China To Curb ‘Fake’ Overseas Merger & Acquisition Deals

China is looking to clampdown on fake international merger and acquisition deals that are being used by local companies to move assets outside the country. China has previously implemented a number of capital controls to stem the flow of capital out of the country.

Officials from the country’s forex regulator State Administration of Foreign Exchange (SAFE) have asserted that the government would be taking measures to tackle fake mergers on high priority. In a statement, Guo Song, an official with the SAFE said,

In the past year we found some Chinese firms and individuals moving assets overseas via outbound investment, this is certainly a key area of concern for us.

Addressing a press conference, Guo said that the government will support genuine cases of acquisition deals by Chinese companies, though there are fears that increasing outbound investments are hurting capital flows. SAFE official Xu Weigang stated in the same press event that China will take all necessary action to curb illegal activities and keep the forex market stable.

SAFE official Du Peng has however observed that so far no major capital outflow has occurred through fake trade deals. Du Peng stated any discrepancy between forex data and custom data cannot be taken as proof that fake deals are happening.

China’s administration has taken steps to encourage local companies to invest overseas under the One Belt, One Road program but the unexpected strong growth in outward-bound investments has triggered concern even as the China battles fears of capital flight in wake of a slowing economy.

According to data released by the government, in 2015 outbound direct investment (ODI) climbed by 18.3 percent to $145.67 billion, which was a new record. It was lesser than the foreign direct investment into the country in the same time period which was at $135.6 billion.

Despite this, SAFE spokeswoman Wang Chunying has clarified that pressure on international capital outflows is reducing. The comments from SAFE officials come in the wake of former U.S. Treasury official Brad Setser speculating that a rise in spending by Chinese tourists could possibly be seen as an attempt to shift assets out of China.

Setser said that the increasing gap between the actual number of Chinese visitors going abroad and total spending by these tourists could indicate that they are moving their capital to foreign markets through purchase of houses, opening deposit accounts or buying life insurance policies.

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