deals in hi-tech or advanced manufacturing would be promoted.

Outbound investments still encouraged, despite Beijing’s curbs on ‘irrational’ deals

Yu Miaojie, deputy dean of the national school of development at Peking University, said Beijing’s bigger concern was working out how to hang on to its international competitiveness and move up the global value chain.

Yu said many labour-intensive factories were forced to move overseas as wage rises greatly weakened China’s comparative advantage against Southeast Asian and African countries.

More could follow suit since China is pushing cooperation with belt and road countries to export its excess industrial capacity.

Meanwhile, foreign technology and markets were still greatly needed, Yu said, because the Ministry of Industry and Information Technology aimed to drive up domestic manufacturing through the “Made in China 2025” strategy.