BOFIT Viikkokatsaus / BOFIT Weekly 2017/35

China's government updated in August its catalogue on guidance in outbound foreign direct investments. Investment is classed into three categories: "encouraged," "restricted" and "prohibited." FDI in infrastructure projects that are somehow associated with president Xi's One Belt, One Road initiative are "encouraged." Other types of FDI abroad likely to get green-lighted are those directed at high-tech industries, agriculture or the energy sector.

Firms investing in the restricted category (e.g. real estate, hotels, entertainment and sport) need special permission from officials. Officials say that these industries have suffered in recent years from "irrational" investments which are directed outside of the firm's core business area and used as a means to move money out of the country. Concerns over the financial wisdom and risk involved have also increased in recent years, and in practice officials have already cracked down on such investment by late last year. In particular, large private firms have faced heavy scrutiny over their overseas dealings, with some foreign acquisition projects abandoned altogether.

The prohibited are e.g. investment in the gambling industry and projects that may compromise national security.

Figures from China's commerce ministry show that outbound FDI (excl. finance sector) fell in the first seven months of the year by over 40 % from the same time in 2016, when a record amount of foreign investment occurred. The Rhodium Group analysis show that this year state-owned enterprises, unlike last year, accounted for the majority of foreign acquisitions. ChemChina, which embarked on its acquisition of the Swiss firm Syngenta in 2016, completed the deal in July. ChemChina now controls over 98 % of the company's share capital. The deal, valued at about 43 billion dollars, accounts for about a quarter of all Chinese FDI abroad last year. It is still unclear how the Syngenta FDI flows are allocated in official statistics, but the deal definitely has a large impact on FDI flows. If the investment is allocated to 2017, China's overall FDI outflows have not fallen from the 2016 level.