Wenzhou legalises individual investment abroad

April 14, 2012

Last year, the Wenzhou city government passed a regulation allowing individuals to invest abroad. This is currently not allowed because of currency controls, under which individuals are only allowed to purchase foreign currency worth $50,000 per year. At that time, the central government annulled the decree after less than two weeks.

Now, Wenzhou passed a new regulation allowing adult Wenzhou residents to invest up to $3 million per year per project abroad (including Hong Kong), up to a total of $200 million. Wenzhou has a long tradition of entrepreneurship and a large overseas diaspora, and individuals’ currency reserves in banks total around 600 billion yuan. City statistics say that Wenzhou people invested over 50 million yuan abroad in 2011, but it is not clear whether this was in contravention of the ban or via legal channels. The new rule doesn’t extend to financial services, stocks, real estate, and “companies with special purposes”. But an article in Information Daily ( 温州再次闯关民资出海通道 ) notes that it is precisely in stocks, real estate, and mines that Wenzhou businessmen have been keenest to invest, since the Chinese real estate market has become sluggish. Another article, in Liberation Daily, suggests that this has been done via intermediaries in Hong Kong, and cites the example of recently popular investments in gold mining in Ghana, where one “production line” costs 5 million yuan. (In Peru, unlicensed Chinese gold panners recently evicted by the army from the Madre de Dios region reportedly operated dredgers wort a million dollars.)

It is unclear whether the new rule will have any real impact, as it is clear that there has been a very large amount of overseas investment even while it was technically illegal. More than anything else, it is interesting as a reminder of the oddity of Chinese “legislation.” Private companies are allowed to invest abroad, but, as the Liberation Daily article notes, Wenzhou regulations require a business to operate in in China for a year before it can invest abroad, as well as to comply with various sales and tax quotas and have an export permit, obtaining which may take as much as a year. In 2009, only 600 Wenzhou businesses were officially registered as having overseas investments. But in reality, individuals have been funnelling money into overseas ventures since at least the early nineties, when the wave of entrepreneurial migrants to Eastern Europe often financed their business expansion by pooling capital from China.

More private Chinese investment in African manufacturing

September 23, 2011

Local media in Wenzhou — reputed as China’s capital of private entrepreneurship — report of growing interest in private  investment in African mining as the government has clamped down on small-scale mines in China. The article quotes a lawyer, however, as saying that only 1% of these investments actually succeed. (According to another article, though, 90% of  mines in Katanga Province of Congo-Kinshasa are small Chinese-owned mines with proprietors who sailed in on the tailwinds of state mining companies, each with only some tens of local workers.)

A third article from Wenzhou reports on the expansion of investment in manufacturing in a series of both state-supported and private special manufacturing  zones in Africa, a practice Wenzhounese businessmen are also engaging in in Central America. This practice has grown out of trading: Wang Jianping, for example, started importing shoes to Nigeria in 2001, set up a shoe factory there in 2005 (claimed to be the largest such factory in West Africa, with 600 local workers), and is now setting up a ceramics factory in the industrial zone he established. Nigeria has two more such Wenzhounese zones. Another businessman set up a factory in Egypt, commenting that wages there, at about 1,000 yuan a month, are much lower than in China, and there are export opportunities to the Arab Gulf and Europe.

The article says that the Wenzhou city government assists the expansion of businesses to Africa by organising special trainings and promotions of various African industrial zones. By 2010, city data show an investment of $50 million in Africa.