China forex chief says ODI slowdown signals return to rational investment approach

The recent slowdown in China’s outbound direct investment (ODI) shows that domestic entities have re-adopted a rational approach toward investing overseas, the China Securities Journal cited the top foreign exchange official as saying.

The country’s non-financial ODI slumped 52.8% in the first two months of this y ear compared to the year-ago period, and 35.7% year-on-year to USD 7.73bn in January 2017, as reported.

Pan Gongsheng, head of the State Administration of Foreign Exchange (SAFE), said at the China Development Forum (CDF) today (20 March) that Beijing has always encouraged domestic companies to compete in the global market and invest overseas, but such transactions need to be carried out in a rational and orderly manner, according to the Chinese-language report.

ODI increased by 40% last year, which was much higher than the 10%-20% rate of growth seen in the preceding years, added Pan, who is also a vice-president at the People’s Bank of China.

Pan said strong overall ODI growth helps economic transformation, benefits the global as well as host-country economies, and helps China achieve a win-win situation. He also cited a slew of measures adopted by the government, such as the enhanced ‘Comprehensive National Power’, further market openness, implementation of the ‘Belt and Road’ initiative, and a steady increase in international production capacity.

The SAFE head cautioned against irrational and careless outbound investments, citing the example of several foreign football club acquisitions in 2016 by domestic buyers, many of which were heavily indebted. Some even sought to transfer assets through overseas deals, Pan added. He said he had doubts if such investments could have a positive effect on the development of the Chinese football industry.

Commerce Minister Zhong Shan has said that Beijing does not plan to slow down outbound investment amid a decline in foreign exchange reserves.

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