Beijing’s capital controls hit usual suspects and surprising victims
As developers retreat from property markets, tech investments get caught in wide net
Chinese investments in overseas property and entertainment assets have been hit hard by Beijing’s efforts to stem the tide of yuan outflows, with numbers this week showing the dramatic retreat from Hong Kong real estate. According to analysis from Standard & Poor’s Chinese developers won 11% of bids by value in Hong Kong government land auctions since April, down from the some 50% seen in the previous two years.
Singapore outspent China for the first time in years on property in the US, with Chinese investments in the sector falling 66%. Restrictions have sent a “tremor” through the Australian property market, as Chinese home buyers struggle to get money out of China.
Amid the exodus of Chinese money in property markets around the globe, Beijing has expressed support for investments in industries viewed as strategically important, such as high technology. But a report this week found that even Chinese investors shopping in Silicon Valley have been hit by the broad restrictions on capital outflows.
“It continues to be a challenge for us,” Veronica Wu, managing partner at Hone Capital, a subsidiary of Chinese private equity firm CSC Group was quoted by the Financial Times as saying.
“We slowed down a bit last year, especially for the later stage investments,” she says, adding that Hone can still back early-stage companies with funds that had been moved out of China before controls were put in place.
“The biggest impact is on whoever was denominated in renminbi, and they got really significantly impacted,” Brad Bao, managing partner of Fosun Kinzon Capital says. “In 2017, [moving funds from RMB to dollars] got harder and harder, and by the end of 2017 it became pretty much impossible.”
This puts the tech investors in the crossfire, as US regulators’ concerns about national security implications of Chinese investments in the sector has led to increased scrutiny. And the pressure from the US side only looks to grow. A new bill proposed by lawmakers in Washington could expand the already expansive role of the Committee on Foreign Investments in the US to screen any foreign acquisitions involving a broadly-defined “critical technology company.”