Oleg Zabluda's blog
Tuesday, December 27, 2016
 
China to clamp down on outbound M&A in war on capital flight
China to clamp down on outbound M&A in war on capital flight
Rules to tighten deal approval process take shape as renminbi and forex reserves fall
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an effort to curb capital outflows that are putting downward pressure on the renminbi and draining foreign exchange reserves, according to people who have seen a draft of the rules.

The State Council is most concerned about outbound mergers and acquisitions worth more than $10bn, said two people familiar with the government’s deliberations. They added that Chinese officials would scrutinise purchases of more than $1bn if they were outside the investor’s core business. Meanwhile, state-owned enterprises will not be allowed to invest more than $1bn on a single overseas real estate transaction.
[...]
State Administration of Foreign Exchange (Safe) said only that it would crack down on “fake” transactions while continuing to clear genuine ones. Safe declined to comment on reports that it would begin vetting cross-border money transfers worth $5m or more, compared with a previous threshold of $50m.
[...]
China is on course to record its first net foreign direct investment deficit this year, according to balance of payments data. Inbound FDI exceeded outbound flows every quarter from 1998 until the middle of last year but China has reported FDI deficits for four of the past five quarters, including a record $31bn in the third quarter of 2016.

Despite the increase in FDI outflows, such investments remain only a small slice of China’s broader capital outflow. Excluding FDI, China suffered a capital and financial account deficit of $176bn in the third quarter — much higher than the $31bn of FDI outflows. These so-called “hot money” outflows include investment in stocks and bonds, as well as trade credit and other bank loans.
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https://www.ft.com/content/2511fa56-b5f8-11e6-ba85-95d1533d9a62

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