China’s State Council has issued guidance on Chinese overseas investments, formally setting boundaries and distinguishing between ‘encouraged,’ ‘restricted’ and ‘prohibited’ categories, PERE‘s sister publication, Private Equity International, reported Thursday.
Restricted investments refer to transactions carried out in the sensitive countries and regions which have no diplomatic relations with China and those restricted under bilateral/multilateral treaties concluded by China. “Irrational” acquisitions in sectors like real estate, hotels, entertainment and sports – which have seen increased investment since 2012 – are also included in this category.
The ‘encouraged’ category includes infrastructure projects in the One Belt, One Road Initiative – a long-term economic priority for the government that recreates the Silk Road trade routes through Asia and Africa to Western markets – as well as important resources, agriculture and technology that it said will enhance China’s capabilities.
Meanwhile, the prohibited category includes areas relating to China’s national security and national interest such as core military and technology products as well as the gambling and sex industries.
It is understood that the State Council’s official “guidance” to financial institutions issued in late November 2016 will be maintained. This included stricter scrutiny on outbound deals valued above $10 billion as well as acquisitions of more than $1 billion in sectors unrelated to a company’s core business. Foreign real estate deals by state-owned enterprises involving more than $1 billion are also prohibited.
China outbound investment set records in 2016 with close to $170 billion worth of outflows recorded, according to the country’s Ministry of Commerce. The top targets for Chinese buyers were industrials, high tech, financials and entertainment.
Last year a group of investors including Chinese private equity firm Legend Capital and pan-Asian manager PAG participated in the $3.6 billion takeover of US printer Lexmark International, while Beijing Jianguang Asset Management and Wise Road Capital completed the $2.75 billion purchase of Dutch chipmaker NXP Semiconductors’ standard products unit.
For the first half of 2017, however, Chinese outbound investment fell 45.8 percent to $48 billion from the previous year, as the government tightened control of capital leaving China and continued its crackdown on overseas spending of big-name conglomerates such as Fosun and Dalian Wanda.