China unveils crackdown on companies investing overseas

01-Dec-2016 Intellasia | CNBC | 6:00 AM Print This Post

The new policies are very likely to cast a big shadow over many ongoing ODI projects, including a few very high-profile investments that were announced very recently, said a source at JPMorgan who wished to remain anonymous because of the sensitivity of the situation.

China’s ODI has massively increased this year. Chinese companies have spent $212.7 billion on overseas mergers and acquisitions so far this year, almost doubling the 2015′s record high total of $111.5 billion, according to the Chinese Commerce Ministry. This includes Anbang’s $6.5 billion acquisition of Strategic Hotels & Resorts..

Facing the tightening regulation, a senior manager at Anbang who asked to remain anonymous said they were still studying the new policies and the short-term impact on the company is unclear.

However, He Weiwen, vice president of think tank centre for China and Globalisation (CCG) doubted that Beijing is targeting big names like Anbang or Wanda.

“It is very common for a government of a sovereign country to carry out its responsibility of carrying out foreign exchange control when it’s necessary. In fact, many countries have done so before. I believe that these new measures are meant to crack down on those speculators or those who simply want to transfer assets, instead of targeting at the normal overseas investment of Chinese enterprises. Therefore there is no need to over react,” he said.

Bain Consulting also regarded the new rules as “harmless” to those Chinese companies whose overseas investments are legitimate and consistent with their main business.

Since May, apart from Shanghai, many provinces and municipalities in China, including Beijing, have more or less tightened direct foreign investment, suspending overseas investment of partnership enterprises and onshore foreign exchange purchasing.

Market analysts believe that Beijing is proactively taking measures in order to minimise the impact of possible US interest rate hike.

“I think it’s totally understandable for PBOC and SAFE to put these new rules in place,” said Huang Shan, a Chinese currency expert and M&A investor,

“It’s almost certain that Fed will announce the interest hike in December. Trump’s inauguration will against boost the US dollars in the international market. However, on the other hand the uncertainty of European politics and unpleasant Brexit negotiations will further push up the dollars. China needs to take precautious measures to protect itself from the foreseeable heavy blows on its currency system.”

Huang also implied that feasibility was not an issue at all.

“The government regulates that each Chinese resident can exchange up to 50,000 US dollars a year, if SAFE is capable of monitoring and control 1.3 billion people, I don’t think it will be a big deal for it to keep an eye on those company and the activities of their bank accounts,” he said It will be a very easy job for the central government.”


Category: China

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