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August 3, 2017

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Overseas investment by SOEs beefed up

CHINA has stepped up financial management of overseas investments made by state-owned enterprises in efforts to improve returns and control risks, the Ministry of Finance said yesterday.

A guideline that took effect on Tuesday will standardize the financial management of SOEs throughout the investment process, and tackle key issues including poor project feasibility and lack of risk management, the ministry said in an online statement.

Specifically, the guideline clarified the financial management responsibilities of these types of investments, asking SOEs to assign a specific person from top management to be in charge.

Also, the guideline requires SOEs to specify rules on feasibility and financial due diligence, making sure projects are financially viable before decisions are made.

SOEs should focus especially on risk factors including growth prospects, financial environment, and policy stability of the country where the investments are located.

During the investment process, SOEs should control costs, register foreign currency transactions and maintain accounting records.

Financial authorities should establish databases on financial reports of overseas investments by SOEs in order to analyze and monitor financial operations and improve policies based on the data.

SOEs should also establish mechanisms to evaluate overseas investment performance, and base future asset allocations on such evaluations.

The guideline applies to both central and local SOEs. Financial SOEs will follow separate rules to be released later.

China’s SOEs have been at the forefront of overseas investment. As China pushes the Belt and Road Initiative and encourages companies to go abroad, overseas investments by SOEs are becoming diversified and higher-end, the ministry said.

China saw its outbound direct investment shrinking 42.9 percent in the first half of this year as authorities managed to contain irrational ODI, Qian Keming, vice minister of commerce, said at a press conference earlier this week.


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