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Restricted Sectors for Investment to Be Specified in China’s Rules on Outbound Investment

| Mar 23, 2017 08:33 AM EDT

Chinese currency

China will publish this year the rules on outbound investments, specifying the sectors where Chinese firms are encouraged to invest and sectors that are restricted, Chinese state media reported on Tuesday, March 21.

The move is part of the government's outbound investment capital control, aimed at preventing irrational investments and curbing capital outflows, Reuters reported.

Chinese regulators have tightened up on outbound deals in recent months in a bid to prevent capital flight which contributes to the weakening of the yuan.

On March 11, China's Commerce Minister Zhong Shan pointed out that some Chinese companies had "blindly and irrationally" poured money overseas in investments that the government did not approve of or encourage. The government had earlier said that such investments were also wasteful.

"Some enterprises have already paid the price," Zhong said in a news briefing at the National People's Congress on March 11. "Some even have had a negative impact on our national image."

Zhou Xiaochuan, China's central bank governor, had also earlier questioned the reasons for some recent overseas deals.

"Some are not in line with our requirements and policies for overseas investment, such as in sports, entertainment and clubs," Zhou said. "This didn't bring much benefit to China and caused some complaints overseas."

According to China's foreign exchange regulator, the government will monitor more closely "irrational" investments in property, sports, entertainment and other sectors.

Lately, the government efforts to curb outbound investments showed significant effects as the number of non-financial outbound fell 52.8 percent in January and February from the same period last year, with the number in property and entertainment sectors falling by more than 80 percent.

The Economic Information Daily reported on Tuesday, March 21, that the rules on outbound investment will be formulated by the Ministry of Commerce and the National Development and Reform Commission.

"Overseas investments that produce social and economic benefits, that are in line with the country's 'One Belt One Road' and global industrial capacity cooperation strategies will be encouraged," an industry insider was quoted as saying.

The insider added that "'blind' and irrational investments will not be encouraged and supervision will be increased. Investments that violate laws in the target country or in China and other harmful behavior will be forbidden and punished."

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