Stability trumps growth for the Chinese Communist party. President Xi Jinping will be conscious of that as he promotes corporate reform at the party congress that began this week. He wants China’s sprawling state-owned enterprises to produce more, pollute less and cut debts. But he can only go at a pace ordinary Chinese will tolerate. Foreign investors can expect to share the pain.
Nothing new there. Historically, business has kicked bad debt down the road by quietly short-changing Chinese savers and recruiting overseas investors. Chinese banks, for example, have tended to build capital by underpaying for deposits and selling equity abroad. Bank of China, one of the country’s big four SOE banks, raised $11.2bn in its 2006 IPO, added $7bn four years later and raised another $6.5bn in 2014.
A funding boom also suggests plenty more money is available. Private equity and venture capital in China has seen fundraising jump 49 per cent to $73bn in 2016, according to PwC. The increase was partly due to growth in renminbi investment, as outflows faced tougher restrictions. Inbound investments were also brisk. The value of China-linked deals closed last year accounted for three-quarters of the global total.