In a move to stem capital outflows and support the yuan, Chinese authorities are increasing scrutiny of outbound investments by domestic companies and the utilization of funds raised through Hong Kong share sales, Bloomberg reports, citing sources familiar with the matter.
The move comes after a record $168 billion in investment outflows last year put pressure on the Chinese currency.
Authorities have recently mandated that China-incorporated firms seeking initial public offerings (IPOs) or secondary share sales in Hong Kong obtain a “no objection” indication from the State Administration of Foreign Exchange (SAFE) if they intend to deploy the proceeds overseas. Companies failing to secure this clearance are being instructed to repatriate the funds to mainland China, sources said.
Furthermore, regulators are reportedly intensifying their examination of money transferred offshore under the guise of overseas direct investment. Concerns have arisen that some companies may be fabricating transactions to facilitate capital flight.
These measures are seen as a direct response to the depreciation pressure the yuan has faced in recent years. A slowing economy and lower interest rates compared to the US have diminished the attractiveness of domestic assets, contributing to the outflow. The situation could be further exacerbated by potential tariffs and other punitive measures targeted at China under a new US administration, leading some analysts to predict continued yuan weakness. Chinese authorities remain highly sensitive to capital flight after a shock yuan devaluation a decade ago triggered an estimated $1 trillion exodus.
Hong Kong’s share sale proceeds have surged in 2024, nearly doubling to approximately $10 billion, according to Bloomberg data. While still below the pre-pandemic annual average of around $30 billion, several significant share sales are in the pipeline, including a potential jumbo listing by Contemporary Amperex Technology Co. Ltd. (CATL), the world’s leading electric-vehicle battery maker, which could be Hong Kong’s largest in four years.
Historically, SAFE’s oversight of offshore stock offerings, including those in Hong Kong, was more limited, granting companies greater autonomy in deploying funds. Now, companies are required to maintain close communication with SAFE and other relevant authorities throughout the share sales process.
Despite the increased scrutiny, the Hang Seng China Enterprises Index, which tracks Chinese shares in Hong Kong, has rallied, climbing 17% this year and over 40% since September 11th. Semiconductor Manufacturing International Corp. (SMIC) has led the charge with a 70% gain since the start of 2025, followed by Alibaba Group Holding Ltd. and Xpeng Inc., both of which have risen more than 50%.
