Conclusion of Survey on Current Conditions and Intention of Outbound Invest-ment

By China Council for the Promotion of International Trade (CCPIT)

Despite the challenging eco-nomic environment, Chi-nese overseas investment continued to grow in 2009. According to the data pub-lished by the Ministry of Commerce, outbound foreign direct investment (FDI) by Chinese enterprises amoun-ted to 43.3 billion in 2009, a year-on-year increase of 6.5%. This growth occurred against the backdrop of a decline in global foreign direct invest-

ment by 30% ~ 40% compared to 2008. Chinese overseas investment has thus proven remarkably resilient in the challenging conditions created by the financial crisis.

In order to collect more precise information about the overseas invest-ments made by Chinese enterprises in 2009 and their future investment plans, China Council for the Promo-tion of International Trade (CCPIT) has carried out the fourth "Survey on Current Condi-tions of and Intention for Outbound Investment by Chinese Enterprises" between December 2009 and March 2010. The survey was carried out by CCPIT in collaboration with the European Commission's

Directorate-General for Trade and UNCTAD, who jointly designedthe questionnaire and contributed to the final report. The distribution and recovery of the questionnaires was carried out mainly by 31 sub-councils and 4 local branches of CCPIT, including sub-councils in Shenzhen, Henan, Jiangsu, Sichuan, Hunan, Guang-dong, Hebei, Jinan, Pudong, Guang-zhou, Xi'an, Shanghai, Zhejiang, Qinghai,Hangzhou, Chengdu, Jiangxi, Liaoning, Jilin, Yunnan, Shaanxi, Dalian, Ningxia, Chongqing, Hubei, Heilongjiang, Shandong, Changchun,Guizhou, Supply & Selling, Provision industry sub-councils and the bran-chesin Anji, Wenzhou, Jiaxing of Zhejiang province as well as Langfang of Hebei. In addition, CEPII Research Centre, the Certificate Issuance & Confirmation Section of Legal Depart-ment of CCPIT, CIEC Overseas Exhibi-tion Co., Ltd. and China Chamber for nternational Commerce also assisted or participated in this survey.

We have the conclusion hereafter, and for the detail analysis, you would see them in the Survey column in the following issues of China's Foreign Trade.

Conclusion

For Chinese enterprises that have "gone global", 2009 was a year of both challenges and opportunities. Despite the continuing impact of the financial crisis and the fragile world economy, Chinese companies made 43.3 billion USD of non-financial foreign direct investment, a year-on-year increaseof 6.5%, but a significant slow-down from the 60% annual growth rates seen between 2002 and 2008. The extensive survey of outbound invest-

ment by Chinese enterprises, covering replies from nearly 1,400 CCPIT member companies and other compa-

nies, provides valuable new information about overseas investments by Chinese enterprises, including firms' current activities, future investment plans and the impact of the financial crisis. In particular the following findings emerge from the survey:

1. China's outbound foreign direct investment is still at an early stage but develops rapidly. In terms of invest-ment scale, the proportion of sampled Chinese enterprises having made overseas investments is 25%. Most enterprises have made relatively small scale overseasinvestments. 61% of responding firms indicated that their overseas investments remained below USD 1 million, while more than 80% of investments are below USD 5 million. Only a few companies have been capable of making large scale overseas investments in excess of USD 100 million. In terms of invest-

ment projects, overseas representative offices and sales offices are most frequent types of overseas expansion routes adopted by Chinese enterprises. Nonetheless, some large enterprises, especially state-owned enterprises, have made some cross-border merger &acquisitions (M&A). In firms' future investment plans, M&A figures more prominently than in the past and activity can therefore be expected to pick up.

2. Most Chinese outbound inve-stors areactive in manufacturing sec-tors, although the industry profile is becoming increasingly diversified. Within the manufacturing industry, the textile and machinery & equipment sectors figure most prominently, reflec-ting China's strong export perfor-

mance in these industries. Whereas most outbound investment in Europe has been aimed at enhancing market access through distribution and sales offices, manufacturing investment has been more significant for invest-ment in developing economies. Apart from the manufacturing industries, companies active in construction and wholesales & retail operations are among the most active foreign inves-tors. Overall, the investment profile of the companies covered by the survey would seem to reflect China's pre-sence in its export markets.

3. The overseas investments made by Chinese enterprises mainly aim to improve access to overseas markets and to acquire overseas resources and technology. With the saturation of domestic market demand, accessing overseas markets has become an important objective of many Chinese enterprises in their overseas invest-

ments,according to the survey replies. The survey also indicates that the introduction of advanced technology is an important motive for making overseas investments in developed countries, whereas access to natural resources is an important objective of investments in developing economies.

4. The main destinations for the overseasinvestments of Chinese en-terprises are Asia, followed by Europe and North America, while only a few respondents have overseas invest-ments in other regions. Asia, especia-lly the Southeast Asian region which has a strong complementarity with China in terms of economic structure, similar cultural traditions and long-standing commercial relations with China, has become the preferred destination for Chinese enterprises in their "going out" for development, and they have attracted a large proportion of Chinese overseas investment, a situation that will not significantly change for some time. It is noteworthy that Vietnam, following its economic reforms, is becoming an important destination for Chinese investment. In addition, Europe and North America have also attracted a certain number of Chinese enterp-rises. In terms of future investment plans, African destinations are likely to become more important.

5.The financial crisis has had a significant impact on the overseas investments of Chinese enterprises. Indeed, the survey indicates that the overseas investments of most enterp-

rises have been affected by the financial crisis. The financial crisis has caused economic recessions in many countries as well as a reduction in China's domestic demand growth, which has made overseas investments more difficult for manyChinese enterp-

rises. Moreover, access to financing for overseas investment has become difficult due to the crisis, and trade protectio-nism has been on the rise in some destination markets. By contrast, some respondents have identified positive effects associated with the crisis, such as weakened overseas competitors and the availability of acquisition targets at more attractive prices.

6.When Chinese companies invest in the EU, they mainly locate in Germany, France, Italy and the United Kingdom. Respondents' future invest-ment plans show the same geogra-phic profile. Concerning the main advantages of investing in the EU 27, being an integrated market and having a single currency and a good regula-tory environment are considered very important. The most promising sectors for investing in the EU are consi-dered to be manufacturing and whole-sale and retail trade. Meanwhile, the United States remains a very impor-tant destination for Chinese FDI. Setting up distribution centres is the most important investment method, while the number of companies who invest through M&A is small at present. Regarding the intention of investing in North America, the United States is considered more attractive to Chinese companies than Canada.

7.Chinese enterprises have taken overseas investments as a long term development strategy and respondent firms indicate a strong resolve to view overseas investments in a medium and long term perspective. Though the investment scale of the sample enterprises is generally small, over half of therespondent enterprises expressed an intention to increase overseas investments in the coming 2~5 years. Finally, the objectives, financing channels and investment forms of overseas investments of Chinese enterprises show a trend towards diversification.