China’s overseas investment boom has cooled in recent weeks as the restrictions announced by Beijing in November to tackle increasing outflows of hot money gain traction.
Chinese investors announced a total of 115 overseas M&A deals in the first two months of the year, down from 137 in the same period of 2016, according to figures from London-based research firm China Investment Research. The drop is even steeper in value terms, with the M&As announced in January and December totalling just over $18bn, compared with $79bn in the same period in 2016, when, among others, ChemChina announced a $43bn takeover of Swiss agribusiness giant Syngenta, the largest ever proposed Chinese overseas investment up until that point.
Markets in Europe and the US experienced an unprecedented surge in Chinese inbound investment in 2016, as Beijing’s ‘go out’ policy reached new heights. Chinese companies shopped abroad for technologies, brand recognition and trophy assets. Chinese investors also used the FDI channel to take money out of the country and chase better profits away from the slowing domestic economy. The overall outflow of capital piled pressure on the renminbi and domestic reserves, eventually forcing authorities in Beijing to reinstate old restrictions to limit “irrational” overseas investment.
The country’s newly appointed commerce minister reiterated the ongoing crackdown on “blind and irrational investment” at the annual meeting of China’s congress in early March, according to foreign media reports.
“Some enterprises have already paid the price,” Zhong Shan was quoted as saying. “Some even have had a negative impact on our national image.”
With the 19th National Congress approaching in autumn 2017, the authorities in Beijing will strive to keep the economy stable and under control. With this in mind, there is little room for restrictions to be lifted any time before the congress, says Helena Huang, China economist at ICBC Standard Bank.
To listen to the full interview with Ms Huang and Henry Tillman, head of China Investment Research, listen to the fDi Podcast below.