China to curb ‘irrational’ overseas investment as capital controls tighten

Chinese companies investing in overseas firms for the Belt and Road Initiative (BRI) will be subject to greater controls, state planners announced in an online statement on Friday.

The National Development Reform Commission (NDRC) will provide better guidance on risks to companies investing overseas ‘to promote the healthy and orderly development of foreign economic and trade cooperation’, said the statement, reports Reuters. Chinese acquisitions in BRI countries totals $US33 billion in 2017 to date, surpassing the $US31 billion for all of 2016.

The NDRC statement came as China’s State Council officially signed off on capital controls targeting ‘irrational’, overseas investments in property, entertainment and sport.  Zhou Xiaochuan, the People’s Bank of China governor, defended the controls against ‘blind’ and ‘over the top’ investments, as regulators seek to curtail Chinese companies’ acquisition of overseas trophy assets and stem capital flight from China, reports the FT.

The new rules are likely to hit global M&A deals and real estate markets, although overseas investments from Hong Kong, such as Lee Kum Kee’s £1.28 billion acquisition of London’s ‘Walkie Talkie’ skyscraper, are likely to continue.

Capital controls in mainland China will attempt to limit what the International Monetary Fund has warned is a “dangerous” level of corporate debt, currently at 169 per cent of GDP, with total China debt at 277 per cent of GDP.