Drop in H1 Chinese Outbound Investment Could Prompt Loosening of Regulatory Controls

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A sharp decline in China’s non-financial foreign direct investment in the first half of the year could lead to a relaxation of controls in certain sectors.

The latest data from the Ministry of Commerce indicates that Chinese non-financial direct investment for the January – June period fell 45.8% year-on-year to USD$48.19 billion.

Chinese foreign investment in real estate fell by 82.1% YoY in the first half, while investment in the cultural, physical training and entertainment sectors plunged 82.5%.

Yang Pengcheng, chairman and spokesman for the policy research office of the National Development and Reform Committee said at a press conference that the sharp decline was largely due to the high baseline established in the first half of 2016.

Other key factors include ongoing improvements in the Chinese economy that have increased confidence in domestic investments, in tandem with overseas instability which has made companies more cautious about forays abroad, as well as the strengthening of regulatory inspections of overseas investments starting from the end of last year.

Yang said that the relevant government departments will continue to focus on “irrational overseas investment” in escorts including real estate, entertainment, movie theatres, hospitality and gym clubs.

Central bank governor Zhou Xiachuan recently said of some Chinese foreign investment that “it fails to comply with China’s policy requirements with respect to foreign investment sectors, and does not bring much benefit to China, while generating some grievances abroad,” which is likely a reference to the political and financial turmoil surrounding Dalian Wanda.

Yang’s press conference omitted mention of the latent risk associated with “large-scale investment in non-primary business, limited liability company overseas investment, and rapid establish and withdrawal from subsidiaries” when it came to foreign investment, which some market observers believe flags a loosening of policy in the second half of 2017.

Yang also indicated that Beijing would provide especially strong support to “enterprises investing in and operating One Belt One Road construction and international production capacity cooperative projects

“We support domestic enterprises that possess the capability and qualifications to undertake overseas investment activities that are in actual compliance, and support foreign investment projects in accordance with commercial principles and international regulations that are driven by companies and guided by the market,” said Yang.

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