China’s National Development and Reform Commission (NDRC) issued new draft guidelines on outbound investments and deals this morning, seeking public comments on a comprehensive regulatory framework that could further restrain Chinese companies’ already shrinking overseas investments.
The draft regulations build on previous rules implemented in May 2014, and aim to "improve oversight, safeguard national security and support the healthy development of outbound investments," according to a government statement posted on the NDRC website.
The draft includes a new blanket item that could put any outbound investment under the purview of the NDRC. It says that any sectors that are deemed necessary to restrain from overseas investments under Chinese macroeconomic policy will be considered "sensitive industries," which means they need to reviewed and approved by regulators. The 2014 laws only listed six industries as "sensitive industries".
In addition, it will be required that outbound investments do not threaten or damage national interests and national security, which indicates that regulators could block any outbound investments on the ground of national security. It would work similarly to how the Committee on Foreign Investment in the United States (CFIUS) works to block inbound investments in the U.S.
The new rule will also scrap a provision from the previous 2014 rule that requires companies acquiring or bidding for overseas projects valued at over US$300 million to report project information beforehand, in order to lower the institutional transaction costs for enterprises, the NDRC said.
China inked a total of 163 outbound deals worth US$43 billion during the first half, down 65% in terms of total deal value compared to the same period last year, as tightened capital control measures dampened Chinese overseas investment.
Chinese investments appear to be less welcome in some countries as well. American regulators and president Trump appear ready to block a growing list of Chinese investments in the name of protecting American business and security interests.
The new draft came as China’s foreign-exchange reserves posted an eighth-straight monthly rise in September, as the pressure of cash outflows eased further and the Yuan rose. Over the summer, regulators moved to ask banks to check their exposure to loans financing massive outbound investments by acquisitive Chinese conglomerates including Dalian Wanda Group, HNA Group and Fosun Group. Wanda Group was reportedly criticized by regulators for six of its overseas deals as "irrational investments."