Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

China just made investment bankers' lives more difficult.

Any hope that the country's semi-freeze on outbound investments would let up after the end of the five-yearly Communist Party Congress were disabused of that notion Friday when the economic planning agency said it would expand its oversight to offshore units of Chinese companies.

Under draft rules being drawn up by the National Development and Reform Commission, firms will have to report acquisitions exceeding $300 million made through offshore arms. The commission also added a list of "sensitive" areas -- such as weapons, news media and water resources -- where investments will require approval.

The rules threaten to close the last major loophole that Chinese companies and the bankers that advise them have used to skirt restrictions on capital outflows. Many firms have been using offshore bases, particularly Hong Kong, to buy trophy assets such as overseas real estate, football clubs and entertainment businesses.

Overseas acquisitions by Chinese buyers have tumbled from last year's record levels after the government made it harder to move yuan out of the country on concern that the buying spree was adding to financial risks. Authorities have taken particular aim at what the planning agency has called "irrational" investments.

Cash Flow Problems
Chinese capital controls have led overseas buying this year to fall dramatically
Source: Bloomberg

Recent examples of acquirers going the offshore route include:

  • Chinese investors used companies registered in Luxembourg and Hong Kong for the $788 million purchase of  Silvio Berlusconi's AC Milan soccer club in April;
  • HNA Group Co. secured financing to buy Singapore warehousing firm CWT Ltd. through Hong Kong-listed HNA Holding Group Co. 
  • Shanghai-based conglomerate Fosun Group is in talks to buy a stake in Russian miner Polyus PJCS though Hong Kong-listed Fosun International Ltd. 

To be sure, purchases of assets that meet Beijing's strategic objectives -- such as semiconductor or pharmaceutical companies, or projects tied to President Xi Jinping's One Belt One Road initiative  -- won't have any trouble getting approval.

The rub is that these are precisely the type of acquisitions that are likely to run foul of foreign governments. That leaves M&A bankers chasing a narrowing window of targets that meet Beijing's approval yet don't raise the ire of overseas regulators.

It looks like they'll remain between a rock and a hard place for some time.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at

To contact the editor responsible for this story:
Matthew Brooker at