Closer scrutiny for overseas investments

China will stick to its 'going out' strategy, but safeguards are being introduced to limit risk

China is to tighten screening of overseas investment projects amid growing concern about capital outflows and acquisition risks, officials said on Nov 28.

Officials from the People's Bank of China, the National Development and Reform Commission and two other government departments said the country will promote the healthy development of outbound investment through measures such as "verification" of the overseas investments of some companies in accordance with rules.

They reiterated that China will stick to its strategy of "going out", which has been boosted by changing from an approval system to one of collecting records from companies investing overseas. Now, checks are being introduced into the push to combine high-quality offshore assets with precautions against risks.

The country's investments in global markets, in the nonfinancial sector, surged by 53.3 percent year-on-year to reach $145.96 billion (137.1 billion euros; 116.96 billion) between January and October, already surpassing the total for 2015 of about $121.4 billion, data from the Ministry of Commerce show.

But there are concerns about money outflows as China tries to keep money from illegally leaving the country, given the current global business atmosphere.

"We have found certain companies and individuals transferred their assets illegally through investment activities in overseas markets in the past 12 months," said Guo Song, director-general of the capital account management department of the State Administration of Foreign Exchange, speaking in September at a news conference. "We will take measures to curb their actions."

The administration conducted special checks for illegal capital outflows in the first six months of the year and found 2,335 leads involving a total of $8.4 billion, according to the foreign exchange administration.

Wei Jianguo, vice-president of the China Center for International Economic Exchanges, said China has long been supportive of outbound investment, especially in infrastructure sectors, and it has no reason to introduce tightened policies.

In the past, the government has more closely watched outbound investments by state-owned companies than those of privately owned companies. That is expected to continue.

"It is understandable that review procedures should be conducted on outbound investment with a value over $200 million taken by state-owned enterprises, as the government wants to make sure that its money is wisely invested and generates profits after a certain period," Wei said.

In comparison with state-owned enterprises, Wei said companies from the private sector have more independence to make their investment decisions in global markets.

Ge Xiangyang, an investment lawyer at the Beijing office of the Hong Kong-based law firm Mayer Brown JSM, said activities in some developing countries may carry bigger risks. In those cases, many Chinese companies are not familiar with the local legal and commercial environment and profitability models, Ge said.

Yi Gang, vice-governor of the People's Bank of China, said on Nov 27 that he is confident that capital that has left China won't stay abroad in the future, citing China's abundant foreign reserves and huge market.

"As the Chinese economy recovers and institutional reforms improve the business environment, the capital that has left will come back," Yi said.

Contact the writers at zhongnan@chinadaily.com.cn

(China Daily European Weekly 12/02/2016 page14)