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by Xinhua Writer Jiang Xufeng
BEIJING, March 26 (Xinhua) -- Chinese companies' outbound investments might have raised their global profile, but have done little to alleviate fears of a capital flight.
For many years, inbound foreign direct investment (FDI) was important for China's exports and the growth of an economy that was labor-rich but capital-poor. Now, outbound direct investment (ODI) exceeds inbound FDI.
In 2016, the balance tilted further toward capital outflow. Non-financial ODI jumped 44.1 percent to 170 billion U.S. dollars, outstripping inbound FDI by more than 50 billion dollars, with Chinese investment finding its way to 164 countries and regions.
BLIND AND IRRATIONAL
Not every investment project makes immediate sense. For example, why would a steel maker acquire a food company overseas?
"China has always encouraged overseas investment, but more needs to be done to ensure it occurs in a more rational manner," said Pan Gongsheng, head of the State Administration of Foreign Exchange (SAFE).
Some companies with high levels of debt have borrowed money to invest overseas and others have tried to transfer assets overseas in the name of outbound investment, Pan noted.
China has accumulated the world's largest stash of forex reserves. After the decline of the forex stockpile from a peak of around 4 trillion dollars to below 3 trillion dollars in January, regulators moved to crack down on illegal cross-border capital flow while reiterating that normal business will not be affected.
The Chinese yuan is not freely convertible under the capital account and outbound investment is subject to some controls. Record-filing will be the main means of managing outbound investment but authorities will continue to verify some projects in accordance with regulations.
Commerce Minister Zhong Shan earlier this month blamed the surge in outbound investment on febrile emotions, saying some "blind and irrational" investments require more regulation.
"Authorities are improving verification and compliance in overseas investment, but irrational outbound investment is a serious issue in real estate, hotels, film-making, entertainment, sports and other sectors," said Ren Gulong, partner at Beijing's Anjie Law Firm.
"Acquisitions of targets larger than the Chinese buyer and targets not related to the buyers' main businesses are also likely to be affected," said Ren, seasoned in overseas mergers and acquisitions.
China's central bank governor Zhou Xiaochuan earlier this month criticized overheated and hasty outbound investment in industries such as sports and entertainment which do little for China's economy.
Market observers have seen some projects terminated as investors failed to demonstrate they were genuine and reasonable.
Zhou Chao, vice president of the China-Africa Development Fund, said that despite speedy growth of the fund's investments, it has never had trouble moving money out of China, as all of their projects had passed authenticity and compliance checks.
The view is echoed by Ren. He has encountered few problems with projects in sectors conducive to industrial upgrading such as high-end manufacturing, high-tech, energy saving and environmental protection.
THORNY PROBLEM
"Overseas mergers and acquisitions can be like a bunch of roses: they can prick with their thorns. Companies need to carry out thorough due diligence," said Pan.
"The emergence of speculative cases has grown at around the same rate as outbound in. Cheap Vapormax Shoes Cheap Vapormax Cheap Air Max Cheap Air Max 90 Kids Cheap Nike Air Max 90 Cheap Nike Air Force 1 White Cheap Nike Air Force 1 Low Cheap Nike Air Force 1 Flyknit Cheap Nike Air Force 1 White Cheap Nike Air Force 1 Mens
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