The deputy governor of the central bank said that some companies transferred assets by buying football teams overseas. What is going on?

Observer Network (Shanghai) reported that according to China Securities Network on March 20, Pan Gongsheng, deputy governor of the central bank and director of the State Administration of Foreign Exchange, attended the 2017 annual meeting of the China Development Forum today. Mergers and acquisitions are compared to "roses with thorns" and "quicksand in the hands", and it is believed that overseas mergers and acquisitions need to be cautious and fully justified. However, in the process of Chinese capital going global, there are many companies taking the opportunity to transfer assets under the guise of buying football clubs.

Pan Gongsheng said that China's overseas direct investment (ODI) grew rapidly in 2016, with a year-on-year increase of 40%, while the growth rate in previous years was generally between 10% and 20%.

Pan Gongsheng believes: “Generally speaking, this is a good thing, and it is good for promoting the transformation of China’s economy, promoting the growth of the world economy and the host country’s economy, and achieving a mutually beneficial and win-win situation. There are also macro backgrounds such as the rise in China's comprehensive national strength, the improvement of openness to the outside world, the 'One Belt, One Road' initiative and the steady advancement of international production capacity cooperation." However, Pan Gongsheng pointed out that in daily supervision, some problems were also found. Irrational and abnormal investment behaviors, such as domestic steel mills going overseas to buy catering companies, and restaurant owners in China going overseas to buy online game companies.

He gave an example: "Chinese companies acquired many football clubs overseas last year. If the acquisitions are conducive to improving the level of Chinese football, I think it is a good thing. But is this the case? There are many companies with already high debt ratios in China, and some borrow a large amount of money to make overseas acquisitions, and some transfer assets under the package of direct investment."

Pan Gongsheng emphasized that the Chinese government Chinese companies have always been encouraged to participate in the international market and participate in foreign investment, but foreign investment should be more healthy and orderly. In the past few months, the growth rate of ODI has declined, and market entities are gradually returning to rationality. In the 1980s, there were also strong calls for Japan to buy the United States. Such lessons are not far away. When Chinese enterprises go global, going fast does not mean going well. Only going steadily can they go well.

Pan Gongsheng said: "I have also been engaged in overseas mergers and acquisitions in commercial institutions. My experience is that overseas mergers and acquisitions are sometimes like a bouquet of roses with thorns. You must be careful and go through sufficient arguments. It is like on the beach. Picking up a handful of sand may seem like you’ve caught it, but in the end it will flow from your hands.”

According to Observer.com, the major Chinese companies that spent a lot of money overseas in 2016 were football teams and clubs. :

Fosun Group bought the English Championship Wolves, Chinese consortium TTA bought the British Birmingham Football Team, Yunyi Guokai bought the British West Bromwich Football Team, and Double-Edged Sword Sports bought the La Liga Football Team. Nada Football Team, La Liga Joyto bought the La Liga B team Jumilla Football Team, Xinghui Interactive bought the La Liga team Espanyol, Suning bought the Italian Inter Milan, the founder of 7 Days Hotel bought the French Ligue 1 team Nice, Hanhua bought the Premier League team Hull (preliminary acquisition agreement), Chinese consortium ORG bought French team Auxerre, a Chinese consortium led by China Europe Sports bought Serie A team AC Milan, Shenzhen Lehman bought Australia's Newcastle Jets Chinese investment fund IDG bought the French team Lyon, Xu Genbao borrowed Shanghai Longfeng Enterprise Group to buy the Spanish team Lorca, Everbright Group bought the British team Liverpool, etc.

In addition, at the forum, Pan Gongsheng also talked about other hot issues such as my country's foreign exchange reserves, RMB exchange rate and foreign investment.

Foreign exchange management will no longer be trapped in the prison of capital controls

Pan Gongsheng once again mentioned the metaphor he used in an interview with China Business News at the beginning of the year, saying that foreign exchange management policies "open "The window will never be closed again": "This metaphor may not be appropriate, but the attitude is very clear, that is, China's foreign exchange management will not go back and will not go back to the prison of capital controls."

