Limited impact from China’s latest capital control guidelines
China’s State Council and the National Development and Reform Commission (NDRC) has issued formal guidelines restricting or banning Chinese companies from engaging in overseas mergers and acquisitions in certain sectors.
The latest measures came after Beijing began clamping down on overseas investment at the end of 2016 in a move designed to stabilise the RMB, restrict capital flight and reduce financial risk. The inclusion of property on the list of restricted sectors means any proposed overseas acquisitions by Chinese companies will be subject to additional layers of scrutiny.
“Impact is expected to be limited as there are alternative means for Chinese investors to place capital out of China,” says Desmond Sim, CBRE head of research for Singapore and South East Asia.
“However, the latest guidelines may result in a brief pause in Chinese activity in the Singapore investment market.”
Options for Chinese investors seeking opportunities abroad include using offshore financial institutions, investing through Hong Kong and exporting their brand. Other potential options include investing in Belt & Road countries; taking positions as Limited Partners; purchasing smaller equity stakes of below US$50 million; and participating in joint ventures.
CBRE Research believes the new rules will have a positive impact on China’s market in the short to medium term from domestic investors who need to deploy capital but are unable to do so abroad. The new rules will also create an advantage for foreign investors seeking to engage in offshore deals in China. However, in the longer term, such controls could hinder investment demand from foreign investors concerned about possible difficulties in repatriating their capital.
Nevertheless, CBRE Research feels that capital controls will not exert a significant long-term impact on China’s domestic property investment market.
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