Chinese firms are eyeing specialized outbound investment abroad

Chinese firms are eyeing specialized outbound investment abroadDec. 15 – With Chinese government outbound direct investment (ODI) policy, there is new upsurge of Chinese companies “going global” at this moment. “The year 2014 marks another milestone for the ‘going global’ push after China’s entry into the World Trade Organization (WTO) in 2001, as outbound direct investment (ODI) is expected to outpace foreign direct investment (FDI) for the first time ever this year,” Huang Mengfu, honorary president of the All-China Federation of Industry and Commerce, said at the inaugural meeting of the China Outbound Forum held in South China’s tropical city of Sanya last weekend.

Nearly 5,000 Chinese firms invested in 154 countries and regions in the first ten months of 2014, with ODI by non-financial firms rising by 17.8 percent year on year to $81.9 billion, while FDI in the Chinese mainland dropped 1.2 percent year on year to $95.9 billion, the Commerce Ministry said last week. The State Council, China’s cabinet, last Tuesday released a much shorter list of ODI projects needing government approval to encourage enterprises to enter the international market. “A more comprehensive national support strategy and mechanism for going global will soon be in place, as evidenced by efforts by the government to further relax regulations relating to outbound investment and the pushing ahead of regional cooperation initiatives,” Huang said.

China outbound direct investment- Inevitable trend

China’s investment abroad in the next decade is expected to reach $1.25 trillion, Chinese President Xi Jinping told the CEO Summit at the APEC Beijing meetings. “If the decade since 2001 was marked by the continuous inflow of foreign firms, or catfishes which have forced local players to enhance competitiveness, the next decade may witness a growing trend of Chinese firms venturing overseas. The Chinese dragons are coming,” said former vice-foreign trade minister and chief negotiator for China’s WTO accession, Long Yongtu. In Long’s opinion, the going-global trend is natural and inevitable, as rising economic prowess has given Chinese firms confidence, while considerable foreign exchange deposits offer abundant financial support and regional cooperation initiatives such as the Silk Road economic belt will provide new opportunities. Most importantly are the demands of the global market. China needs to seek new technological and management expertise to facilitate economic restructuring and find markets to digest its growing capacity, while other countries look to Chinese investment to buoy economy and boost employment, Long said.

Changing patterns of China outbound direct investment

In 2013, Chinese investors conducted direct investment in 5,090 overseas enterprises in 156 countries and regions, with the Association of Southeast Asian Nations (ASEAN), the European Union, Australia, the United States, Russia and Japan being the top investment destinations, according to a report released last month by the Centre for China and Globalization. Investment patterns are gradually changing from traditional resource and energy intensive projects to the hi-tech sector, as China undergoes industrial modernization to ascend the global industrial value chain, the centre head Wang Huiyao said. Private firms are catching up fast in the going global push. About 45 percent of the 15,300 Chinese firms venturing overseas last year were private players, establishing an impressive presence in the United States. Their investment volume in the United States amounts for over 70 percent of China’s total investment in the country, covering about 90 percent of all investment projects, the report said. Africa is also a rising market, there are over 2,500 Chinese firms operating in Africa, as labour-intensive projects went to Africa to ease China’s overcapacity and help boost local employment.

No shortcut for China outbound direct investment

However, the roads to foreign lands are not paved with gold. Transactional and operational failures haunt many Chinese firms due to a lack of trust with local stakeholders, fierce competition and ignorance of the local regulatory and cultural environment, said US law firm Covington & Burling LLP. “You have to do your homework before venturing overseas, and it takes time, talent and technique to build trust with local stakeholders,” Long said. Meanwhile, in-fighting among domestic competitors rushing to undercut each other is to blame for much of the overseas anti-dumping accusations, Long said.” You have to play by the rules of the local market and honour transparency and fair competition,” said Cao Dewang, chairman of Fuyao Group, a global leading automobile glass maker with investment in about ten countries. As a renowned Chinese philanthropist, Cao cultivated his experience in corporate social responsibility which has been of benefit to his overseas business interactions. “On the day in 2011 when our group established a charity fund, the then vice-president of Toyota told me excitedly that they were proud to have business partners like Fuyao,” Cao said. “It pays to be a real and sincere corporate citizen. If you are devoted to the company, the sector and the society, it would be strange if you cannot succeed in a new market,” Cao said. For more info on China outbound direct investment, please contact with DCCC, or mail to: info@dccchina.org