Onshore Energy Conference — Dubai Onshore Energy Conference — Dubai 02 | Page 51

THE P H REPORT
they can only be resolved by government
policies that resolve this problem.”
Chu and Pettis’ analyses highlight that
there are no easy answers to the problem
of the ‘Impossible Trinity’. There is also
an additional complication focused on
the “China Going Out” policy, and the One
Belt & Road Initiative which now involves
over 100 countries and international
organisations. Xi Jinping’s flagship
policies cannot easily be discarded,
given the size of the investments already
underway. China’s outbound investment
hit a record US$ 146bn in 2016, in addition
to the $355bn of trade and business-
related government loans and grants
made in January – September 2016 to
foreign governments.
Net capital outflows in the first 10
months of 2016 amounted to US$ 172 bn
(RMB 1.19tn) according to People’s Bank
of China data, far too large for comfort.
Our understanding, following a week of
meetings in Beijing with various current
and former government officials, and
Chinese legal advisors, is that a number of
new regulations have now been imposed.
These have been circulated to relevant
stakeholders, but not officially published,
and are officially of a temporary nature.
Under these, some specific types of direct
investment transactions will receive
extra scrutiny:
 Foreign real estate purchases valued at
$1bn+ by state owned enterprises (SOE)
 The acquisition of small stakes, 10% or
less, in overseas listed companies
 Investments of Chinese parents in foreign
subsidiaries, and foreign partnerships
 Chinese capital participation in the
delisting of overseas Chinese enterprises
 Investments where the asset-liability ratio
is high and the likely profitability low
In addition, the government has banned
the use of the annual $50k foreign currency
allowance by individuals and companies
to buy foreign real estate, international
financial investment products or other
foreign investments. This measure is part
Saudi’s austerity programme
has already cut most
salaries by 20 per cent
of the drive to stabilise the RMB, and also
suggests that the government has decided
it would be prudent to develop contingency
plans in the event of a trade war with the
United States.
The main justification put forward to
support these measures is that China’s
foreign reserves must now be used more
intelligently. In the past, when these
were still rising, there was no particular
national interest involved if private
or state-owned companies pursued
international acquisitions that were
unconnected with their core business, or
made little strategic sense.
But today, the government is concerned
that some of these deals are being done to
smuggle money out of China, and are not
bona fide international acquisitions – for
example, a mining company that spent
US$ 300m buying a British video gaming
company. Another sensitive area today is SOE
acquisitions of overseas “trophy assets” which
have no connection with their real business.
At the same time, the government continues
to emphasise the strategic importance of
the Going Out policy. As President Xi said
in Davos last week:
“China is expected to import $8tn of
goods, attract $600bn of foreign investment
and make $750bn of outbound investment.
Chinese tourists will make 700m overseas
visits. All this will create a bigger market,
more capital, more products and more
business opportunities for other countries.”
4. Saudi hopes for $65/bbl oil in 2017
Saudi Arabia has published its first Budget
under the new ‘Vision 2030’ policies. It was
certainly encouraging to see increased
transparency in its financial statements.
The annual deficit is said to have fallen
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