China Restricts Overseas Investments By Domestic Companies

China has rolled out new regulations restricting property investments overseas as it continues with its campaign of stemming the outward flow of capital. The measure is part of a new policy that comprises wide ranging restrictions on overseas investments. This new measure was issued for the first time by China's State Council.

The additional regulations come in wake of large overseas investments by domestic companies in recent years. Under the new rules, investment in some sectors such as casinos and defence technology have been banned outright while others sectors like hotels and property, investments have been restricted. In addition to real estate, investments into sports, films and other entertainment are also on the restricted list.

A third category includes sectors where investments are encouraged. These primarily relate to President Xi Jinping's Belt and Road project and include infrastructure-focused areas such as highways, ports, railways and power plants. The State Council said that the new policy would act as a guideline for ensuring orderly and a healthy growth in foreign investment while controlling associated risks.

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China's National Development and Reform Commission (NDRC) called the buying spree of Chinese private companies in recent years as irrational. Regulators in China have put several large corporations including Dalian Wanda, HNA, Fosun International and Anbang under scrutiny for their multi-billion dollar overseas deals. Analysts have said that the new policy is not a surprise, though it is first time sector-wide rules are being rolled out.

In a statement Andrew Polk, co-founder of research firm Trivium China said

This is the state saying we want better say over where China’s resources are going abroad. We didn’t have a clear accounting of this before, but we could piece it all together from what was said byvarious elements of the government. Now it’s de jure policy while previously it was de facto policy

The new rules could have a significant impact on countries like Australia which have been popular destination for Chinese investments. According to a 2016 report by real estate consultant Knight Frank, Chinese companies accounted for nearly 38 percent of all residential property development sites sold in Australia.

Most of the big Chinese companies have made large investments into Australia. For example Dalian Wanda has a $1 billion stake in apartment projects and HNA has a stake in Virgin Australia. The Dahua Group invested in real estate projects worth $347 million in Melbourne and $400 million in Sydney in 2016.

The NDRC said that companies that invest into property overseas are harming the financial stability of the Chinese economy and the new regulations would help in arresting these overseas investments.

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