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Change in rules regarding outbound Chinese investment: JLL comment

The Chinese Ministry of Commerce is making foreign investment easier for domestic firms

​​Chinese companies will find it easier to invest in overseas projects under new rules from the Ministry of Commerce (MOC), which came into effect on 6 October​. 

The new measures, which were first unveiled in April, will allow domestic firms to invest overseas without prior approval, although they must first register their investment with the authorities. Under the previous rules, any overseas investment project worth more than US$100 million required approval from the MOC. 

Alistair Meadows, Head of International Capital Group, Asia Pacific, JLL, said: “Prior to this policy change, in certain markets such as New York and London, it’s been difficult for Chinese institutional investors to compete in ‘on market’ processes, as the time frame required for internal and external approvals has often exceeded the time line for these sales processes. So with this policy change, Chinese investors will be more readily able to compete in bidding processes in those markets. It is expected that this will further accelerate the flow of outbound capital from China, in particular into favoured markets like Australia, the US and the UK. From a global perspective, we think that continued relaxing of policy by the Chinese government will encourage further outbound investment from China into markets globally.”

Dr Megan Walters, Head of Research, Asia Pacific Capital markets, said: “Simplifying the outbound investment rules will also reduce transaction costs on the deployment of capital outside China, making investments economically more efficient. 

“That is likely to increase the flow of outbound capital, as Chinese investors can more readily compete on pricing when bidding on real estate assets. Last year China deployed USD14 billion in commercial real estate overseas compared to USD6 billion in 2012. The rate of growth has slowed a little this year, possibly in response to investors waiting for the new investment rules to come in. Year to date outbound investment into commercial real estate from China is approximately USD7.5 billion, so on track to match last year and expected to accelerate as we move into 2015.   

“The new rules may also benefit the domestic economy where the government is looking to reduce investment in areas with excess capacity. The ability to channel investment capital into more productive uses outside China will assist with rebalancing the domestic economy. The greater deployment of capital overseas will also help in reducing China’s foreign exchange reserves.”