SOE foreign investment risk curbed

China is tightening its grip on outbound investment risks affecting the nation’s financial security, with a code of conduct for State-owned enterprises making outbound investments and with a blacklist coming soon.

While the code of conduct has yet to be released to the public, the overall regulation framework is the same as the one targeting private companies issued on Dec 18, according to an official with the National Development and Reform Commission who declined to be named.

The code for private companies indicates enterprises should exercise caution in high-leverage fundraising in foreign countries, and they need to strengthen efforts to supervise overseas offices ‘activities such as share sales.

The code will compliment guidelines issued in August, which laid out rules restricting investment in sensitive areas such as property, sports and entertainment, the official said.

That guideline and the blacklist system will become major policy tools in curbing investment risks, the official added.

Some companies violating rules have been put on the blacklist, according to another government source familiar with the matter.

The government has yet to publish their names, according to the official.

Data has shown that irrational outbound investment has been effectively curbed, officials said.

In the first 10 months of the year, China’s nonfinancial outbound direct investment dropped by 40.9 percent year-on-year, according to the Ministry of Commerce.

But new guidelines send the signal that the government is not relaxing its tight grip, experts said.

“Some external challenges, such as interest rate hikes in the United States, may pose higher financial risks for overseas investment in the near future,” said Tu Xinquan, a professor at the University of International Business and Economics.

The guidelines issued for private businesses and SOEs and the blacklist system serve as warnings that the nation is not willing to support illegal activities or investment that is contradictory to the overall objective of driving healthy domestic economic growth, according to Tu.

Cheng Chunshu, deputy director of Golden Credit Rating International, said enhanced efforts go hand in hand with the central government emphasis on reining in financial risk. “The government is not likely to curb domestic risks on one hand while letting it go unchecked on the other (in foreign countries),” she said.

At a meeting of the Political Bureau of the Communist Party of China Central Committee this month, top policymakers identified the prevention of systemic financial risks as one of economic priorities for the next year.