Chinese Capital Oils World Economy

Tough Going for Chinese Firms Abroad

As China's outward FDI drive still gathers steam, at present neither the proportion of China's overseas investment to total global overseas investment nor the ratio of China's direct overseas investment to overall global volume are particularly high.

By the end of 2010, the overall value of global overseas investment topped US $20.4 trillion. China's contribution of US $371.2 billion is only a small fraction of it. Global direct overseas investment totaled US $1.24 trillion in 2010; China's US $68.8 billion constitutes 5.2 percent of this total. China's investment in the EU accounted for only 2 percent of the overall foreign investment in the area. Its investment in the U.S. totaled a mere 1 percent of global investment in that country.

Wang Jinzhen, vice president of the China Council for the Promotion of International Trade (CCPIT), indicates that as the world economy continues to worsen, many countries, especially developed ones, have adopted an array of protectionist measures. They have intensified protection of green, new-energy and IT products in particular. In some countries, the continued growth of China's overseas investment has been hampered by government intervention in the decision-making processes of businesses. The potential of Chinese industry has suffered greatly from such trade protectionist measures.

As a September 6 editorial in the France-based European Times points out, political discrimination is one of the major predicaments facing China's enterprises as they head abroad.

So far, however, such barriers have failed to dampen the enthusiasm of China's entrepreneurs to invest abroad. Seminars are a popular way for domestic businessmen to share their stories on doing business internationally. Such seminars are often titled, "How to overcome financing difficulties for China's enterprises investing abroad," or "Collaboration of China's mainland and Hong Kong enterprises in overseas investment" and "Overseas investment and social responsibility for China's enterprises."

Zhan Chunxin, chairman of Zoomlion, reiterates that investing abroad does not aim to economically or culturally colonize the target country or to take over any domestic industry, but rather to establish alliances with local companies and achieve common development goals and interests. According to Zhan, in the last three years Zoomlion has coordinated and cooperated with CIFA in a way beneficial to both parties. Zoomlion's winning recognition from the Italian business community in the form of the Leonardo Award demonstrates that locals do not regard Zoomlion's operations in their country as a form of economic imperialism with the intention of stealing their resources. Zoomlion works for the good of Italians as well as Chinese investors. Zhan remarks, "Chinese enterprises going abroad should concentrate on localization – integrating with the local society by following international best practices and local rules. How we are perceived by our host countries is everything."

Wang Jinzhen from the CCPIT remarks that China's enterprises have had a much more difficult time expanding abroad than multinational corporations from developed countries at a similar stage in their development. Chinese firms still lack global experience and the history of their activities overseas is relatively short.

Wang comments that in their overseas operations Chinese enterprises as a first step need to ensure familiarity with the business environment of the target country and heed local laws and regulations. Furthermore, firms must seek out suitable local business partners who are willing to work with Chinese firms in fulfilling the social responsibilities of businesses and contribute to local economic development and employment. Wang also notes that firms need to ensure that contingency plans are in place should the local business environment turn against them.

Hong Kong as a Buffer

Though the effects of the global financial crisis are still lingering, the trend towards global economic integration is unlikely to change. It is inevitable that Chinese enterprises will further integrate into the global economy through investment overseas. Given the economic hardships and subsequently declining asset prices of the last two years, a rare opportunity has been given to China's enterprises to pursue merger and acquisition activities abroad.

As an international free port and financial, trade and shipping center, Hong Kong is one of the most open, dynamic and competitive economic regions in the world. Hong Kong possesses a stable financial environment, a world-class service sector and a talented pool of management professionals. Hong Kong has extensive international commercial links. As the integration of China's economy with the world economy further intensifies, Hong Kong's role as a launching platform and testing ground for mainland enterprises will become even more salient.

Stephen Sui-lung Lam, Acting Chief Executive of Hong Kong Special Administrative Region, endorses the opinion that Hong Kong is the best platform available for mainland enterprises seeking to head abroad. He says mainland companies are able to better adjust to international best practices and rules in the relatively familiar environment of Hong Kong before expanding out to the world.

Huang Mengfu, vice chairman of the National Committee of the Chinese People's Political Consultative Conference and president of the All-China Federation of Industry and Commerce, indicated China's enterprises were facing more and increasingly better opportunities to invest abroad and make acquisitions. He explained that lingering uncertainties in the world economy were discouraging businesses from developed countries to make big investment decisions. At the same time these businesses' attitudes towards China have gone from positive to more cautious and conservative.

Hong Kong, as an experienced financial and service industry player with a solid free market reputation, will no doubt play a significant role in presenting the positive face of Chinese companies to the world.