CHINESE authorities have proposed tough new rules for Chinese companies investing abroad after being embarrassed by a string of loss-making and politically sensitive failures, including big-ticket projects in Australia.
The National Development and Reform Commission - China's economic planning agency - released a draft regulation on management of outbound investment, which demands that companies demonstrate stronger commercial feasibility and better risk management.
This has signalled a change from an early attitude of securing natural resources at all costs to a more commercially savvy attitude focused on return on investment.
Andrew Michelmore, the chief executive of China-backed base metals miner Minerals Metals Group, said Chinese authorities were more closely scrutinising commercial returns on international projects.
''When companies go to NDRC for funding, they have to take along a model for their investment and they have to stress-test the model. They have progressed from just doing a revenue assessment to a longer-term profitability and return-on-capital-invested approach,'' Mr Michelmore said.
The commission's overhaul of the outbound investment regulation follows a rising number of failed projects abroad and political backlash against Chinese investment in countries such as Australia and the US.
Chinese authorities have also been alarmed by loss-making investments in magnetite iron ore projects in Western Australia, such as CITIC Pacific's Sino Iron project.
The new draft regulation has recognised that foreign regulators, including Australia's, are concerned about investments in sensitive sectors such as land, water and telecommunications. The commission has proposed investment in these sectors must have special approval with some submitted to the State Council - the Chinese cabinet.
The recent $200 million purchase of Cubbie Station - Australia's largest cotton farm - by a private Chinese-Japanese consortium has sparked heated debate about foreign investment.
The chief executive of the China consultancy Sinogie, Bruce McLaughlin, said the commission was keen to maintain an amicable environment for Chinese investors abroad and would not let it be poisoned by controversial projects.
''NDRC monitors broad issues concerning attitudes to investment in countries in which China invests. Researchers are aware that issues like land, water really do raise heckles among local people,'' he said.
''NDRC wants to make sure that any one investment does not poison the water for other Chinese companies.''
David Olsson, China partner at King & Wood Mallesons, said: ''By applying another layer of review around areas that they know are sensitive, it may hopefully assist China to structure the deal in a way that will minimise international criticism.''
One of the most significant changes is outsourcing assessment of projects to advisory institutions.
Mr McLaughlin said the NDRC had limited resources outside China, and it was extremely difficult for it to make assessments abroad.