Foreign investors’ profits in China can be remitted if four conditions are met

Regarding overseas direct investment in China, Pan Gongsheng said that direct investment in China in 2016 ranked third in the world. position, ranking first among emerging markets, and the investment structure has been greatly improved. It is expected that with the growth of China's economy, the advancement of structural reforms, and China's huge market size, China will continue to be an attractive investment destination for long-term capital.

He also promised that China will actively create a relaxed and orderly investment environment for foreign investors in China, and there will be no restrictions on true and compliant fund remittances and payments such as capital increase, capital reduction, share transfer, and divestment. .

In response to previous media reports that profits earned by foreign companies in China cannot be remitted normally, Pan Gongsheng responded that profits earned by foreign companies in China can be reinvested in China or remitted out. , but there are some basic conditions when remitting:

First, previous losses must be made up according to Chinese company laws; second, there must be a board of directors resolution on profit distribution; third, there must be There must be a financial statement audited by the Audit Department; fourth, there must be a tax payment certificate in China. If these requirements are met, there will be no problem in corporate profit remittance.

“These four conditions are not current conditions, but conditions that have always existed in the past.”

Promoting the opening of the capital market has different priorities in different periods

Pan Gongsheng said: "We must continue to promote the two-way opening of China's financial market. One of the important tasks is to promote the opening of China's capital market."

However, he also emphasized: "The opening of capital accounts should be in line with A country's economic development stage, financial market conditions, and financial stability have a great relationship. Therefore, the focus, rhythm, and timing of promotion in different periods should be related to a country's financial market conditions and the international market. The situation is relevant.”

Cross-border capital flows, positive equilibrium convergence

Pan Gongsheng also pointed out two important factors in observing cross-border capital flows: the holders of external assets. The process of greater diversification and external debt repayment.

Previously, the main holders of China’s external assets were official foreign exchange reserve assets, which reached a peak of more than 70%. However, this has continued to decline since 2010, and the proportion of external assets held by market entities has continued to increase. In 2016 it reached 50%.

In addition, during the period when the Federal Reserve implemented the quantitative easing monetary policy, Chinese companies acquired more foreign debt. After the Federal Reserve began to raise interest rates and the domestic financing environment also improved, companies began to accelerate their purchases in the second half of 2014. Repay external debts and reduce currency mismatch risks. However, Pan Gongsheng pointed out that since the second quarter of 2016, the process of corporate external debt deleveraging has basically ended, and the scale of external debt has begun to increase.

He said that China’s cross-border capital flows are converging towards equilibrium. China's economy is in a medium-to-high growth range. With the deepening of supply-side structural reform, China's economic growth will be of higher quality in the future; China's current account surplus remains within a reasonable range, and China will remain the most competitive and attractive place for overseas long-term capital investment. one of the important destinations.

He emphasized again that China’s foreign exchange reserves are abundant, accounting for 28% of the world’s foreign exchange reserves.

The RMB exchange rate remains basically stable at a reasonable and balanced level

As for the RMB exchange rate, Pan Gongsheng said that it has been following the direction of market-oriented reform to improve the exchange rate formation mechanism and continuously improve the exchange rate policy. The degree of regularity, transparency and marketization: "Maintain the basic stability of the RMB exchange rate at a reasonable and balanced level and maintain the stability of market expectations, especially the stability of a basket of currencies; at the same time, it will be based on the international foreign exchange market and market supply and demand. changes, enhance the flexibility of the exchange rate, and maintain the function of the exchange rate in regulating the balance of payments.

“In the past period, we have also seen that the RMB exchange rate has remained basically stable in two-way fluctuations, with the RMB against one currency. The basket currencies fluctuated slightly, and the bilateral exchange rate of the RMB against the US dollar also showed bilateral fluctuations of both appreciation and depreciation. ”