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Will 2018 Bring Back the Chinese investors?

Restrictions on investments imposed by the Chinese government at the end of 2016 caused a decline in investments made by private companies and investors
A Chinese flag flies at a construction site in Beijing's central business district on October 31, 2017. (AFP Photo/Greg Baker)
A Chinese flag flies at a construction site in Beijing's central business district on October 31, 2017. (AFP Photo/Greg Baker)

Chinese worldwide acquisitions and investments dropped drastically during 2017. From a record $ 224 billion in Chinese investment in the world in 2016, at the end of this year, the figure stands at $ 132 billion. Israel too experienced a decline, however, it was less dramatic; according to PWC’s 2017 merger and investment report, total investment from East Asian countries in Israel during 2016 was $ 6.4 billion, compared with $ 2.7 billion this year, with the $ 4.4 billion Playtika deal closed in 2016 explaining most of the gap.

One of the major changes that took place at the end of 2016, which may explain the decline in Chinese investment, was the restrictions imposed by the Chinese government on investments by foreign direct investment made by private companies and investors. These restrictions began as a response to the increased growth in investments which the Chinese government perceives as irrationally risky. In August this year, the administration reaffirmed this concept and published an official policy that outlined general guidelines to create a diversified, responsible range of investments in order to stabilize the currency and balance the risks of the banking sector. In this policy, the Chinese government worked to direct investors to make low-risk investments that will coincide their respective areas of activity and prevent investments that harm national interest.

The policy outlined three categories that defined the prohibited areas for investment, areas that the state would encourage and support, and areas that would be limited and require special approvals and procedures. This category, which listed the restricted areas, made it difficult for Chinese entities operating in foreign countries to plan their moves, and many of them froze certain activities so as not to come across cumbersome unforeseen bureaucratic procedures.

Thus, the decline in Chinese investment worldwide in 2017, which was felt to a certain extent in Israel as well, reflects the regulatory uncertainties in which Chinese investors are present, and does not indicate the economic strength or interest of Chinese investors.

As noted, the official policy was the first stage in dispensing the regulatory fog, and now the Chinese government continues to work to create order in the formulation of its desired foreign investment policy. Last month, the NDRC, the body responsible for macro-economic planning in China, issued a statement that the administration will adopt new methods of cooperation between the various parties, speed up the legislative processes and provide clarifications. The rules will come into effect in March 2018 and increase supervision over investors transferring assets and financing to investment entities controlled by foreign investors, and set penalties for illegal activity. In addition, the rules define countries that are not in diplomatic relations with China and regions of war as sensitive countries. Areas sensitive to investment are communications, weapons, and transactions related to natural resources.

It seems that the process that has begun is continuing to develop and the Chinese government is working to implement the principles outlined. Clear legislation that will increase the certainty of Chinese investors operating in foreign countries will provide guidance to investors who are now afraid to make any move, and will increase the investment flow.

The type of transactions that have been carried out so far with Israel are not classified as sensitive and their continued implementation is in line with the interests of the Chinese government. Israel is a technology exporter in areas where China is crying out for technological developments and it is clear that China’s interest is to continue the successful cooperation. Therefore, as the restrictions on foreign investments become more stringent, and the certainty of Chinese investors increases, so will the resumption of the influx of investments in Israeli companies and technologies, which has contributed so far to both the Chinese economy and the Israeli economy.

About the Author
Adi is the founder and CEO of Valoo, a fintech startup. Valoo's product serves the largest high-tech companies in Israel, and Valoo's investor community includes leading angels in Israel, international funds and family offices. Adi was recognized by Forbes as one of the most promising young Israelis (30Under30). Adi has founded a global strategic business consulting company, which provides services to clients from Israel and the world working with the Chinese market, with branches in Beijing and Shanghai. Adi holds a bachelor's degree in business administration with a specialization in finance and risk management, a bachelor's degree in law and a master's degree in law with a specialization in business law from the Interdisciplinary Center and also graduated with honors in Chinese language studies at BLCU University in Beijing.
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