Agriculture a rare exception as China restricts overseas investment

The sector is being encouraged as part of efforts to make up for ‘shortages of resources’ at a time when Beijing cracks down on deals targeting the likes of real estate, hotels and entertainment.

China’s State Council has issued guidance on Chinese overseas investments, formally setting boundaries and distinguishing between ‘encouraged’, ‘restricted’ and ‘prohibited’ categories.

The ‘encouraged’ category includes agriculture, technology and infrastructure projects in the One Belt, One Road initiative – a long-term economic priority for the government that recreates the Silk Road trade routes through Asia and Africa to Western markets.

Agriculture investments are seen as crucial in China’s attempts to “make up the shortage of energy and resources through prudent cooperation in oil, gas and other resources.” Law firm Ashurst noted Beijing’s ambition to develop investment cooperation “for mutual benefit” in sectors like agriculture and fishing.

Restricted investments, on the other hand, refer to transactions carried out in the sensitive countries and regions which have no diplomatic relations with China and those restricted under bilateral/multilateral treaties concluded by China. “Irrational” acquisitions in sectors like real estate, hotels, entertainment and sports – which have seen increased investment since 2012 – are also included in this category.

Meanwhile, the prohibited category includes areas relating to China’s national security and national interest such as core military and technology products as well as the gambling and sex industries.

It is understood that the State Council’s official “guidance” to financial institutions issued in late November 2016 will be maintained. This included stricter scrutiny on outbound deals valued above $10 billion as well as acquisitions of more than $1 billion in sectors unrelated to a company’s core business. Foreign real estate deals by state-owned enterprises involving more than $1 billion are also prohibited.

China outbound investment set records in 2016 with close to $170 billion worth of outflows recorded, according to the country’s commerce ministry. The top targets for Chinese buyers were industrials, high tech, financials and entertainment.

For the first half of 2017, however, Chinese outbound investment fell 45.8 percent to $48 billion from the previous year, as the government tightened control of capital leaving China and continued its crackdown on overseas spending of big-name conglomerates such as Fosun and Dalian Wanda.

Additional reporting by Matthieu Favas