Beijing defends clampdown on ‘over the top’ deals

China’s central bank governor has defended the country’s strict new capital control regime as a “normal” response to “over the top” overseas investments by mainland companies and individuals.

“Some people [invested offshore] blindly and were in a rush to do so,” Zhou Xiaochuan said on Friday, at a briefing held on the sidelines of the annual session of China’s rubber-stamp parliament. “Some of this outbound investment was not in line with our own policies and had no real gain for China.”

Mr Zhou’s comments mark the first time he has publicly addressed China’s efforts to rein in overseas investments and slow the renminbi’s fall against the dollar, which accelerated in the second half of last year.

Mr Zhou’s appearance on Friday may be his last at the National People’s Congress. At 69, he is China’s longest serving central bank governor, having held the post since 2002. It is widely expected that he will step down when a Communist party congress, due to be held at the end of this year, marks the beginning of President Xi Jinping’s second term in office.

Mr Zhou singled out Chinese overseas investment in “sports, leisure and clubs” for criticism. “Some investment was not [made] for the best motivations,” he said. “So to regulate this, I think it is normal.”

Chinese tycoons spent more than $2bn on European football clubs in 2015-16 and now control England’s four main West Midlands teams — Aston Villa, Birmingham City, West Bromwich Albion and Wolverhampton Wanderers. They have also attempted to snap up high-profile Hollywood assets including Voltage Pictures, which made Oscar-winning movie The Hurt Locker.

Mr Zhou and other senior People’s Bank of China officials also defended their policy of selling dollars to support the renminbi. This has contributed to the steady drain on China’s foreign exchange reserves, which stand at $3tn after peaking at $4tn in early 2014.

Mr Zhou said the rapid run-up in China’s foreign exchange reserves after 2002 had been “too fast” and led to friction with other countries. “There was no need for them to get as high as $4tn,” he said. “Falling reserves is a natural phenomenon since we didn’t want that many to begin with . . . Reserves are for using, not for putting on display.”

Yi Gang, a PBoC vice-governor and possible successor to Mr Zhou, argued that using the reserves to stabilise the renminbi was “good for China and for the international community”. “We use reserves to buy back renminbi at the right price,” he said. “It’s not like they are wasted.”

PBoC officials also warned investors to expect more two-way volatility in the renminbi-dollar rate in future. In the 10 years to 2014, renminbi appreciation against the dollar was a considered one-way bet, leading to “hot money” inflows.

Market expectations then reversed and exacerbated capital flight, especially as the renminbi threatened to fall through Rmb7 to the dollar late last year. Capital controls and PBoC intervention have held the rate at roughly Rmb6.9 per dollar.

“Flexibility in the [renminbi-dollar] rate is good for everyone,” Mr Zhou said. “The rate can rise and it can fall. It can’t keep on going in one direction for too long.”

He added that expectations of a large depreciation in the currency were also over the top, saying “some of these expectations were from firms who had large short positions”.