Those seeking consistency in China's controls over outbound investment are likely to be in for disappointment and a series of surprises.
The government has sought to discourage capital outflows and acquisitions in specific sectors since 2016 when outbound direct investment (ODI) soared 44.1 percent to U.S. $170.1 billion (1.1 trillion yuan).
Investment groups flush with funds raised from wealth management products and other come-ons promising big returns went on a buying binge in overseas markets. Then they ran smack into government regulators who warned against further deals for foreign real estate, entertainment businesses, sports clubs and hotels.
In 2016, non-financial ODI outpaced foreign direct investment (FDI), which posted a slight 4.1-percent rise to 813 billion yuan (U.S. $128.6 billion), making China a net capital exporter.
The outflow issue gained urgency in January 2017 when China's foreign exchange reserves sank below the psychological mark of U.S. $3 trillion for the first time since 2011.
Last August, the cabinet-level State Council formalized ODI restrictions on "irrational" deals for foreign assets, first urged by the People's Bank of China (PBOC) nine months before.
In December, the National Development and Reform Commission (NDRC) issued new rules for ODI including total bans on some deals and warnings against others with a 36- point "code of conduct" for ventures abroad.
Investors "should not violate national interests and security, as well as macro and industrial policies," the top planning agency said vaguely.
The new rules threatened strict scrutiny of investment entities established overseas for illegal transfers, money laundering and capital flight.
"Tax evasion cases will be transferred to the police, industry and commerce departments, taxation and foreign exchange administrations," the government warned, according to the official Xinhua news agency.
Three tough battles
The ODI curbs became part of the government's campaign to contain financial risks, one of the "three tough battles" designated by President Xi Jinping to be fought by 2020, along with poverty reduction and pollution control.
The restrictions have had a chilling effect on China's outbound investment, which dropped 29.4 percent last year to U.S. $120 billion (758.5 billion yuan).
The decline made China a capital importer again as FDI rose 7.9 percent to 878 billion yuan (U.S. $138.9 billion).
But the patterns of enforcement have been hard to follow.
Some big investors and hotel buyers like HNA Group have been pressured to sell foreign assets to ease debt burdens, while other over-extended players like Anbang Insurance Group have been taken over by regulators.
In February, the China Insurance Regulatory Commission (CIRC) said that Anbang chairman Wu Xiaohui would be prosecuted for "economic crimes."
Until recently, other rapidly-growing investors like CEFC China Energy Company Ltd. appeared to be exempt from the crackdown.
The little-known conglomerate surprised analysts in September with an agreement to buy a 14.16-percent stake in Russia's state-owned Rosneft oil company for U.S. $9.1 billion (57.5 billion yuan).
For nearly six months, the government had nothing to say about the huge investment, although CEFC had already branched out into wide-ranging foreign holdings in restricted sectors including real estate, a sports club and hotels.
Among its many investments, privately-held CEFC acquired extensive assets in the Czech Republic, where its mysterious chairman Ye Jianming has served as an economic adviser to President Milos Zeman.
Analysts assumed that Ye must have powerful political ties in China to avoid enforcement of the ODI curbs.
But a second series of surprises followed on March 1 with reports that Ye had been placed under investigation and detained for questioning.
CEFC insisted it was operating normally, but reports quickly followed that an investment arm of the Shanghai municipal government had taken over management of the company.
Numerous reports drew links to bribery charges brought against an official of a CEFC affiliate, which allegedly sought to acquire oil rights in Chad and Uganda.
Another surprise came within days as the Financial Times and Reuters reported that a second state-controlled entity, China Huarong Asset Management Co., had bought a 36.2-percent stake in the CEFC subsidiary seeking to acquire the Rosneft shares.
Reuters identified Huarong as "China's largest distressed debt manager," citing a Caixin magazine report that the firm "was ordered to conduct a debt-for-equity swap by the government."
Secrecy surrounding the process
So, were the government-controlled agencies acting at cross-purposes or in tandem to rescue CEFC and the Rosneft share sale?
No one could say for certain because of the secrecy surrounding the whole process, the inconsistent enforcement of ODI policy and the strings behind the Rosneft deal.
The questions left analysts even more perplexed than they were last September when CEFC first surfaced as the unlikely buyer of the Rosneft shares, according to a commentary on the industry website Oilprice.com.
"Six months later, the mystery surrounding CEFC China Energy is not only left unsolved — it has become even more unclear," it said.
Last week, the surprises kept on coming as President Zeman's office reported that Ye would step down from his positions at the company, leaving it unclear whether the move applied only to CEFC's Czech subsidiary or the entire firm.
News agencies also reported that CEFC was in talks with state-owned CITIC Group for the sale of 49 percent of its European interests, sparking speculation that the company might be partially nationalized.
The timing of at least two events may have affected government decisions on CEFC and how to enforce ODI policies.
The first was the initial Caixin report on the Ye investigation, which came on the eve of China's annual legislative sessions, giving the government an incentive either to make an example of CEFC or to avoid disruptions.
The second was the People's Bank of China (PBOC) report on March 7 that foreign exchange reserves fell in February to U.S. $3.134 trillion, marking the first drop after a year of monthly gains. While the U.S. $27-billion decline was slight, the reversal was unwelcome news that may have heightened awareness of capital flows.
Over the past year, the government has sent mixed signals about how the ODI curbs would be enforced.
For months, official media reports highlighted changes "to simplify administrative procedures" that would promote ODI in an apparent effort to balance the warnings against it.
The rules, which took effect on March 1, were supposed to end requirements for filing reports on planned projects or bids of more than U.S. $300 million (1.9 billion yuan) for prior approval.
The new guidelines only required registration with the NDRC, the official English-language China Daily said in December.
But in January, interpretations of the rules took on a harsher tone.
"Outbound investment projects of at least U.S. $300 million or those in 'sensitive countries or regions' or 'sensitive industries' will be the focus of regulatory supervision and examination," Xinhua reported, citing the Ministry of Commerce (MOC) on Jan. 25.
It is unclear what prompted the change.
But the variations in enforcement and inconsistent regulatory responses may pose disincentives to investment generally.
While the government has been trying to steer ODI into its "One Belt, One Road" (OBOR) initiative to develop trade routes and infrastructure, other policies like the effort to draw private capital into investments with state-owned enterprises (SOEs) could suffer from the risk of arbitrary takeovers and capital controls.
Despite all the government's promotion, China's non-financial direct investment in 59 OBOR countries fell 1.2 percent last year to U.S. $14.3 billion (90.4 billion yuan), according to MOC data.
Derek Scissors, an Asia economist and resident scholar at the American Enterprise Institute in Washington, sees at least some consistent threads running through the government's ODI crackdown, despite the CEFC mystery.
"I think the reconciling of the supposed liberalization and the continued bans is that 'good' investment is being liberalized and 'bad' investment is being banned," Scissors said.
"The subtle part is that 'bad' is also 'We have come to think you are shipping money out of the country and want to make an example of you,'" he said.