China Tightens Rules for Outbound Investment

China’s Ministry of Commerce and six other administrations have released a new regulation to tighten outbound overseas investment. Chinese enterprises that aim to set up companies abroad, have been ordered to provide all the required information to related regulators.

The new rule applies to both financial and non-financial overseas investment. Related departments should report the information to the ministry of commerce. If enterprises fail to report, the ministry will take measures such as giving notices or sending out warnings, ATimes reported.

Han Kong, a counselor at the foreign investment and economic cooperation department of the commerce ministry, said the new rule is to prepare for the launch of the upcoming Overseas Investment Regulations.

“Information disclosure will have a certain burden on enterprises, but it is affordable. For a compliant company, all the documents are readily available,” Han noted. The ministry said it will also work on formulating a blacklist system for overseas investment.

Meanwhile, China’s mergers and acquisitions activity declined 11% year-on-year in 2017 after Beijing clamped down on foreign deals, but is expected to rebound this year, according to PricewaterhouseCoopers.

In a report on January 23, the global consulting firm says M&A activities in China fell to $671 billion last year from a record high of $753.5 billion in 2016.

It notes that the number of mega-deals–worth over $1 billion–fell to 89 from 103 in 2016, a drop “accounted for entirely by China outbound deals”.

According to PwC, China and Hong Kong Transaction Services leader David Brown, Beijing’s “policy guidance on outbound deals has had an undoubted effect”.

“There has been a refocusing on strategic outbound deals and away from passive or trophy assets. That said, the total value of outbound deals still exceeds 2014 and 2015 combined,” he says in the report.

The report predicts “some increase” in M&A activity this year, which could bring it close to, or potentially exceed, the 2016 level.

“With greater policy clarity, outbound M&A will resume its growth trend. Private equity and financial buyer activity, both domestic and outbound, will also increase under pressure to defray large amounts of capital”, the report says.

Figures from the Asset Management Association of China, which represents the mainland mutual fund industry show that assets under management of Chinese PE funds grew seven-fold over the last three years to reach $1.5 trillion at the end of 2017.