Modern-day Silk Road sees investment surge despite crackdown

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Chinese investment in countries that are part of the 'Belt and Road' initiative are increasing speedily, despite a Beijing crackdown on China's acquisitions abroad in an effort to restrict capital outflow.

By the latest reports, Chinese acquisitions in the 68 countries that are officially linked to President Xi Jinping's foreign policy totalled $33 billion – easily surpassing the $31 billion tally for the whole of 2016.

The "Belt and Road" project was unveiled in 2013 and is designed to function as a modern-day Silk Road – connecting China to Asia, Europe, Africa and the Middle East.

Xi's recent pledge of $124 billion for the plan was criticised by many who saw it as a ploy to assert Chinese influence rather than a desire to spread prosperity.

Beijing is also adverse to the move, as they try to prop up the yuan by restricting the flow of money outside the country and attempt to monitor debt-fuelled acquisitions; making it more difficult for would-be buyers to win approval for deals overseas.

This stark tightening of the screws came after Chinese companies spent a record $220 billion on overseas assets in 2016; purchasing everything from football clubs to movie studios. But, so far, the new regulations haven't hampered Chinese targets along the "Belt and Road" corridor, which have strategic as well as economic benefits.

Hilary Lau, a corporate and commercial lawyer and partner at the law firm Herbert Smith Freehills, said:
“People are thinking in a long-term approach when making investments along ‘Belt and Road’ countries. The acquisitions are also policy driven. There are funds allocated by Chinese banks and state funds for “Belt and Road” deals,”

At the moment, the many companies who are investing along the "Belt and Road" enjoy a relatively smooth approval process – more so than other countries.

“If you are doing ‘One Belt, One Road’, that becomes the first sentence in the document” to the regulators, said a senior investment adviser at a Chinese company that has acquired several overseas businesses. “It is a wise thing to point out early on.”

The largest deal so far this year has been a Chinese consortium’s $11.6 billion buyout of the Singapore-based Global Logistics Properties.

Despite the crackdown, China's foreign exchange regulator, The State Administration of Foreign Exchange, said domestic companies would still be encouraged to participate in “Belt and Road” activities – but it's expected that tighter rules may soon be enforced.

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