Commentary
Beijing has tightened oversight of Chinese investments overseas.
New regulations extend to individuals the extensive approval, filing, and reporting requirements already imposed on corporations. At the margin, the new regulations will serve three of Beijing’s interests: One is the ever-present lust for control long exhibited by the Chinese Communist Party (CCP).
Second is the desire to secure financial support for China-based investment that might otherwise flow to overseas tax havens or to projects that do not serve Beijing’s agenda.
Third, the authorities have issued regulations rather than prohibitions because Beijing also wants access to foreign technologies and “know-how” that might come through foreign connections.
The relative looseness of previous rules had allowed Chinese individuals to put considerable sums offshore through arrangements outside the CCP’s oversight. That is now much more difficult.
These new strictures, promulgated by Beijing’s National Reform and Development Commission (NRDC), cover everything from the purchase of overseas properties to the acquisition of foreign companies, to offshore holding platforms, often in tax havens.
Unlike in the past, individuals will now have to obtain regulatory permission for overseas purchases, submit detailed filings to the government, and provide regular reports. In the words of Cheng Xiaxia of the Beijing-based Guan Ling law firm, the CCP will now be able to “look through” the multi-layered structures previously used by wealthy individuals.
Beijing has made it clear that its main interest is in large projects of $100 million or more, but not exclusively.
These actions fit perfectly with the pattern of increasing control exerted by CCP leader Xi Jinping since he took power. The authorities are well aware that much of this outflow of funds was intended to give individuals some freedom from Beijing’s impositions.
Now, neither Chinese companies nor individuals can commit funds domestically or offshore without state approval and constant oversight.
Indeed, the effort at control even tries to gain power over the foreign partners of overseas Chinese investments. In announcing the new regulations, the NRDC said the new structures will include a mechanism for Chinese investors to report any abuse or other disadvantage imposed on them by their foreign partners, so that authorities in Beijing can retaliate by forbidding the foreign company or individual from doing business in China.
This promise does not quite rise to an attempt to impose Chinese law and regulatory control on foreigners even when acting outside China, but it does come close.
By governing the flow of funds overseas, the CCP has also given itself an additional source of financing for its “Made in China 2025” project. In large part, this program aims to compete with the United States for primacy in critical areas of technology, among them advanced semiconductors, electric vehicles, quantum computing, biotechnology, and artificial intelligence.
The effort requires tremendous financial support, an area in which China is at a distinct disadvantage compared to the United States. By taking control of certain foreign-bound flows, Beijing can cover part of the large comparative financing gap.
These new NRDC rules are a small step in Beijing’s efforts, but they are entirely consistent with patterns of control that have developed over time, especially since the regime launched the “Made in China 2025” project.
Beijing will need much bolder steps to gather what it needs to compete with America, especially since its economy is so weak, but that need explains the urgency implicit in the new rules. Meanwhile, the CCP has gained even more of the control it craves and the discretion to direct more overseas investment toward activities that can bring home technologies and practices that serve its agenda.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
