The financial situation in China continues to go from bad to worse by the look of things. Local companies will face even tighter controls when they want to invest abroad. This is the latest move by the government to curb capital outflows, although these matters will only further weaken the economy. This decision may also impact Bitcoin companies in the future, although that remains to be seen.
Investing Abroad Becomes Tougher For Chinese Firms
As if the situation in China is not difficult enough already for local firms, the government continues to meddle in financial affairs. Any Chinese company looking to invest abroad, which a fair few of them do for acquisitions and partnerships, will be scrutinized more than ever before.
Capital outflows are a plague for the Chinese economy, as the currency seems to leave the country far quicker than it is flowing in. This is not entirely surprising, given the devaluation spree of the Yuan, and very tight capital controls enforced upon consumers. It appears, though, that enterprises will now face the same level of scrutiny over the coming months.
China’s State Council has come up with a new rule that will affect virtually any overseas deal struck with a Chinese company. More regulatory oversight is hardly ever the answer to any situation, yet the State Council feels it is the only way to “protect the local economy.” This is a rather bold decision that may very well backfire on the Chinese economy.
Foreign acquisitions valued at US$10bn or more will be subject to strict controls. Moreover, state-owned companies looking to buy or invest in overseas properties at the value of US$1bn or more will face similar scrutiny. Even though these amounts may seem astronomically high, they are rather “normal” in the financial and business sectors.
To make matters even worse, Chinese companies looking to invest in overseas corporations that are not related to their core business will face separate regulations. For example, if a technology company acquired a Bitcoin startup, that could fall into this category, assuming the deal is valued at US$1bn or more.
It is evident that the financial situation in China will not change in a favorable direction anytime soon. In fact, the turmoil only seems to grow worse over time. Neither consumers nor corporations can spend their down cashflow without strict government regulation these days. This is not a positive development by any means, and another reason for everyone to look into other financial assets that are outside of governmental control.
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