ODI plunges as regulators direct capital to real economy
Officials on Monday renewed pressure to stop Chinese companies from "irrational" investing in certain overseas assets, urging domestic companies to use caution in investing in the global property and entertainment sectors.
In a press briefing on Monday, Qian Keming, a vice minister of the Ministry of Commerce, said the overseas investment tended to be more rational in the first half of the year, after measures by the ministry and other authorities took effect to ensure healthy and legal investments.
"Irrational investment has been contained effectively," Qian told the briefing, adding that China's outbound direct investment (ODI) dropped 42.9 percent year-on-year to 331.1 billion yuan (.23 billion) in the first half of 2017.
"Companies have put more focus on investment in the real economy, and the decline of investment in overseas manufacturing sectors is much less than the decline in real estate, cultural and entertainment sectors," the vice minister said.
Though Qian attributed the fall in ODI to improvements in the domestic market and rising uncertainties in overseas markets with intensified scrutiny from foreign governments over Chinese investment, experts said it was a government crackdown that brought the number down.
"From over 50 percent growth in the past two years to a 40 percent decline in the first half of the year, there is only one thing that can make such a change - government intervention," Wang Jun, an analyst at the China Center for International Economic Exchanges, told the Global Times on Monday.
In the last two years, there were certain Chinese companies which took loans from domestic banks to invest in overseas assets, "some of which don't make any sense because they were buying some companies that have been reporting losses for years," Wang said.
"Obviously that's a problem because these irrational investments pose serious risks to not only the companies but to the domestic financial market and the economy," Wang said.
Under a top-down campaign to fend off systematic financial risks, Chinese regulators have intensified scrutiny over the veracity and legality of some of the investments by blocking loans from Chinese banks for such investments.
Media reports have suggested that some of the most acquisitive Chinese companies, including Dalian Wanda Group, HNA Group and Fosun Group, have been targeted in the crackdown.
In late June, the China Banking Regulatory Commission ordered loan checks on Wanda, HNA and Fosun, according to the South China Morning Post.
Following the checks, Chairman Wang Jianlin of Wanda, which has focused on buying overseas real estate and Hollywood studios during the past few years, denied reports the company faces debt problems but indicated it would scale back its plan for overseas investment in film studios and scrapped a project in Malaysia.
HNA, which was also under pressure from US regulators because the group has invested heavily in areas such as hotels and hedge funds, announced a shift in ownership.
Guo Guangchang of Fosun, which recently announced a deal to buy French healthy food maker St Hubert, also denied recent rumors about the company being under scrutiny, saying Fosun's debt level is "healthy" and he backs China's clampdown on irrational foreign investments.
The Shanghai Securities News reported last week that, following the government clampdown, deals involving large sums of money have "disappeared" so far this year, while acquisition deals in overseas real estate and films saw a dramatic decline.
As of July 24, there was no overseas acquisition deal that reached billion in the 105 deals disclosed by Chinese companies listed on the A-share market, according to the report.
Most of the deals were under billion, it added.
Also during the period, there were only four investments announced in the areas of property, hotels, film, entertainment and professional sports teams, down 100 percent from the same period last year, said the report.
Jiang Yong, a research fellow at the China Institute of Contemporary International Relations, said the trend will continue.
"As Chinese companies continue to grow, it's inevitable that they will have to expand overseas, but, with the government's direction, they will be more careful and invest in areas which could help with their main business," Jiang told the Global Times on Monday.