China to tighten screening of overseas deals

As the volume of overseas acquisitions by Chinese investors soars, strict regulatory oversight is expected for deals larger than $10bn and those made by state-owned companies.

China will tighten screening of overseas deals, according to the government and reports on Monday, 28 November.

Officials from the National Development and Reform Commission, the Ministry of Commerce, the People’s Bank of China, and the State Administration of Foreign Exchange said in a joint statement that the nation “will adhere to outbound investment management policies that allow enterprises to be the principal subjects, follow market principles, conform to international practices and follow the government's direction”.

The announcement comes shortly after the continuous weakening of the yuan to the US dollar – hitting a nearly eight-year low this month – which has raised concerns in Beijing that money is flowing out of China leaving the government scrambling to limit the outflow.

The statement said that while the registration system – whereby companies registered overseas deals with the NDRC and MOFCOM instead of getting State Council approval – will be the main means of managing outbound investment, authorities will also “verify some enterprises' outbound investment projects in accordance with relevant regulations”.

“Strict controls” will be imposed from now until September 2017 over deals worth $10 billion or more, on investments of more than $1 billion in sectors unrelated to a company's core business, and on property deals above $1 billion made by state-owned companies, the Wall Street Journal reported, citing confidential government documents and people with knowledge of the matter.

Other deals covered by the pending rules are: Chinese money used in the de-listing of overseas-listed Chinese companies, investments in overseas-listed companies that are less than 10 percent of the firms’ total equity, as well as Chinese companies’ subsidiaries that are doing overseas acquisitions valued at more than their parent company, as reported by WSJ.

Meanwhile the Chinese government reiterated on Monday that it will stick to its “opening up policy” and “going out” strategies, facilitating investment abroad while guarding against risks.

This year alone, Chinese outbound deals soared 140 percent in the first half of the year with the value of transactions up a whopping 286 percent to $134 billion, exceeding that of the past two years combined, according to PwC.

Among these, large overseas private equity deals include PAG Asia Capital’s $3.6 billion acquisition of US printer company Lexmark, the $9.3 billion takeover of US-listed internet company Qifoo 360 Technology by Golden Brick Capital and Ping An Insurance, the $2.75 billion purchase of Dutch chipmaker NXP Semiconductors by including Beijing Jianguang Asset Management and Wise Road Capital, as well as Asian-European firm AGIC Capital’s €925 million acquisition of German machinery company KraussMaffei Group.