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China FX head says overseas M&A like 'a rose with thorns'

China FX head says overseas M&A like 'a rose with thorns'
March 20, 2017

BEIJING - Chinese companies investing overseas need to be careful and invest rationally, the head of China's foreign exchange regulator was quoted as saying by the official Shanghai Securities News on Monday.

"Overseas mergers and acquisitions can sometimes resemble a rose with thorns, you must be careful and you must do your due diligence," said Pan Gongsheng, the head of the State Administration of Foreign Exchange (SAFE) who is also a vice governor of the central bank, was quoted as saying by the paper.

"These deals can be like clasping a handful of sand at the beach, it looks like you've got it in your grasp but at the last moment it slips through your fingers."

China has been clamping down on capital flight in recent months, eroding the confidence of domestic and foreign investors about getting deals done inside and outside of the world's second-largest economy.

"Last year Chinese firms bought lots of football clubs overseas. If these purchases help improve the standard of Chinese football, then I think that's a good thing," Pan said.

"But is that what's really happening? A lot of Chinese companies already have high levels of debt and then borrow another large sum to make overseas purchases. Others pretend to be investing but are actually just moving their assets."

It was irrational for a Chinese steel factory to acquire a food and beverage company or for a Chinese restaurant business to buy an online gaming company abroad, Pan said.

Investment by Chinese firms in offshore properties in January tumbled 84.3 percent from a year earlier, while overseas direct investment (ODI) by Chinese in January fell 35.7 percent to 53.27 billion yuan, the weakest in 16 months. The data does not include investments by companies in the financial sector. -Reuters