Foreign Investment Risk

The People’s Republic of China seems about to illustrate one form of this risk.

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 $10 billion or more per deal, property investments by state-owned firms above $1 billion, and investments of $1 billion or more by any Chinese company in an overseas entity unrelated to the investor’s core business.

This is nothing but an overt attempt to restrict capital flows across the PRC’s borders.  Restricting such flows from one nation to another, no matter the rationale, elevates the risk of foreign investment.  The investor, whichever the nation of his domicile, cannot count on a reliable income flow from his investment or even being able to get his money back from that investment at the expiration of the arrangement.

Separately, it demonstrates an attitude toward law and government that’s been extant in the PRC and its antecedents for thousands of years: “I don’t like what you’re doing—this investment plan of yours—here’s a nice ex post facto law that makes your activity illegal.”

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