(Feb 25): China is increasing scrutiny of outbound investments by domestic companies as well as their use of proceeds from Hong Kong share sales, people familiar with the matter said, after record capital outflows put pressure on the yuan.

Authorities have recently informed China-incorporated firms seeking initial public offerings or second share sales in Hong Kong to get a “no objection” indication from the State Administration of Foreign Exchange if they want to deploy the proceeds overseas, the people said, asking not to be identified discussing private information. Firms that can’t secure such an indication have been told to repatriate their proceeds to mainland China, the people said.

Separately, regulators have begun to more closely examine money that companies send offshore in the name of overseas direct investment, according to people familiar with that effort, adding that there’s concern some firms may be faking transactions in order to move money out of China. Officials have become concerned after a record US$168 billion (RM742.8 billion) of investment outflows last year, the people said.

The measures may provide support for the yuan, which has come under depreciation pressure in recent years as economic growth slowed and low interest rates relative to the US weakened the appeal of domestic assets. Some analysts expect the currency to come under even more pressure as Donald Trump targets China with tariffs and other punitive measures. Chinese authorities have become more sensitive to capital flight after a shock yuan devaluation 10 years ago fueled an estimated US$1 trillion of outflows.

Representatives for SAFE and the Ministry of Commerce didn’t offer an immediate comment when contacted by Bloomberg News.

Hong Kong’s share sale proceeds nearly doubled in 2024 to about US$10 billion, according to data compiled by Bloomberg. While that’s still below the annual average of about US$30 billion for the 10 years preceding the Covid pandemic, several prominent share sales are in the works. Among them, the world’s top electric-vehicle battery maker, Contemporary Amperex Technology Co Ltd, or CATL, has filed its application for a jumbo listing that could be the city’s biggest in four years.

In the past, SAFE’s involvement in stock offerings offshore, including Hong Kong, was more limited and companies had greater autonomy over how they deployed funds, people familiar with the matter said. Now the companies have been told to keep SAFE and other relevant authorities updated throughout their share sales process, the people said.

The Hang Seng China Enterprises Index of Chinese shares in Hong Kong is up 17% this year and more than 40% since Sept 11, when Chinese stock markets embarked on a rally. Semiconductor Manufacturing International Corp, or SMIC, leads with a 70% gain since the start of 2025, followed by Alibaba Group Holding Ltd and Xpeng Inc, which have both climbed more than 50%.

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