China imposes limits on investments abroad to cut risks

Developer Country Garden Holdings closed all its China showrooms promoting its Forest City mega-development in Johor earlier this year as it looked to adapt to Beijing's clampdown on capital outflows.
Developer Country Garden Holdings closed all its China showrooms promoting its Forest City mega-development in Johor earlier this year as it looked to adapt to Beijing's clampdown on capital outflows.PHOTO: REUTERS

Property, hotel, film, entertainment and sports investments will be subject to restrictions

BEIJING • China has laid down explicit rules restricting overseas investments, stepping up its campaign against what it described as "irrational" acquisitions of assets in industries ranging from real estate to hotels and entertainment.

The authorities set out three categories - banned, restricted and encouraged - outlawing investments in gambling and sex industries, while encouraging firms to support the Belt and Road Initiative backed by President Xi Jinping, the State Council said yesterday.

Property, hotel, film, entertainment and sports investments will now be subject to restrictions.

"Profound changes are taking place in international and domestic situations, and Chinese enterprises face not just relatively good opportunities but also various risks and challenges in overseas investments," the State Council said.

China has embarked on a drive to reduce leverage in financial markets and snuff out systemic risks ahead of a Communist Party leadership transition later this year, while remaining vigilant for accelerated capital outflows that threaten to weaken the nation's currency.

Some of the country's most aggressive dealmakers - Anbang Insurance Group, Fosun International, Dalian Wanda Group and HNA Group - have scaled back investments abroad or sold assets amid regulatory pressure.

Earlier this year, property developer Country Garden Holdings closed all its mainland China showrooms promoting its Forest City mega-development in Johor, as it looked to update its sales strategy and adapt to Beijing's clampdown on capital outflows.

PLAYING SAFE

Policymakers are also concerned about the potential investment loss and financial risk related to the takeover of 'trophy assets', a lesson they might have learnt from corporate Japan in the late 1980s.

MR ROBIN XING, chief China economist at Morgan Stanley in Hong Kong, who also noted that the recent changes are "part of the precautionary package to prevent a rebound in capital outflows amid further Fed rate hikes".

The recent changes are "part of the precautionary package to prevent a rebound in capital outflows amid further Fed rate hikes", said Mr Robin Xing, chief China economist at Morgan Stanley in Hong Kong. "Policymakers are also concerned about the potential investment loss and financial risk related to the takeover of 'trophy assets', a lesson they might have learnt from corporate Japan in the late 1980s."

The People's Bank of China imposed controls as the amount of money flowing out last year topped US$816 billion (S$1.1 billion), according to data compiled by Bloomberg, with Macau casinos considered a primary exit used by private citizens and corrupt government officials.

The banking regulator this year asked lenders to provide loan information on the country's top deal-making firms, and is examining examples of acquisitions gone awry by those companies to assess potential risks to the financial sector, people familiar with the matter said.

China's outbound investment slumped 44.3 per cent in the first seven months from a year earlier as policymakers imposed brakes on firms' foreign acquisition following a record spending spree in 2016.

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A version of this article appeared in the print edition of The Straits Times on August 19, 2017, with the headline 'China imposes limits on investments abroad to cut risks'. Print Edition | Subscribe