Market rumors suggest that the China Banking Regulatory Commission has required banks to assess the overseas investments of private enterprise groups that are significantly exposed in the banking sector, which is a major reason. Since 2017, the themes of "de-leveraging" and "preventing financial risks" have become the main melody of the financial industry, coupled with the aggressive sales by Weiqiao Textile, the Wenzhou gang, and the subsequent New Capital Exit, risk events have emerged one after another. It is not surprising that regulatory authorities are paying attention to overseas mergers and acquisitions and preventing "leverage risks."
Irrational Overseas Investment Becomes Regulatory Focus
The leverage risks and currency mismatch risks brought about by the increasingly diversified financing channels for overseas investment cannot be underestimated. As the debt ratio of Chinese enterprises continues to rise, coupled with the backdrop of domestic financial de-leveraging and strict regulation, any slight disturbance can easily trigger systemic risks. The reason is that whether it is overseas investment or asset transfer, especially high-leverage loan mergers and acquisitions, the result is the outflow of China's foreign exchange reserves, irrational investments in certain projects, and even illegal asset transfers. As the Governor of the People's Bank of China Zhou Xiaochuan said: "It is normal to manage certain phenomena of overheating or bad motives."
Correctly Guiding Overseas Investment
The latest data released by the Ministry of Commerce of China shows that from January to May 2017, domestic investors made non-financial direct investments in 3,121 overseas enterprises across 145 countries and regions, with a total investment of 34.59 billion USD, a year-on-year decrease of 53%. In May alone, the outward direct investment was 8.22 billion USD, a year-on-year decrease of 38.8%. From the data, it seems that Chinese enterprises' overseas investment has declined, contrasting sharply with the booming situation of last year.
According to the explanation by Han Yong, a commercial counselor at the Ministry of Commerce, the decline in outward investment this year is largely related to the guidance on irrational overseas investment. "In December last year, outward investment decreased by more than 39%, indicating that enterprises are increasingly showing a rational investment mindset, which also reflects that our guidance on outward investment has played a certain role." Although the overall data on outward investment has declined, there is still growth in sectors such as business services, infrastructure construction, and information technology services.