China’s soccer spending spree was fueled by one political push—and will be foiled by another – Quartz

An avid soccer fan, China’s president Xi Jinping has never shied from voicing his ambition to turn the nation into a superpower in the sport. That has spurred Chinese investors to buy up European soccer clubs and lure star players away from their home teams with astronomical paychecks.

While the spending spree has so far done little to help realize Xi’s soccer dream (given the national team’s constantly poor performance), it has triggered another concern from the Chinese government: capital outflows.

China’s policymakers have been going after bearish investors in an attempt to keep cash at home, and professional soccer has become the latest target of Beijing’s capital controls. At yesterday’s (March 20) China Development Forum in Beijing, Pan Gongsheng, head of China’s top foreign-exchange regulator, accused Chinese firms of moving assets overseas under the cover of deals that don’t make good business sense. In particular, Pan, who is also vice governor of the Chinese central bank, singled out the acquisitions of foreign soccer teams.

“If these purchases help improve the standard of Chinese soccer, then I think that’s a good thing,” he was quoted as saying. “But is that what’s really happening? A lot of Chinese companies already have high levels of debt and then borrow another large sum to make overseas purchases. Others pretend to be investing but are actually just moving their assets.”

Since 2015 Chinese buyers have bet on 14 major European soccer clubs with a total investment of over $2 billion, according to Quartz’s calculations. Of those, Chinese investors took controlling stakes in 12 soccer teams ranging from world-renowned names such as Inter Milan and lower-tier clubs like England’s Wolverhampton Wanderers.

Not every single deal has gone smoothly. Earlier this month, Sino-Europe Sports, a Chinese consortium, missed the deadline to complete its €740 million ($800 million) takeover of AC Milan, after it reportedly struggled to get final approval from Beijing. The Chinese investor group reportedly used fake bank letters to show its funding capability during the acquisition discussions, according to Bloomberg and Chinese financial news outlet Caixin (link in Chinese).

The buying spree of soccer stars has also alarmed Chinese regulators. In January, China’s top-division soccer league announced a new set of rules (link in Chinese) capping clubs’ expenditure on player salaries and transfer fees. The number of foreigners allowed on each team will also be reduced from four to three, starting this season. The league’s new rules also state it will crack down on tax evasion, the illegal opening of overseas accounts, and money laundering.

It is commonplace for Chinese soccer clubs to sign under-the-table agreements with players to misreport their salaries in order to avoid tax. The same trick, as the South China Morning Post suggested, might also be used to move money offshore.

Top European soccer managers—including Chelsea’s Antonio Conte and Arsenal’s Arsene Wenger—have warned against getting caught up in China’s soccer spending-frenzy as it is distorting pricing and taking top talent away from the continent. Now thanks to the Chinese government, it might finally stop.