China’s FDI Dives After PBOC Curbs

China’s FDI Dives After PBOC Curbs

China’s FDI Dives After PBOC Curbs

China’s investment in other countries has taken a deep dive since Beijing tightened controls to cool surging spending on assets deemed unneeded for Chinese economic development.

Outward investment, aka FDI (foriegn direct investment), in the 1st 8ht months of this year fell 41.8% rom a year earlier to $68.7-B, the Chinese Commerce Ministry said Thursday.

Chinese companies, flush with cash from an economic boom, ramped up purchases of foreign technology and brands in recent years to speed their development. But, after a flood of money into sports and entertainment, authorities tightened controls on the flow of capital out of the country last year and said they want investment to focus on technology and other assets needed by China’s economy.

China’s investment abroad is relatively small compared with that of developed countries, but the surge in spending and Chinese buyers’ willingness to pay top prices for premium assets has made them sought after by sellers abroad.

Chinese investors also have bought high-profile assets such as New York City’s Waldorf Astoria Hotel and the Hollywood studio Legendary Entertainment.

Investment this year went mainly into manufacturing, wholesale and retail, and information technology, according to the Commerce Ministry. It said there were no new investment projects abroad in sports, entertainment or real estate.

“Irrational outbound investment was further contained,” a ministry spokesman, Gao Feng, said in a statement.

Chinese buyers might face more hurdles abroad after the President of the European Commission (EC), Jean-Claude Juncker, said Wednesday he will propose a European system to screen incoming foreign investment.

Mr. Juncker did not mention China but the announcement follows mounting complaints that Chinese buyers are free to make almost any acquisition in Europe while Beijing bars sales of most assets to foreigners.

European sensitivity has been especially high since last year’s purchase of Germany’s Kuka, a leading industrial robot maker, by China’s Midea Group.

Chinese buyers see Europe as more welcoming to investment than the United States, where some deals are required to undergo a security screening.

Wednesday, US President Donald Trump blocked a Chinese government-financed company’s purchase of a semiconductor manufacturer, Lattice Semiconductor, on national security grounds.

One of the country’s biggest conglomerates, Wanda Group, paid $3.5 billion in 2012 for Hollywood studio Legendary Entertainment and owns the AMC Cinema Chain.

The PBOC governor, Zhou Xiaochuan, said in March the government wanted to curb spending on assets that are “unsuited to the industrial policy needs of the country.” He said foreign sports and entertainment assets “have not much benefit to China.”

A Cabinet document issued in August said Beijing wants to promote “rational, orderly and healthy development of foreign investment while effectively guarding against risks.”

The August document encouraged companies instead to plow money into “Belt and Road” projects, President Xi Jinping’s signature foreign policy initiative to expand trade links through Asia to Europe by investing in ports, highways, railways, power plants and other infrastructure.

Investment in the 52 countries covered by “Belt and Road” was $8.5-B in the 1st 8ht months of this year and spending commitments rose 21% to $84.5-B, according to the data.

Xi has been moving to reassert control over top state enterprises, while reining in private sector conglomerates including Wanda, Anbang Insurance, Fosun International and HNA Group that have expanded abroad.

News reports in July said regulators told bankers that Wanda’s recent foreign acquisitions violated capital controls. Wanda’s Chairman, once the entertainment sector’s ‘poster boy’ has not been seen publicly for several months.

Have a terrific weekend.

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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