TOKYO -- Chinese leader Xi Jinping has made no secret of his love of soccer. But that has not stopped the authorities from trying to rein in rampant spending in the sport in their fight to curb capital flight.
"The transfer was good for me, good for Chelsea, good for Shanghai, and I'm so happy to come to the Chinese Super League," Brazilian international Oscar told Sky Sports after moving from the Premier League leaders to Shanghai SIPG this January. The deal is reportedly worth 51 million pounds, making him the most expensive player to move to China so far.
Crosstown rival Shanghai Shenhua wasted no time in adding reinforcements of its own, snapping up former Argentina international Carlos Tevez, offering him a reported annual salary of 32 million pounds.
These are just the latest in series of deals involving Chinese clubs spending big on players from around the world, as well as Chinese businessmen buying up European clubs, spurred on by Xi Jinping's ambitions to make China a football superpower.
Safe in the knowledge that the state would not stand in their way, Chinese clubs spent $296 million in the 2016 January transfer window -- an increase of 244% on the January 2015 window. Last year also saw English clubs West Bromwich Albion, Aston Villa and Wolverhampton Wanderers come under Chinese ownership, along with Italian giants Inter and AC Milan and French club OCG Nice.
But the tide may be turning.
Out of control
Like Xi's love of the beautiful game, it is no secret that China is hemorrhaging capital. The weakness of the yuan has led many to lose confidence in the currency, with individuals and corporate investors alike now looking for overseas assets.
The purchase of high-profile soccer clubs, makes for a handy way to disguise bailing money out as outward investment.
China likely suffered its worst net capital outflow ever in 2016, amounting to more than $300 billion, a 60% jump from the year before. The outflow has led to a vicious cycle of the yuan depreciating further against the dollar -- it fell 6% last year -- while the government's hands were tied by its promise to let the market have more say in the currency's pricing, and diminishing foreign exchange reserves -- they fell for the sixth straight month in December to their lowest since early 2011, just above the critical $3 trillion level.
The authorities have been compelled to step in. In November last year, capital controls were tightened. Overseas transfers and exchanges worth over $5 million are now vetted, as are mergers and acquisitions abroad.
On the currency front, under the auspices of the People's Bank of China, state owned banks have restricted their supply to the short-term money market in early January, causing the overnight Hong Kong Interbank Offer Rate and the offshore yuan to surge. The price of the digital currency bitcoin, a popular destination for investors looking to squirrel money away from the mainland, collapsed on the measure.
Crucial for Chinese soccer in all of this, is the joint statement released in December by the National Development and Reform Commission, Ministry of Commerce, the People's Bank of China and the State Administration of Foreign Exchange. They said they were "paying close attention" to the recent "irrational foreign investment tendencies" in areas like real estate, hotels, films, entertainment and sports clubs.
And in a recent development, China's top sports administrator the General Administration of Sport of China released a statement vowing to cap spending by soccer clubs, which the state media Xinhua News Agency has described as "out of control." The administrator said that Chinese soccer had to "control salaries to a reasonable level" and "mandate a unified accounting system among clubs, and remove [from the league] those with bad debts."
Financial statements from Guangzhou Evergrande Taobao, the only stock exchange-listed club in the country, are a case in point.
The club reported sales of 380 million yuan in 2015, but the cost of sales, due to expensive player acquisitions, stood at 1.26 billion yuan. An operating loss of 916 million yuan and a net loss of 953 million yuan would put just about any other company out of business.
But Evergrande rode through the trouble with capital increases, with its net assets doubling from 524 million yuan from the end of 2015 to 1.08 billion yuan at the end of June 2016, increasing its shareholders from two to eight. Experts say that the situation is more or less similar with other clubs as well.
"With regards to stricter capital control, I guess the effect will be limited," said Shin Satozaki, senior vice president of the sports business group at Deloitte Tohmatsu Financial Advisory. "Investing in foreign clubs [and players] has had the by-product of raising awareness of the strength of the Chinese economy, which ties in with raising national pride.
"It is hard to think that the tide of investment will turn completely as a result of the stricter outbound investment control."
However, Satozaki sees a spending cap as something that could have an effect. "As Evergrande's financial statements show," he said, "I think it could be said that club management is expanding in ways that is different from basic business principles. Regardless of whether this is healthy or not, it has undoubtedly been the driver of the growth in the Chinese Super League, and a restriction on this engine will stall momentum."
To mitigate this risk, Satozaki said, the league will have to adopt well-designed rules by which each club can be soundly managed.