Home > Business
Tuesday, May 9, 2017, 14:31

Tougher audit of overseas investments by state-owned companies

By Xinhua

Tougher audit of overseas investments by state-owned companies
This Dec 12, 2011 photo shows buildings of the financial district of Beijing rise above the city skyline. (Ed Jones / AFP)

BEIJING – Chinese authorities will introduce an improved, rigorous system of auditing overseas investment by state-owned companies as the pressure of cross-border capital flow remains.

The auditing system focuses on decision-making by the state-owned companies on overseas investment and joint ventures, and their financial management and internal control, in addition to capital security, operating benefits and risk control of overseas state-owned assets.

The first step is to roll out measures to regulate overseas investment, the second is to stipulate company operations strictly, and the third is to develop a system of accountability

Xiao Yaqing, Head, State-owned Assets Supervision and Administration Commission

Major methods of auditing include domestic inspection, auditing and analysis of documents and inquiries into relevant parties.

If necessary, regulators will go overseas for on-site verification and evidence collection in accordance with international practices and laws of the countries in which state-owned companies invest.

Outbound investment has grown rapidly in recent years and played an important role in deepening mutually beneficial cooperation between China and other countries as well as promoting domestic economic restructuring.

However, irrational speculation, illegal transfer of assets, and fake transactions all disrupt China's foreign exchange and financial markets, causing state-owned asset losses and hurting national interests.

A recent report released by China's foreign exchange regulator unveiled some cases in which companies had illegally transferred assets overseas under the guise of outbound investment .

Some newly established firms, which had produced nothing, were providing large sums of outbound investment. Some heavily indebted companies borrowed more to acquire companies overseas. These are just a few of the examples listed by the State Administration of Foreign Exchange.

ALSO READ: China tightens regulations on investment by state firms

Risks are inherent in any investment and cannot be avoided. Given growth in overseas state-owned assets, regulation of those assets has been a new challenge facing Chinese authorities.

In support of the country's "going out" strategy for investment, businesses of state-owned companies, especially centrally administered ones, have expanded to more than 150 countries and regions with over 5 trillion yuan (about US$725 billion) in overseas assets, earning global fame for high-speed train, nuclear power and ultra-high voltage projects.

With more companies "going out," China's overseas investment has been exposed to complicated problems in culture, human resources and corporate management. Some enterprises have paid high prices for those problems.

"The first step is to roll out measures to regulate overseas investment, the second is to stipulate company operations strictly, and the third is to develop a system of accountability," said Xiao Yaqing, head of the State-owned Assets Supervision and Administration Commission (SASAC).

Noting an irrational tendency in outbound investment, Chinese authorities have set stricter rules and advised companies to make their investment decisions more carefully.

READ MORE: China to unveil central SOE reform 'soon'

Since the beginning of 2017, SASAC has introduced negative lists and designated investment redlines for both domestic and overseas investment by state-owned companies.

China's outbound direct investment fell by 64 percent year on year to reach US$20.9 billion in the first quarter, thanks to increasingly rational market players and guidance by relevant government departments.

Last year, the country's outbound direct investment surged over 40 percent from a year earlier, the result of an increasingly globalized Chinese economy and also stemming from some irrational or illegal acts.

Latest News