On Thursday, the Ministry of Commerce released data showing that China's outbound investment dropped by about 40 percent in the first eight months of 2017. The ministry said this shows irrational outbound investment has been further curbed. Beijing Youth Daily comments:
The main reason for the decline in outbound investment is that domestic real estate, sport and entertainment enterprises did not have any new investment programs overseas this year. In the past two years, overseas realty, sport and entertainment investments were so popular that some Chinese companies invested at inflated prices. That phenomenon aroused concerns about irrational outbound investment at the end of last year.
It is China's national policy to encourage domestic enterprises to go overseas, trade with their foreign counterparts, and expand their global influence. However, that does not mean investing irrationally. Some enterprises invested heavily in the realty, sport and entertainment sectors at prices much higher than the market value, which involves high risks and raised suspicions that such investments were a means of transferring their assets overseas.
And it should be noted that Chinese banks face the risks together with the enterprises because many such enterprises invest with loans from banks.
The supervisory agencies have done the right thing by investigating such programs.
By curbing irrational outbound investment, the supervising agencies support rational overseas investment. The fact that the manufacturing industry and business services industry play a major role in Chinese investment abroad proves the supervising agencies' positive influence and explains the Chinese government's determination to continue helping enterprises go overseas.
It is China's constant and continuous national policy to encourage and support Chinese enterprises investing abroad. That's also a necessary choice for China, because it is the second-largest economy in the world but it faces problems such as low efficiency and lack of core technologies. By encouraging its enterprises to go overseas, it can better interact with the world economy.
In August, the Ministry of Commerce gave three clear principles for outbound investments: They should be safe, stable investments; they should support the Belt and Road Initiative; and they should not undermine national financial and economic security. These three principles must be followed. Only in this way can Chinese enterprises invest rationally abroad.
