China Reins In Overseas Investment After $225 Billion in Deals Last Year

In a record-breaking number that signaled to the world that Chinese business leaders were hot to haggle, China struck $225 billion in deals to acquire companies abroad last year.

Now, China is telling some of its companies to cool it down with a worried eye on the money leaving its borders.

China’s commerce minister castigated what he called “blind and irrational investment” in the strongest public signal yet that Beijing was changing course. Officials planned to intensify supervision of what he called a small number of companies, Zhong Shan, the minister said at a news briefing during the annual meeting of China’s congress.

“Some enterprises have already paid the price,” said Mr. Zhong, a protégé of President Xi Jinping. “Some even have had a negative impact on our national image.”

The wisdom of some recent Chinese overseas deals was also questioned just a day earlier by Zhou Xiaochuan, the country’s top central banker. “Some are not in line with our requirements and policies for overseas investment, such as in sports, entertainment and clubs,” he said. “This didn’t bring much benefit to China and caused some complaints overseas.”

With a reputation for having more money than deal-making aptitude, the brakes on the sometimes chaotic rush overseas by deep-pocketed Chinese companies were being put by the government and the comments are the clearest confirmation of that effort.

“Are these guys in over their heads?” said Brock Silvers, a longtime investment banker in Shanghai. “The answer to me is, in some cases, they seem to be.”

Though it is not always clear whether buyers themselves suddenly decided they were making a big mistake or whether Beijing has stepped in, a series of Chinese deals have come apart this winter.

A $1 billion agreement to sell the company to China’s Dalian Wanda conglomerate collapsed, the owners of Dick Clark Productions, which produces the Golden Globe Awards, said on Friday. No immediate comment was available from Dalian Wanda, a real estate giant that has branched out into filmmaking and cinemas.

Amid worries over a slowing national economy, a weakening currency and numerous other problems, Chinese families and companies have been rushing to move money out of the country for more than a year. The outflow threatens to damage the country’s efforts to help its rising middle class and has been expensive — China has spent $1 trillion over the past two and a half years to shore up the value of its currency.

By considerably tightening enforcement of its strict limits on how much money can move across its borders, China in recent months has increased its efforts to stanch the flow. A slight increase in the size of China’s huge holdings of foreign money managed by its currency administrator, one of the rough proxies for the sum of money moving out, was evident in th most recent data for February and therefore the effort appears to be showing success.

Any movement of $5 million or more out of the country required special approval, Beijing secretly told banks in late November. Since then, for clients than they take in, regulators have also told each bank to not move more money out of the country.

According to Dealogic, a data firm that tracks deals, amounting to more than double 2015’s total was China’s $225.4 billion in announced deals for overseas properties last year.

(Adapted from CNBC)

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Categories: Economy & Finance, Uncategorized

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