China’s New Regulation Restricts Property Investments Overseas

Flag of ChinaThe country of China has recently rolled out new regulations restricting property investments overseas as it continues its campaign of stemming outward capital flow. This measure is a part of the new policy that consists of different types of restrictions on overseas investments. The China’s State Council has issued this new measure for the very first time.

The additional regulations came into effect after plenty of overseas investments were made by the domestic companies in the past few years. Under the new set of rules, investments in certain sectors like for instance defence technology and casino are outright banned whereas investments are restricted in hotel and property sector.

A 3rd category is listed that includes those sectors where investments are encouraged. It is primarily related to Belt and Road Project of President Xi Jinping. It includes infrastructure focused areas like for instance power plants, railways, ports and highways. According to the State Council, the new policy would act as a guiding tool in order to ensure healthy and orderly growth in foreign investments and controlling the associated risks.

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The National Development and Reform Commission (NDRC) of China finds the buying spree of private companies in the country in recent years as irrational. The Chinese regulators have put some big firms under scrutiny for a huge amount of overseas deals. The corporations include Anbang, Fosun International and Dalian Wanda. The analysts are of the opinion that new policy is not a big surprise to them, however, it is the first time any sector wise rule has been rolled out.

Andrew Polk who is the co-founder of a research firm named Trivium China made the following statement:

This is the state saying we want better say over where China’s resources are going abroad. We didn’t have a clear accounting of this before, but we could piece it all together from what was said by various elements of the government. Now it’s de jure policy while previously it was de facto policy.

This new set of rules will have a significant impact on nations like Australia which is one of the most sought-after destinations for Chinese investments. Knight Frank who is a real estate consultant submitted a report in 2016 where he mentioned Chinese companies account for 38% of entire residential property development sites that are sold in Australia.

A large number of big Chinese companies have made large investments in Australia. Like for instance, Dalian Wanda has invested $1 billion in apartment projects and HNA has invested in Virgin Australia. The Dahua Group has a stake worth $347 million and $400 million in real estate projects in Melbourne and Sydney respectively in 2016.

NDRC is of the opinion that companies that invest in overseas property are causing harm to the financial stability of Chinese economy and the new set of regulations will go a long way in arresting the overseas investments.

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