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China's outbound investments will face close scrutiny

Wednesday, May 10, 2017

Subject

China's outbound direct investment.

Significance

China has taken small step towards easing capital controls by lifting an order imposed by the People’s Bank of China in January that forbade banks from processing cross-border renminbi payments unless inflow and outflow were in balance. The move raised hopes that a stabilising exchange rate would prompt the authorities to lift restrictions on outbound direct investment (ODI) implemented since November 2016. The restrictions include closer regulatory oversight of investments outside the firm's main line of business, especially in overseas real estate, hotels and sports clubs.

Impacts

  • Chinese companies will 'innovate' to find ways to bypass regulations and conduct ODI that is discouraged by the government.
  • Foreign firms in real estate, hospitality, cinemas and sports clubs can expect less investment from Chinese companies.
  • More ODI will flow to developing countries, especially in Central and South Asia, as opposed to developed countries.
  • Investments by insurance firms, especially highly leveraged ones, will face close scrutiny from China's insurance regulator.
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