China Eyes up the World Market

SINCE the late 1980s transnational investment across the world had been growing exponentially on the basis of industrial transfers， strongly bolstering economic globalization trends and profoundly altering the world’s economic landscape.

The 2008 financial crisis nevertheless impaired the investment capacity of many transnational companies and also dampened their desire to spend. The 2012 global volume of direct foreign investment fell to US $1.4 trillion， 40 percent lower than in 2007. Against this grim scenario， capital meted out by China has， however， been on the rise. The country’s recent promulgation of more measures to step up its international investments is closely watched by other countries.

A World Eager for Chinese Capital

Foreign direct investment （FDI） has played a key role in China’s rapid growth over the past decades. In the 35 years of opening-up and reform， China has absorbed more than US $1.2 trillion in FDI， and remained perched at the top spot among FDI destinations for 20 consecutive years.

As its economic strength built up， China itself began to invest in other countries， steadily growing into one of the largest international investors among all countries in the world. China’s outbound investment increased at an average annual rate of 40 percent in the past decade， hitting US $87.8 billion in 2012， the third largest globally， and setting a new record in 2013 at US $100.45 billion. The sum is expected to reach US$500 billion in the coming five years， a boon for capital-strapped countries.

Chinese investment has been welcomed by the governments and people of recipient countries， as it boosts local economies， creates new jobs and builds up local coffers. In 2012 alone， Chinese businesses in foreign territories paid US$22 billion in taxes to local authorities， and hired over 700，000 people locally.

China is now seen as the world’s great hope quite evident at the Fifth China Overseas Investment Fair （COIFAIR）， held in Beijing last December. “No other word better describes the event than ebullience，” commented He Zhenwei， executive vice secretary-general of the China Overseas Development Association （CODA）， sponsor of the fair. “Participating countries were very active， holding 24 events in two days. These included exhibitions， discussions， forums， promotions and news conferences， all packed to full capacity.” Approximately 2，200 Chinese and foreign companies， financial institutions and research bodies attended the event， and over 200 businesses and organizations from around 70 countries and regions set up stands to solicit investment.

CODA Chair Zhang Baoguo was equally impressed. Before starting his speech at a forum on investment in Latin America， he took out his phone and said：“Please excuse me for taking a photo first. It’s been a long time since I last saw such a spectacular audience.” All the seats were filled and aisles crowded， with spectators spilling out of the hall.

Long queues formed at the negotiation tables of many stands during the fair. “We didn’t expect so many visitors， and that was true on both days，” said Fan Yeliang， president of HK-based Jinqiao Group， “My colleagues and I had to work shifts to receive people coming to discuss business deals.” The company’s international operations include constructing and renovating power plants， with a huge demand in the international market.

China Eyes World Markets

Echoing the zest of foreign countries for Chinese investors， Chinese companies now have a stronger desire for global operations. The Fifth COIFAIR dedicated space to China’s domestic industries centered on equipment manufacturing， energy， services， and culture， and many flag bearers in these fields showed up at the fair. The four energy giants China National Petroleum Corporation （CNPC）， China National Offshore Oil Corporation（CNOOC）， Zhenhua Oil， and Sinochem Group grabbed much attention from international visitors.

Private companies also had a large presence at the fair. Among them were ENN Group， Xinjiang Guanghui Industry Investment Group， Kerui Group， and Antonoil. Both Kerui from Shandong Province and Antonoil based in Beijing have operations in over 40 countries around the world.

In fact， private and shareholding companies have surged to become the main force of Chinese investment abroad. Meanwhile Chinese capital is diversifying into more industries， moving from conventional rough processing of resources to include infrastructure， high-end manufacturing， agriculture， commerce， logistics， and research and development.

China’s increasing outbound investment has substantial benefits at home， buoying exports of commodities， services and technology， while alleviating resource shortages and accelerating industrial upgrading. What’s more， a legion of Chinese transnational companies with global prestige and competitiveness have taken shape along the way.

Though a remarkable sum in itself， China’s 2012 outward investment of US$87.8 billion is a mere 6.3 percent of the world’s total. And the global share is even smaller 2.3 percent when it comes to the country’s cumulative overseas investment， which stood at US$531.9 billion. These figures nevertheless indicate huge growth potential.

Chinese companies have made investments abroad mostly through mergers， acquisitions， and green field investments， which account for 40 to 45 percent of the total worth of all deals. In the past Chinese investors often preferred to purchase an entire foreign company， while now they normally start by buying part shares in it. This also signifies a strategic shift.

Policy Changes

Wang Yang， Political Bureau member of the CPC Central Committee and VicePremier， delivered a speech at the Fifth COIFAIR. He is the first Chinese leader to talk about China’s outbound investment publicly since the Third Plenary Session of the 18th CPC Central Committee， and the highest-ranking official to attend the event since its inception in 2009.

Wang said that the government would reform the management mechanism for outbound investment and remove obstacles that impede Chinese firms’ overseas expansion. This reform aims to validate the dominant role of corporate and individual investors in their international ventures， and to simplify the country’s outward investment approval process by introducing a registration-based system.The auditing process will also be streamlined to make it more standardized and concise.

According to Vice Premier Wang， China will amend its fiscal， tax， financial and insurance policies in line with international norms， to provide its outbound investment with enhanced institutional guarantees. It will also refine laws and regulations on outbound investment， and sign pacts with relevant countries to better protect investor rights and interests and to enhance customs and labor cooperation. Relevant authorities will introduce more services to facilitate Chinese companies’ international ventures.

Until 2004， Chinese companies had to apply for central government approval to invest overseas， whatever the amount a complicated， lengthy process. In 2004 the regulations were relaxed， but any international investments over US$10 million for non-resource projects and those involving resources over US$30 million were still subject to examination and ratification by the National Development and Reform Commission.

The threshold was further lowered in February 2011， when only outbound investments over US $100 million for nonresource projects and those involving resources over US $300 million needed to go through this procedure.

China has since continued to loosen regulations on foreign investment. Ten days after Wang Yang’s speech at the Fifth COIFAIR on December 13， the State Council， China’s cabinet， promulgated a decree to reform the investment management mechanism， stating that only overseas investments above US $1 billion， or in politically sensitive countries/regions and industries， would be subject to approval by central administrations. The rest are only required to file with the investment governing bodies of central and provincial governments. This change provides greater convenience to Chinese investors， and is also good news for countries in dire need of funding to recover from the global financial crisis.