The Real Deal New York

China warns that it will not tolerate “irrational” overseas investment

Regulations are now formalized
August 18, 2017 09:45AM

Premier of the People’s Republic of China Li Keqiang

Chinese regulators — who’ve been cracking down on capital outflows for months — have now formalized regulations for overseas investing to protect against “irrational” acquisitions across several industries.

Citing “various risks and challenges in overseas investments,” the State Council laid out three categories — banned, restricted and encouraged — for investment. Investing in gambling, the sex industry and core military technology is banned. Real estate investment is considered restricted and investments in Chinese research and development are encouraged.

China’s top economic planning body, the National Development and Reform Commission, criticized “irrational” overseas investments in sectors including real estate, entertainment and security. “Some companies focused on property rather than the real economy, which, instead of boosting the domestic economy, triggered capital outflows and shook financial security,” it said, according to Bloomberg.

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In recent months, Chinese regulators have taken a close look at investments by major backers of New York City real estate, including Fosun International, HNA Group and Anbang Insurance Group, which paid nearly $2 billion for the Waldorf-Astoria Hotel and was reportedly in talks to invest in Kushner Companies’ 666 Fifth Avenue before scrutiny killed the deal.

Last year, Chinese investment abroad topped $816 billion, according to Bloomberg, which said a primary route was casinos in Macau. But China’s investment abroad dropped 44.3 percent during the first seven months of the year, as regulators curbed foreign acquisitions.

“Policy makers are also concerned about the potential investment loss and financial risk related to the takeover of ‘trophy assets,'” said Robin Xing, chief China economist at Morgan Stanley in Hong Kong. [Bloomberg]E.B. Solomont