China’s capital controls trigger backlash as deals thwarted

Bloomberg

Chinese corporate chiefs are turning vocal critics of the nation’s capital controls as the pile of scrapped deals grows. While the restrictions have helped alleviate pressure on the yuan, they’ve also curbed overseas acquisitions. Executives in Beijing during the National People’s Congress bemoaned the measures, saying they’re derailing expansion abroad — a key tenet of China’s long-term economic ambitions.
“It’s almost impossible to use the yuan to invest in overseas projects,” Zhang Yichen, chairman and chief executive officer of investment firm Citic Capital Holdings Ltd., told reporters on the sidelines of a meeting of China’s political advisory body that runs concurrent to the NPC. “To say that capital controls don’t have any impact — it’s a lie.” Zheng Yuewen, chairman of Chinese drugmaker Creat Group Corp., said separately that “the foreign-exchange management is so strict now that it’s almost impossible to move funds out.” Zhang Li, co-chairman of Guangzhou R&F Properties Co., said that “we see a lot of good projects overseas.” But at the same time “the capital controls are very strict now” and it’s difficult to transmit funds abroad, he said.
The complaints reflect a tumble in foreign deals, with the $19 billion of acquisitions abroad announced by Chinese companies so far this year amounting to a 74 percent drop from a year ago, according to data compiled by Bloomberg. The blow has seen Chinese executives join their foreign counterparts in criticizing the Communist leadership’s restrictions. European companies have charged that the capital controls are disruptive — read about that here. China’s leadership faces a balancing act in trying to stoke domestic companies’ influence on the international stage while avoiding the kind of bad investments that Japanese firms became famous for in the 1980s. The more immediate concern has been record outflows of capital that have only diminished in recent months after a steady tightening in oversight of and limits on cross-border transactions.
Three straight years of capital outflows and yuan declines spurred authorities to ramp up controls in the second half of last year. The measures have paid off — in December, the capital account saw its first net inflows since a mini-devaluation of the yuan
in August 2015 — but the danger is that there’s been collateral damage to businesses. Data Tuesday showed China’s foreign-currency reserves rose in February for the first time in eight months amid the tighter controls and gains in the yuan.
“The door is almost shut for funds going out,” said Zheng at Creat Group. “When there are good targets overseas, our units offshore would get involved first and then when we came back to seek approvals, some government department would ask ‘why didn’t you report it first,’” he said.