China issues rules for foreign investments by private firms

China’s powerful state planner on Monday issued new rules for overseas investment by private companies, aiming to stamp out instances of firms violating policies, engaging in unfair competition and poor safety and quality management.

As Chinese companies take an increasingly visible role in the global economy, the rules, issued jointly by the National Development and Reform Commission, the central bank and other government bodies, look to regulate their overseas activities.

Beijing has been stepping up scrutiny of outbound investment after a surge in international deals last year fuelled concerns that some deals were being used to disguise capital flight as the yuan currency weakened.

Chinese firms should make overseas investments based on their own conditions and abilities, exercise caution, and respect Chinese and host-country rules, as well as intellectual property concerns, say the rules published on Monday. “Private firms’ overseas investment operations should adhere to fair competition...(and firms) must not bribe local public officials, or personnel from international organisations or related enterprises,” they added. 

The government has issued rules for overseas investments by state firms and other guidelines to better control outbound capital flows. 

Last month, the state planner issued guidelines to monitor the overseas activities of Chinese firms and individuals to prevent tax fraud, money laundering, and activities that damage the country’s reputation. 

The new rules urged private companies to improve risk controls, set up contingency plans, and strengthen safety measures in overseas investments, while also providing training for staff dispatched to work overseas.

Chinese firms must do environment impact assessments of overseas investment projects and due diligence on the environmental track record of acquisition targets, the rules say. “Private firms are encouraged to adhere to resource-saving, environmentally-friendly operations. They should build resources and environmental protection into company development and production plans,” the rules added.