China yesterday said it would stick to its opening up policy and “going out” strategy on investment, even as a slide in the yuan to eight-and-a-half-year lows revived worries about capital fleeing the country.
Officials from the Chinese National Development and Reform Commission, the Ministry of Commerce, the People’s Bank of China and the State Administration of Foreign Exchange said the country would continue to encourage healthy development of outbound investment, the Xinhua news agency reported.
The Wall Street Journal on Friday last week reported that China plans to tighten controls on companies looking to invest abroad in an effort to slow surging outflows.
While Beijing has been busily damming up official channels for money to leave China, more funds than ever are leaking out through shady means as investors flee the country’s slowing economy and weakening currency, financial industry executives said.
The yuan has fallen more than 6 percent versus the US dollar this year, but has been relatively stable against a basket of currencies.
The surge in overseas investment heightens foreign exchange risks, but also poses potential threats to China’s financial system if these deals start to go bad, analysts at China International Capital Corp (CICC, 中國國際金融) said in a note yesterday.
“Emerging markets’ experience has repeatedly shown that one-way currency bets, on appreciation or depreciation, tend to be followed by substantial losses to local financial institutions,” CICC analysts wrote.
Although still the world’s largest, China’s foreign currency reserves have fallen to their lowest since March 2011, with the central bank widely believed to have sold dollars to cushion the yuan’s decline.
The central bank has urged commercial banks in Shanghai to guard against money outflows via the China (Shanghai) Pilot Free-Trade Zone disguised as foreign investment, two sources with knowledge of the instructions said on Friday.
On Sunday, central bank Vice Governor Yi Gang (易綱) predicted that capital outflows seen after the surprise devaluation of the currency in August last year would start to reverse.
“As China’s economy recovers and institutional reform improves the business environment, the money that has left will come back,” Yi said.
However, other media said China plans to implement sweeping curbs on overseas deal-making by the nation’s companies.
Regulators will generally bar overseas investments of US$10 billion and above, while leaving room for some strategic deals to be executed, sources said.
That would also apply to foreign property investments of at least US$1 billion by state-owned enterprises, as well as privatization of overseas-listed Chinese companies using onshore capital, according to people, who asked not to be identified because the information is private.
The curbs are to last until the end of September next year, the people said, adding that regulators will pay extra attention to deals by highly leveraged firms and companies with poor returns on assets.
China will also restrict overseas investments of at least US$1 billion in industries outside a buyer’s core business, they said, adding that stake purchases of less than 10 percent in an overseas-listed company, as well as Chinese companies’ subsidiaries doing overseas acquisitions valued at more than their parent company, will also be curbed.
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