The wave of Chinese investment in European soccer clubs may have crested last week with a new government crackdown on money leaving the country.
Only four days after Chinese investors reportedly paid £210-million ($337.5-million) to acquire ownership of Southampton FC – the second Premier League team, after West Bromwich Albion FC, to come under Chinese ownership – China's top governing body introduced new rules limiting overseas investment. Published last Friday, the State Council directive bans Mainland money from leaving the country for industries like gambling and restricts investment in foreign real estate, entertainment and sports, "to effectively guard against all kinds of risks."
Over the past two years, Chinese billionaires had been on an acquisition spree, buying or investing in around 30 European soccer clubs. Well-known teams like Italy's AC Milan and Inter Milan, England's Aston Villa, Wolverhampton Wanderers and Manchester City, are all owned wholly or partially by Chinese investors.
The new restrictions won't put an end to this investment, said Mark Dreyer, founder and editor of the website China Sports Insider. "But it will definitely put a dampener on it," he said, as would-be investors will have to justify their overseas acquisitions to the government by showing how the deals benefit domestic soccer development.
The government's move was not unexpected for people who follow the shifting mood of China's governing Communist Party, Dreyer said. But it marks a new chapter in the country's relatively new romance with the beautiful game.
State-sanctioned enthusiasm for the sport has been on the rise since about 2014. With the country's export-led economy slowing, the government began looking at ways to bolster the domestic consumer market. In 2014, the State Council released a decree prioritizing sport, with the aim of developing a five-trillion renminbi ($9.39-billion) industry by 2025. A year later, China's central reform group, chaired by President Xi Jinping, a soccer fan himself, released a 50-point plan outlining how China would become a global soccer superpower by 2050.
Taking their cue from the Party, Chinese billionaires began pouring money into soccer, buying players and clubs with astonishing rapidity. Investors ranged from state-backed organizations like China Media Capital, which bought a 13-per-cent stake in Manchester City's parent company, to lesser-known billionaires such as Tony Xia, whose Recon Group paid £76-million for Aston Villa in 2016.
"If you look at each deal, there's a pie chart of motivations," Dreyer said. "There's economic diversification, getting money out of China, courting political favour, the vanity of owning a football club. … How much of it is was money laundering versus vanity versus diversification is unclear."
The recent Southampton deal, although apparently disliked by Chinese officialdom, was not the straw that broke that camel's back, Dreyer said. Opposition to "irrational" overseas spending had been building for months and "it's mostly a coincidence that the Southampton deal happened in the same week," he said.
Official opinion of European deals began to sour about eight or nine months ago, amidst broader fears of capital flight from Mainland China, said Alexander Jarvis, whose company Blackbridge Cross Borders has advised Chinese investors on European acquisitions.
"There was a sort of internal election in the Party and you started hearing people use football to criticize others, like 'You've bought these football clubs and it's wasteful and could have been better used within China,'" Jarvis said.
In May, the Chinese Football Association moved to limit expensive player acquisitions by Chinese Super League clubs – such as Shanghai SIPG FC's £52-million acquisition of Brazilian midfielder Oscar from Chelsea FC – by putting a 100-per-cent tax on transfer fees over a certain value. Chinese clubs that pay more than 45-million renminbi for an overseas player have to pay the same amount to the CFA's youth development fund.
Jarvis expects the latest round of restrictions might be a step too far, leading to a rash of sales by Chinese club owners. He said he's already working with five Chinese investors who are looking to sell their stakes in European clubs and expects about half of the Chinese owners to exit the market within five years.
Dreyer is less convinced there will be an owner exodus. "If there's a fire sale of clubs, who's going to buy? The big Chinese wave has driven up the price across the board and it's not clear you could sell without taking a big loss," he said.
"And think about the motivation for these deals: Even if the political points aspects has gone away, the others generally still stand."
Either way, strict capital controls won't mean the end of club ownership by Chinese nationals, given the amount of money which is already offshore. "Can the Chinese stop them from buying clubs? Probably not," Jarvis said. "It's still going to look like Chinese investors, although they'll be going through Hong Kong or the Cayman Islands."
And despite restrictions, national pride at owning powerhouse clubs could still win the day, Dreyer said. "If someone wants to buy Man U, I can't really see the government stopping it."