Risky investments may squander sweat of masses

By Tan Haojun Source:Global Times Published: 2017/8/6 20:18:39

Illustration: Luo Xuan/GT

Recently, conglomerates including Fosun, Wanda and HNA that were in the limelight for large-scale overseas investment have responded to new announcements by the government demanding rationality in overseas investment. Guo Guangchang, chairman of Fosun, said he believes that the recent regulations aiming to stem chaos in Chinese overseas investment are very necessary and timely. Wanda CEO Wang Jianlin has also taken the initiative to say that his company has decided to make their main investments in China.

Official data shows that during the first half of this year, China's direct foreign investment was 331.1 billion yuan ($49.25 billion), down 42.9 percent from the same period last year. Overseas investment in real estate, culture, sports and entertainment has fallen by more than 82 percent, accounting for only 3 percent of total foreign investment - a stark contrast to the frenzy of the past several years . This craze resulted in an extremely high asset-liability ratio. As the authorities have pointed out, these companies are suspected of transferring assets abroad while leaving the burden of risk on China's financial system.

The government encourages firms to expand overseas, and offers resources for enterprises to pursue internationalization. However, blindly buying foreign companies is by no means the proper way to expand. If companies frantically buy businesses and assets, regardless of risk, cost, price and prospects, there must be severe hidden problems. Such acquisitions and investments must be stopped.

Over the past several years, some overseas mergers and acquisitions have clearly violated the regulatory bottom line and the normal standards for making an acquisition. The purchase prices deviate from their fundamental values and the expected proceeds aren't worth the risks. These unreasonable acquisitions violated the laws of economics.

In face of this situation, regulatory institutions have issued warnings about this behavior. Wanda, Fosun and other companies have all announced they are paying down their debts. Wanda's behavior in particular could be better described as responding to regulators rather than its stated reason of applying an asset-light strategy.

In fact, if overseas investments are not capable of providing China with scarce resources, emerging technology, advanced management to expand domestic employment, an increase in revenue or other benefits, but leave the domestic financial system at great risk through highly leveraged mergers, such acquisitions must be investigated thoroughly.

Undoubtedly, some irrational overseas investments slipped past regulators. These companies often invested in foreign companies under the name of expanding overseas. We can't help but ask, did the relevant authorities consider the risk, the consequences and the possibility of irrational overseas investments? From the current situation, obviously, there's much needed to be done. In term of policy design, the government should take full account of the occurrence of various problems, in particular, those capable of leading to serious consequences.

In addition, as bodies with the responsibility of controlling risk, banks and other financial institutions should never recklessly be attracted by short-term profits. In such cases, the people responsible for the risky investments, especially the key person, must be held responsible for the risks and the results.

It is important to emphasize that curbing irrational investment will by no means discourage enterprises from expanding overseas. Going global must bring good things to the country instead of hampering its development and putting its foundations at risk. It should benefit the public. China's current prosperity and progress were created by the sweat of the diligent Chinese people. We won't allow their wealth be stolen. To this we should attach the highest importance.

The author is a financial commentator from Zhenjiang, East China's Jiangsu Province. bizopinion@globaltimes.com.cn

Posted in: INSIDER'S EYE

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