Tighter regulations needed to curb risk of dubious overseas investment practices by China's SOEs

By Hu Weijia Source:Global Times Published: 2017/4/19 0:28:39

Tighter regulations needed to curb risk of dubious overseas investment practices

China needs to strengthen its monitoring of irrational investment in certain areas such as sports clubs to reduce the risk of inefficient investment and illegal transfers of assets.

The recent sale of AC Milan to Chinese group Rossoneri Sport Investment Lux drew a lot of attention, particularly to Chinese investors' apparent enthusiasm for loss-making sports clubs in Europe. China has seen a boom in sports investment in overseas markets in recent years but the profit-making ability of some of the companies purchased by Chinese investors is worrying. The authorities should heighten their vigilance toward Chinese companies and the possibility that those with high debt ratios may be acquiring loss-making sports clubs in a bid to avoid debt repayments by transferring assets overseas.

Last year, China's outbound direct investment (ODI) grew by 44.1 percent to a historic high of about 1.1 trillion yuan ($170 billion). Stricter management is necessary to minimize financial risks amid a frenzy of overseas investment. Irrational investment in certain areas like real estate and the entertainment industry needs to be closely monitored. The authorities should also put tighter controls on companies seeking to invest overseas in non-core business areas.

With the economy cooling down, speculative and arbitrage capital from the Chinese domestic market has been flowing toward overseas markets. The foreign exchange regulator should continue making efforts to tighten controls to stem these capital outflows.

Another issue is that investments by State-owned enterprises (SOEs) accounted for a considerable part of China's ODI volume. The government needs to strengthen the supervision of China's overseas State-owned assets to improve investment efficiency and prevent corruption. As the ODI by China's SOEs increases, the rate of returns on their global portfolios has been disappointing, highlighting the need to monitor the overseas operations of SOEs in various areas like investment, financing and change of ownership.

The government has rolled out a batch of measures in recent months to strengthen its monitoring of overseas investment. Official data showed Tuesday that China's non-financial ODI dropped 48.8 percent year-on-year in the first quarter of this year, and the tightened regulations might be one reason for the decline. Even so, to minimize financial risks, some urgent measures by the government to investigate irrational investment should be normalized and carried out regularly.

As for the regulations that apply to overseas investment, projects along China's One Belt and One Road initiative should not be treated differently. The initiative is not aiming to offer countries along the routes a feast of financial aid from China. In order to ensure the sustainability of the initiative, China has to rely on a market-based approach for promoting the projects.

The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn
Newspaper headline: Tighter regulations needed to curb risk of dubious overseas investment practices


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