Capital Controls, Less Liquidity
The State Council, China’s cabinet, will soon announce new measures that subject many overseas deals to reviews of “strict control,” according to people with direct knowledge of the matter and documents reviewed by The Wall Street Journal.
Targeted for particular scrutiny by the pending measure are “extra-large” foreign acquisitions valued at $US10 billion or more per deal, property investments by state-owned firms above $US1 billion and investments of $US1 billion or more by any Chinese company in an overseas entity unrelated to the investor’s core business.
With economic growth stable, policy makers are trying to rein in leverage in the world’s No. 2 economy. The impact is being felt in the debt market, where the government yield curve has reached the steepest since April and the yield premium on three-year AAA corporate bonds is set for the biggest jump in seven months.
“China’s central bank has essentially raised rates by 25 basis points through money market operations,” said Deng Haiqing, chief economist at JZ Securities Co. in Beijing. “The bond market adjustment is only beginning. We expect the yield curve steepening to be the main feature of the market in 2017, driven by mild PBOC tightening.”