New restrictions on outflow of capital?

China’s foreign exchange reserves experienced a rapid, short-term drop during the second half of 2016. Several causes are suspected to have contributed to the drop, including people selling renminbi to avoid depreciation from the falling renminbi exchange rate and Chinese enterprises increasing their overseas M&A activities. The central government is particularly concerned with the role played by irrational investment trends and other unusual conduct from Chinese enterprises going global.

To date, no unified, formal regulatory documents have been issued to guard against cross-border capital flow risks and maintain stability in the foreign exchange market. Nonetheless, since November 2016 regulators such as the People’s Bank of China (PBOC), the State Administration of Foreign Exchange (SAFE), the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) have repeatedly and publicly expressed their requirement for steps to be taken to guard against overseas investment risks. In practice, regulators have quietly started experimenting with regulatory measures to control large outward remittances of foreign exchange.

Authorities reaffirm commitment to examine the authenticity and compliance of overseas investments

At a press conference on 28 November 2016, leading officials of the NDRC, MOFCOM, the PBOC and SAFE answered questions on current overseas investment trends and overseas investment policies. They noted that China would keep the current recordal system as the main method for administering overseas investment, and would simplify overseas investment on the one hand while guarding against overseas investment risk on the other.

Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by e-mailing Danian Zhang (Shanghai) at: danian.zhang@bakermckenzie.com