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Treasury & Capital Markets
How Chinese companies circumvent FX controls
Aside the normal route which requires approval from Chinese regulators, Chinese treasurers are moving to leverage their offshore platforms to circumvent regulations and make overseas investments.
Derrick Hong 22 Jun 2017

Chinese corporate treasurers are facing difficulties remitting capital out of China amid tighter FX controls. Aside the normal route which requires approval from Chinese regulators, Chinese treasurers are moving to leverage their offshore platforms to circumvent regulations and make overseas investments.

Despite the appreciation of the renminbi since the start of June, Chinese companies are still actively hedging their currency risk by acquiring overseas assets. China Resources Land Limited acquired an office building in London for about £300 million (US$386 million) from AXA Investment Managers, while China Life and HNA group also recently announced overseas investment plans.

Currently, Chinese companies planning to make large foreign currency investments can either apply for approval from the Ministry of Commerce, the National Development and Reform Commission, and the State Administration of Foreign Exchange (SAFE), or they can directly leverage offshore financing or their investment vehicles. As seeking approval becomes more difficult, more Chinese companies, especially real estate developers, are turning to offshore financing, such as offshore bonds and bank loans.

Another way to get approval from the regulators is under the Belt Road initiative. In guidelines issued by the Ministry of Finance in May, banks and financial institutions are encouraged to provide trade finance facilities to Belt & Road participants. In the meantime, the People’s Bank of China (PBoC) and SAFE also reiterated their support for cross-border transactions under the Belt Road initiative.

In April, PBoC relaxed the requirement for banks to maintain a balance of inflows and outflows when processing cross-border renminbi payments. Cross-border cash pools and sweeps have been inconsistently suspended since early 2016.

Chinese financial institutions are also tapping their offshore platforms to make overseas investments. A leading Chinese private bank told The Asset that despite the fact that they no longer accept cross-border investment requests, overseas investment requests from all clients with overseas assets were all handled by their overseas arms.

Yet, in the M&A space, cross-border transactions are still subject to complicated procedures. China National Chemical Corporation announced its acquisition of Syngenta in February 2016 for US$43 billion – the largest ever cross-border M&A deal by a Chinese acquirer – however, it has still not reached a close. While European competition law has been creating most of the delay, FX controls in China have also prolonged the transaction.

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