It’s two steps forward and one step back in China. As the country allows more market liberalization, companies find ways to exploit the system. Inevitably they run afoul of Chinese state interests, and the government adds new restrictions to remedy the situation. Thus is the ebbing and flowing of market reform in China. But how long can that dynamic persist?
Today the New York Times reports that China is cracking down on overseas real estate purchases by its corporations. The businesses are using more debt than the state would like, and to limit “systemic risk” it is cracking down.
Sui-Lee Wee writes:
Beijing has stepped up its efforts in recent months to restrict some of its most acquisitive companies from buying overseas assets, worried that a series of purchases by China’s conglomerates around the world has been driven by excessive borrowing.
In the latest move, a statement published by China’s cabinet, the State Council, said the authorities would punish companies for violating foreign investment rules, and establish a blacklist of businesses that did so. The statement was attributed to the National Development and Reform Commission, the commerce ministry, the foreign ministry and the central bank.
The statement pointed to acquisitions in sectors ranging from entertainment and sports clubs to hotels, but it was unclear whether or how the government would block deals.
It reiterated a warning issued in December that restrictions on overseas investments were being imposed because of “irrational” investment trends.
That statement said that the kinds of investments overseas it described were “not in accordance with macro-control policies.” The government wants to “effectively guard against all sorts of risks,” it said.
“It’s the loudest yet of wake-up calls that the government holds the keys to the lockbox of the country’s wealth, public and private,” Peter Fuhrman, chairman of China First Capital, an investment bank, said in an emailed response to questions. “Bad M&A is all but criminalized.”
Read more here.
Jeremy Jones, CFA
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