Date
17 October 2017
The Ministry of Commerce will continue to watch out for irrational investment in overseas property, hotel and entertainment industries. Photo: tech.qq.com
The Ministry of Commerce will continue to watch out for irrational investment in overseas property, hotel and entertainment industries. Photo: tech.qq.com

China’s crackdown on overseas investment spree not surprising

Hollywood was hurt badly by the credit crunch during the 2008 financial crisis. Then, online entertainment became a growing challenge.

At about the same time, China was encouraging its firms to “go out”, marking the start of a trend of mainland investment flows into overseas entertainment businesses.

In recent years, however, the overly aggressive investing activities of Chinese firms began to raise the authorities’ concern.

“There was an outstanding problem of irrational outbound investment by a few companies last year, so we worked with other regulators to determine if the deals were genuine,” Vice Commerce Minister Qian Keming said last week, adding that Beijing aims to promote healthy and legitimate offshore investment.

The authorities will continue to watch out for “irrational” overseas investments, particularly in the real estate, entertainment, sports, hospitality and film industries, Qian said.

In fact, outbound investment plunged by more than 40 percent in the first half of this year.

Temporary bumps in foreign investment are quite normal. For example, Germany’s foreign direct investment slumped by 63 percent to US$34.6 billion last year from US$93.3 billion in 2015.

China actually has not changed its policy of encouraging offshore investment, but this time stronger oversight will be exercised.

It’s necessary for Chinese authorities to intervene in cross-border capital flows as the country’s capital accounts have yet to be fully convertible and there is a need to prevent massive cross-border capital flows for the sake of financial stability.

Chinese authorities had cracked down on massive “hot money” inflows in the past. This time, the focus has shifted to stemming the outbound spending spree.

This article appeared in the Hong Kong Economic Journal on Aug. 7

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at eng[email protected]

RT/CG

Senior investment banker

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