Photographer: SeongJoon Cho/Bloomberg

China's Outbound Investment Slumped in 2017 as Deals Scrutinized

China’s outbound direct investment recorded the first annual slump since at least 2009, as officials tightened curbs on capital outflows and increased scrutiny on foreign acquisitions.

Non-financial overseas investments plunged 29.4 percent to $120 billion, the Commerce Ministry said in a statement Tuesday. The drop came as policy makers have stepped up scrutiny of the country’s most prolific dealmakers since late 2016, including conglomerates such as HNA Group Co., in an effort to slow offshore takeovers that contributed to a surge in fund outflows and rapid depreciation in the yuan.

Read more about China’s crackdown on "irrational" outbound investment here.

Trends may change this year -- the yuan powered through 2017 with a 6.8 percent surge amid a slump in the dollar and cross-border flows became more balanced. A strong economy, which is expected to have expanded by 6.8 percent last year, and increased foreign inflows into the onshore bond market could also help support the exchange rate, opening a window for authorities to loosen capital curbs.

Slump in Deals

China's overseas investment plunged last year, first time since at least 2009

Ministry of Commerce, Bloomberg

"The tighter capital controls, which was the biggest reason behind the slump in ODI, will gradually be eased as the yuan stabilizes," said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc in Hong Kong. "Policy makers will approve more overseas acquisitions and mergers with real business needs -- this is necessary as the nation seeks to open up the economy and internationalize the yuan."

Foreign direct investment into China, meanwhile, dropped by 9.2 percent in December, compared with an abnormal surge of 90.7 percent the prior month, the ministry said. For the full year, FDI climbed 7.9 percent to 877.6 billion yuan ($136 billion).

— With assistance by Tian Chen

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