China urges firms to tighten foreign investment audits

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China’s Ministry of Finance has issued new guidelines encouraging the country’s state-owned enterprises (SOE) to improve investment decision-making, internal auditing and due diligence processes.

The guidelines require SOEs to undertake more exacting financial feasibility studies of overseas projects, as the Chinese government continues its campaign to rein in private sector overseas investment in an effort to control capital outflows and avoid financial risks

SOEs should also send inspection and audit teams to evaluate possible overseas projects, according to the guidelines.

After the guidelines were issued, ministry officials said in a news conference that poor asset quality, weak profitability and low investment returns were the main problems SOEs have had when investing overseas.

John Xu, a corporate partner of multination law film Linklaters, believes if SOEs follow the new requirements, it will help improve the image of Chinese companies when they go abroad.

Official data shows China's non-financial outbound direct investment fell 45.8 percent year on year to 48.19 billion US dollars in the first half of 2017, the first decline since 2015.

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