China issues new guidelines to limit overseas investment

Overseas investments in the entertainment, hotel and property industries will be discouraged by the Chinese Government, in favour of proposals that fit the country’s macroeconomic strategy

 
Chinese President Xi Jinping wants investment to support his Belt and Road Initiative 
Author: Barclay Ballard
August 21, 2017

The Chinese Government has issued new guidelines to curb overseas investment. The country’s State Council confirmed the regulations on August 18, adding that they should help to reduce risk and strengthen the country’s Belt and Road Initiative (BRI).

The announcement formally codifies policies that first emerged in November 2016. Investments that do not benefit China and those that are in conflict with the country’s macroeconomic policies will now be restricted.

“In addition, the guideline also prohibits domestic enterprises being involved in overseas investment that may jeopardise China’s national interests and security, including output of unauthorised core military technology and products, gambling, pornography and other prohibited technology and products,” the State Council explained in a statement.

There is concern among China’s ruling Communist Party that some foreign acquisitions are being rushed through, with domestic companies taking on increasing levels of debt

There is concern among China’s ruling Communist Party that some foreign acquisitions are being rushed through, with domestic companies taking on increasing levels of debt. As such, new regulations will discourage companies from investing in the entertainment, property and hotel industries, in favour of supporting economic cooperation zones in Central and East Asia.

The new guidelines also suggest that the Chinese Government is pursuing greater control over capital flows in and out of the country. However, investment opportunities relating to infrastructural development, mining and hi-tech manufacturing, all of which have become key strands in the BRI, will continue to be encouraged.

According to the Financial Times, Beijing’s attempts to limit outbound investment already appear to be having an effect. Non-financial foreign investment is down by 44 percent in the first seven months of 2017, compared with the same period last year.