China capital controls cause headache for foreign business

Beijing’s effort to tighten capital controls has resulted in a 74 percent drop in Chinese outbound investment in the first quarter of this year and is likely to create serious problems for foreign businesses, risk consultancy Steve Vickers & Associates said.

The State Administration of Foreign Exchange’s approval of foreign exchange applications slowed in early 2016, and in November 2016 the People’s Bank of China limited overseas investments by state owned enterprises, it noted.

At a lower level, the SAFE in September 2015 curtailed overseas cash withdrawals through China UnionPay, a payment system, and in October 2016 closed a loophole on investment-related insurance policies. Public security officials in China have shut down many underground banks, and in Macau police have curtailed the use of cross-border sales terminals, the report noted.

“Payment risk is now a serious threat. Chinese companies are struggling to transfer funds, meaning investors expecting dividends from shares or repayments on bonds could see delays in settlement, or even default. Companies dealing with Chinese manufacturers or exporters may also face payment difficulties,” it said.

The report didn’t specifically refer to the gaming industry in Macau, although in the past analysts have noted that China’s efforts to control capital are a risk to the industry.