Daily Management Review

China is the most active international investor


Results of 2016 showed that Chinese companies invested $ 225 billion in foreign business in total, which makes China the world leader in this indicator. This achievement looks even more surprising as the country's leadership is fighting with outflow of capital abroad.

Chinese companies and businessmen are most active in investing their money in foreign assets. According to The New York Times, volume of their investments in foreign business reached $ 225 billion in 2016, which is a record high. However, the country's authorities do not share such eagerness. On Saturday, China's Minister of Commerce Zhong Shan once again made it clear that the government intends to continue the fight exodus of capital.

During the briefing, the minister said that some Chinese companies are irresponsible towards the money injections. "Some companies have already paid for this. Some even had a negative impact on the image of our country, "- he told. The day before, Head of the People's Bank of China Zhou Xiaochuan criticized the policy pursued by Chinese companies abroad: "Some transactions are contrary to our demands and policies on foreign investment, in such areas as sports, entertainment and clubs. All this did not bring any special dividends to China, and some of these transactions even resulted in complaints from abroad."

By the end of this year, volume of foreign investment by Chinese companies is likely to decline, given that the government intends to further tighten control over financial flows. In addition, a number of transactions between Chinese and foreign companies fell through for unknown reasons this winter. The latest example is recent statement of Dick Clark Productions, which is producing the Golden Globe Awards. The company last Friday cancelled a $ 1 billion-worth sales contract with Chinese conglomerate Dalian Wanda. Later, the American company said that the deal failed because the Chinese side was unable to fulfill its obligations in connection with restrictive measures of the Chinese authorities with respect to foreign investments.

It all started in 2015. Then, Chairman of the People's Bank of China Zhou Xiaochuan persuaded the Communist Party to allow market forces to influence the yuan's exchange rate against the US dollar, the Financial Times writes. He then told that the yuan would finally receive status of the IMF’s reserve currency (this happened in October 2016). People familiar with the situation called Zhou's strategy a Trojan horse, because, they said, he wrapped up difficult reforms in a beautiful wrapper. Now, it seems, the leaders of the country are beginning to regret them.

Since the beginning of January 2016, the yuan's exchange rate against the dollar has decreased by 5.8%. In an attempt to support the yuan, Beijing used foreign exchange reserves, which by the end of October fell to $ 3.12 trillion, the lowest level since March 2011. Meanwhile, in early 2014 they amounted to almost $ 4 trillion. This is a "strong change," and the trend to weaken the yuan is "obvious", so the government is tightening control over capital flows, says an economist at the China Center for International Economic Exchange. 

People's Bank of China itself in recent years has been very keen to carry out financial reforms and, in particular, to liberalize capital flow, so now it does not want to impose restrictions, says Primavera Capital Group Chairman Fred Hu. However, the State Council of the People's Republic of China and the Ministry of Finance are less interested in reforms, says Louis Kuijs of Oxford Economics.

At first the government proposed to limit the investment of Chinese companies abroad. Especially the state council is concerned about deals on the acquisition of foreign companies of more than $ 10 billion and investments of Chinese corporations in non-core assets worth more than $ 1 billion. According to the Ministry of Trade, foreign direct investment of Chinese companies in the non-financial sector in 2015 amounted to a record $ 121 billion, and for the first 10 months of 2016 – to $ 146 billion. 

source: ft.com, nytimes.com

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