China moves to curb overseas acquisitions as firms' debt levels rise

The Chinese government has served notice on the country’s foreign investment spree in football clubs, skyscrapers and Hollywood as it moves to curb rising levels of debt among domestic companies.

The announcement of restrictions in a range of sectors follows a buying spree around the globe during which Chinese firms and business tycoons have taken control of assets including Legendary Entertainment, the US film producer behind Jurassic World and Warcraft, buildings such as the Cheesegrater in London, and English football clubs including Southampton and Aston Villa.

The curbs were announced in a document released on Friday by the state council, China’s cabinet, in the latest move to halt a string of foreign acquisitions. This week the International Monetary Fund described China’s credit-fuelled economic strategy as dangerous, in a strongly worded statement warning that the country’s approach risks financial turmoil.

Raising concerns that some of the companies involved may be taking on too much debt, the council said: “There are great opportunities for our nation’s companies to embark on foreign investment, but they also face numerous risks and challenges.”

It added that through the new guidance, the government hopes to promote the “rational, orderly and healthy development of foreign investment while effectively guarding against risks”.

The document limits overseas investments in areas such as hotels, cinemas, the entertainment industry, real estate and sports clubs. It also bans outright investments in enterprises related to gambling and the sex industry. The Chinese government had already flagged hotels as an area of concern, having reportedly asked the insurance group Anbang to sell the Waldorf Astoria hotel in New York.

One of China’s biggest conglomerates, Wanda Group, also bowed to pressure from the government when it abandoned the $1bn (£780m) purchase of the entertainment company Dick Clark Productions earlier this year. In 2016 Wanda bought Legendary Entertainment for $3.5bn, having become the world’s biggest cinema operator in 2012 with its purchase of a majority stake in US chain AMC for $2.6bn.

At the same time, the document encourages companies to plough money into projects related to the “Belt and Road” project, President Xi Jinping’s signature foreign policy initiative that seeks to link China with other parts of Asia and eastern Europe through multibillion-dollar investments in ports, highways, railways, power plants and other infrastructure.

The Chinese government has pledged to double the size of the

country’s economy between 2010 and 2020, leading to rapid growth in non-financial sector debt to help achieve its aim. Total debt has quadrupled since the financial crisis to

$28tn

at the end of last year.

As part of his drive for stronger government leadership over the economy, Xi has been moving to reassert control over top state enterprises while reining in sprawling conglomerates such as Wanda, Anbang, Fosun International and HNA Group, which have expanded rapidly via debt-fuelled foreign acquisitions.

China’s state planner, the national development and reform commission, said on Friday it would provide better guidance on risks to companies investing overseas in order to prevent “vicious” competition and corruption.

It also cited unspecified security risks for Chinese companies investing abroad, but did not give any further details about how it planned to strengthen rules or why it was concerned about corruption and unhealthy competition between companies.

The UK government approved Chinese state-backed investment in the construction of the £18bn Hinkley Point C nuclear power plant in September, after Theresa May unexpectedly placed the controversial scheme in Somerset under review, causing tensions with Beijing.