China considers easing foreign investment limits
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China considers easing foreign investment limits

9 December 2016 15:31

AFP: China has indicated it could relax restrictions on foreign investment in some sectors as it struggles to counter an overseas exodus of capital, while facing accusations of protectionism from US President-elect Donald Trump.

A record-setting wave of Chinese investment abroad has fuelled concern in Beijing over capital flight, reckless spending overseas, and the yuan's fall against the US dollar.

A notice from China's economic planning agency late Wednesday said foreign investment restrictions could be eased in sectors such as automotive electronics; rail transport equipment; some mining, agricultural and chemical production; theme parks; and golf courses, as well as some service industries.

Such notices typically result in policy changes.

Citic Bank International's chief China economist Liao Qun said the circular from the National Development and Reform Commission (NDRC) was prompted by worries about huge outflows of capital.

China's foreign exchange reserves plunged $69 billion to a five-year low in November, according to data Wednesday, with analysts blaming capital flight and central bank attempts to support the yuan.

"They were going to open up restrictions for foreign investment anyway, but they are doing this in advance because they want more money to come in to balance out the falling foreign exchange reserves, which have been falling too fast this year," Liao told AFP.

Beijing is struggling to prop up the yuan as capital flows out of China's flagging economy in search of better investments in the United States, where the Federal Reserve is expected to hike interest rates next week and into 2017.

Desperate to stop cash leaving the economy, authorities have also stepped up rhetoric against what the Commerce Ministry this week called "irrational" overseas investments and taken various steps to curb money outflows.

The EU Chamber of Commerce said in a statement Thursday said China last week put in place new approval requirements for cross-border capital outflows for amounts exceeding $5 million to curb fund movements.

The Chamber criticised the move, saying it would "cause funds to be trapped in China".

"It also unnecessarily exacerbates uncertainties regarding the predictability of China?s investment environment,? European Chamber President Jörg Wuttke said in a separate statement to AFP.

James Zimmerman, chair of the American Chamber of Commerce in China, said in a statement the group was "concerned about the added burden" the approval requirements may place on moving money overseas and would seek clarification from authorities.

Earlier this week, Trump took aim at Chinese trade and fiscal policy in a pair of tweets, accusing the country of manipulating its currency and hitting US exports with heavy taxes.

He has pledged to ramp up import duties on Chinese goods based on the belief that Beijing continues to "heavily tax our products going into their country".