China to restrict foreign absorption of local companies – media

Almaty. November 28. Silkroadnews – China’s State Council will soon report on new measures of “strict control” over large foreign acquisitions of Chinese companies, newspaper “Vedomosti” writes with reference to the sources in WSJ.

“Restrictions will cover inordinately large transactions, in the amount exceeding $10 billion, as well as investments of state-owned companies in the amount exceeding $1 billion and investments in Chinese companies exceeding $1 billion, if they are not related to the core business of the buyer. The restrictions will be in effect until the end of September 2017, when the Congress of the Chinese Communist Party to be held”, the publication says.

The Chinese authorities are concerned with the outflow of capital from the country and yuan weakening. Foreign mergers and acquisitions of Chinese companies tend to focus on purchase of technology and professional managers. Most of these transactions are made with the approval of the authorities. In general, the Chinese companies spent on foreign mergers and acquisitions $212.7 billion since the beginning of the year, which is 6.5% of deals announced in the global M&A market.

“The authorities got concerned that some foreign mergers and acquisitions can take place to get around the capital control and repatriate the funds abroad. When deciding on which foreign trade is allowed acting with special care is definitely justified”, the article notes.

Restrictions on foreign transactions are also required to combat the outflow of capital and devaluation of yuan.

According to various estimates, after China’s stock market crash last summer the capital outflows from China in 2015 amounted to $1 trillion, and up to $400 billion since the beginning of 2016. Since June 2014 China has spent 22% of its foreign exchange reserves: they dropped from $4 trillion to $3.12 trillion. In October China sold $45.7 billion, as for the III quarter the capital outflow amounted to $207 billion (evaluation by the Institute of International Finance).