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China further limits overseas investment in push to cut risk

[BEIJING] China said it will restrict domestic companies from making overseas investments in sectors such as real estate, hotels, entertainment and sports clubs to reduce financial risk and support the economy.

The authorities will also ban overseas investment in gambling, while encouraging companies to support the nation's ambitious "Belt and Road" initiative backed by President Xi Jinping to link China with Asia and Europe, the State Council said in a statement on the government's website Friday.

China has embarked on a drive to reduce leverage in financial markets and snuff out systemic risks ahead of a Communist Party leadership transition later this year. Some of the nation's most aggressive dealmakers, including Anbang Insurance Group Co, Fosun International Ltd, Dalian Wanda Group Co and HNA Group, have come under scrutiny.

The State Council said outbound investment will be judged according to three categories: banned, restricted and encouraged.

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The government is trying to curtail capital outflows that weaken the yuan and drain capital reserves. The People's Bank of China imposed controls as the amount of money flowing out last year topped US$816 billion, according to data compiled by Bloomberg, with Macau casinos considered a primary exit used by private citizens and corrupt government officials alike.

The banking regulator this year asked lenders to provide loan information on the country's top deal-making companies, and is examining examples of acquisitions gone awry by those firms to assess potential risks to the financial sector, people familiar with the matter said.

In a separate statement, the National Development and Reform Commission said it sees "irrational" overseas investment in some sectors, while others more appropriate to the Belt and Road initiative are encouraged.

China's outbound investment slumped 44.3 per cent in the first seven months from a year earlier as policy makers imposed brakes on companies' foreign acquisition following a record spending spree in 2016.

BLOOMBERG