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Foreign Exchange Administration Bureau to Prevent Use of M&As to Transfer Capital Overseas

Chinese enterprises are accelerating the pace of their overseas mergers and acquisitions (M&As) as a whole. Guo Song, director of the Capital Management Department of the State Administration of Foreign Exchange (SAFE), said SAFE would support normal overseas M&As and would maintain a balance of international payments.

At a press conference on September 22, Guo said that [the Chinese government] will support real overseas investments, but will not allow false investments. Over the past year, [SAFE found] that some enterprises and individuals transferred assets through foreign investment channels. This will become the SAFE’s major focus in managing overseas M&A activities.

Given the background of the slowdown in China’s economic growth and the continuous devaluation of the RMB, cross-border M&As have become the choice of many Chinese enterprises to mitigate risks. According to statistics that the Zero2IPO Group has published, China completed 107 cross-border M&As in the first half of this year, with a transaction amount over 176.446 billion yuan (US$26.46 billion – both data represent record highs).

In the overseas M&As, the proportion of central enterprises has continued to decline. Zhang Ming, director of the International Investment Office of the World Economics and Politics Institute at the Chinese Academy of Social Sciences, pointed out that private enterprises completed nine out of the top ten overseas M&A deals announced in the second quarter (which was 99 percent of the total); three of them (accounting for 64 percent of the total amount) were due to the domestic private parent company injecting capital into overseas subsidiaries. The specific purpose of the injection and the final destination were not very clear.

Source: Caixin, September 22, 2016