China Posted Its First Ever Outbound Direct Investment Decline in 2017

Chinese outbound direct investment posted its first ever decline in 2017 on the back of tighter capital controls and a crackdown on the overseas acquisitions sprees of cash-flush tycoons.

Figures from China’s Ministry of Commerce indicate that outbound direct investment plunged by 29.4% in 2017 to approximately USD$120 billion, for the first ODI decline since the start of official data publication in 2003.

The leasing and business services sector comprised the biggest share of Chinese ODI in 2017 at 29.1%, followed by whole sale and retail at 20.8%, manufacturing and communications (15.9%) and software and information technology (8.6%).

The ODI figure does not include Chinese foreign direct investment in the financial sectors of other countries.

Data from Rhodium Group further indicates that Chinese investment in the United States plunged by 35% last year to $29 billion in completed transactions, while the value of newly announced deals dropped a whopping 90%.

While the plunge in China’s outbound foreign investment was primarily due to Beijing’s crackdown on “irrational investment” in the real estate and entertainment sectors by cash-flush companies, Rhodium points out that the US has also sought to stymie Chinese acquisitions of domestic assets since President Donald Trump took office.

“Much of the decline was attributable to Beijing’s regulatory crackdown on outbound capital flows, but growing regulatory hurdles in the US — mostly more complications getting clearance from the Committee on Foreign Investment in the United States (CFIUS) — was the second punch to Chinese investors,” said Rhodium.

“CFIUS seems to have broadened its approach for reviewing Chinese deals, taking into consideration a broader array of criteria when assessing security risks, for example state-sponsored M&A activity to obtain certain technologies or concerns about data protection.”

CFIUS recently blocked the acquisition of US payments giant MoneyGram International by Alibaba’s Ant Financial due to national security concerns.

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