China may launch its first national rule governing overseas investment by the end of this year, state media reported.
The latest move to curb capital outflows comes as regulators seek to rein in Chinese firms’ “imprudent or irrational investment.”
The country currently has fragmented statutes on overseas investment issued by different governmental bodies, including the Ministry of Commerce and the State Administration of Foreign Exchange (SAFE).
A national regulation will create greater coordination among departments, and therefore strengthen efforts to crack down on overseas activities the government considers reckless, the Economic Information Daily reported Tuesday.
The regulation will classify outbound investment projects into categories such as “encouraged” and “prohibited,” the report said.
“Supervision and control over imprudent or irrational investment will be enhanced,” the newspaper — run by the official Xinhua News Agency — cited an unnamed source as saying. “Behavior that violates the law in the host country or Chinese law will be banned and punished.”
China’s outbound direct investment began increasing rapidly several years ago, as Beijing encouraged companies to “go out” to acquire cutting-edge technologies and resources to power the country’s economic growth. In 2015, outbound investment for the first time exceeded foreign direct investment into the country.
But purchases went far beyond minerals and technology to include big-ticket acquisitions of European soccer teams and North American cinema chains. And beginning late last year, the government stepped up scrutiny over what ended up in Chinese overseas shopping bags, as authorities grappled with massive capital outflow fueled by a strengthening dollar and a slowdown in China’s economic expansion.
Stricter approvals by the government soon led the country’s overseas investment to slump, with outbound direct investment in nonfinancial sectors down 52.8% year-on-year in the first two months of 2017 to $13.4 billion. Last year, the figure soared at its fastest rate in eight years, growing 44% year-on-year to $170.1 billion, data from the Commerce Ministry showed.
At a Monday forum, SAFE chief Pan Gongsheng blasted some overseas deals as abnormal, such as a domestic steel maker’s acquisition of a foreign food company, and a Chinese restaurant’s purchase of overseas internet gaming companies. He questioned the motives of many already debt-laden Chinese companies to borrow more for foreign acquisitions, adding that some were “transferring assets under the pretext of investing overseas.”
Under the new rule, the government will favor projects it expects will be profitable, be in the public’s interest, or comply with Beijing’s “One Belt, One Road” initiative, which aims to strengthen economic ties among countries in Asia and Europe, the report said.
The regulations will clarify such things as how projects will be approved, how money can be transferred overseas and how profits will be distributed, as well as provide specifics on reinvestment and taxation.
The regulation is being worked on by governmental bodies that include the Commerce Ministry and the National Development and Reform Commission (NDRC). It may be introduced this year, the media reported.
Officials at the Commerce Ministry and the NDRC were not able to comment immediately when contacted by Caixin on Tuesday.
By Fran Wang