China: OBOR motivates the Party to enhance its role in driving companies’ investments

Posted by on Sep 19th, 2017 and filed under Allgemein, Markets. You can follow any responses to this entry through the RSS 2.0. Both comments and pings are currently closed.

Event

 

The Chinese authorities have strengthened the overseas investment policy. State-owned enterprises (SOEs) and private companies are further required to retreat from investing in unproductive industries such as real estate and entertainment, while Beijing bans investments that might go against the national interest.

 

At the same time, companies and state-owned banks are urged to prioritise investments and lending to OBORrelated (One Belt, One Road) projects respectively. On this occasion, the Party legalised its role in influencing investment decisions within SOEs and JVs (i.e. including foreign companies) which will make them less market-based.

 

Impact on country risk

 

Beijing’s latest decisions have several aims. One is to reaffirm the Party’s power in a transition period and given calls for economic liberalisation. Another one is to confirm that overseas investments in ‘irrational’ sectors should be abandoned as they are seen as disguised capital flight and weigh on the RMB and foreign exchange reserves.

 

It allows a more coherent foreign investment policy which prioritises acquisitions in hightech industries and OBOR-related projects, a dominant political goal for President Xi Jinping. Formalising the Party’s political influence in major business decisions is a way to reach such a goal and to assert the Party’s economic role after the EU refused to recognise China as a market economy last year.

 

Hence, it is likely to further deteriorate the business environment and affect China-based foreign groups’ overseas investments given the high political emphasis on OBOR. From a recent statement made by the National Development and Reform Commission (NDRC), one can conclude that foreign groups (together with SOEs and main private Chinese companies) might be under political pressure to invest in OBOR-related projects.

 

While investment amounts are fast-growing, companies would potentially face many underlying risks, be it at regulatory (e.g. Central Asia), political (e.g. Vietnam) or security (e.g. Pakistan) level, and more generally related to project profitability.

 

Raphaël Cecchi , Credendo

 

Disclaimer: Credendo has used its best endeavours to ensure that all the information, data, documentation and other material (copy and images) in this report are accurate and complete. Credendo accepts no liability for errors or omissions. The views expressed herein are the author’s personal views and are not intended to reflect the views of Credendo. Credendo will not be liable for claims or losses of any nature arising directly or indirectly from use of the information, data, documentation or other material from this report.


Categories: Allgemein, Markets
Tags:

Comments are closed

Photo Gallery

Anmelden