|By Zhou Liming
While foreign investment
has been pouring into China, Chinese investors have been tapping the water
of overseas investment.
Chinese investment started flowing out in 1979, and by the end of 2002,
Chinese capital had helped set up 6,960 overseas enterprises.
In the past two years, Chinese businesses have adopted mergers and acquisitions
(M&As) on a global scale. Each of the projects involved millions or
tens of millions of US dollars.
For all the capital outflows, the amount is small considering the growth
of China's economy or compared with that of the US, Japan or other developed
countries. Also, the lack of expertise in launching businesses in foreign
markets is apparent.
With the global gross transnational direct investment at US$653 billion
in 2003, China's portion, estimated at an annual US$5 billion, was less
than 1.25 per cent of the world's total.
By one estimate, only 35 per cent of Chinese businesses overseas end up
But the Chinese Government is resolved to change that. There have been
recent policy adjustments that were designed to help Chinese investors
in their "go-out strategy". These include funds for foreign
aid programmes and international market opening for small- and medium-sized
At the Xiamen-based China International Fair for Investment and Trade
(CIFIC), business organizations from various countries were brought together
to discuss opportunities with Chinese investors in specially-arranged
sessions. Market exploration trips were also organized, offering on-spot
previews of market opportunities.
Forms of investment
The first type refers to investment in setting up either solely-funded
subsidiaries or joint ventures, which has happened mostly in the fields
of home electric appliances, electronics, and light and textile industries.
For example, Haier, TCL and Gree now have offshore production lines.
The second type is M&A, which is a relatively-new phenomenon in China.
Chinese investors put up money to buy off foreign equities for one of
several reasons: (1) resources exploitation; (2) the extension of production
and marketing prowess; (3) reverse contracted processing; and (4) the
acquisition of technologies.
The third type of overseas investment takes the form of research and development
(R&D). Huawei Technologies has opened eight regional R&D centers
and 32 branches overseas.
The fourth is synergy from strategic alliances or acquisitions. When TCL
merged with French TV maker Thompson, their combined annual sales of television
sets rose to 18 million units, making them number one in the world with
a 10 per cent market share.
"Going-out" is easier said than done. One must be aware of one's
own strengths and weaknesses before taking the jump.
In many industries, Chinese producers have a cost advantage. Labour cost
is low and experience can be easily transplanted.
The vast homeland market can also prepare one for overseas expansion.
The home appliance industry has withstood cutthroat competition in the
domestic market and as a result found itself in a stronger position overseas.
The disadvantages include low technology input. By some estimate, about
two thirds of large- or medium-sized State-owned enterprises do not have
R&D departments and new products make up only 8 per cent of total
Lack of proper management breeds inefficiency and waste, even corruption.
Overseas staff usually enjoy special salaries and perks, causing jealousy
among domestic colleagues and, when not properly supervised.
Chinese companies need to see the world market as the centre stage and
gain a foothold in the race towards global dominance.
To make that happen, some strategies should be considered and misconceptions
clarified. For example, common sense dictates that manufacturing be located
in low-cost countries. But this is not always the best choice. Places
like the US may have high cost, but its labour productivity is much higher,
too - by one count, 22 times higher that of China. Investors do not usually
go to the cheapest place for production. They always weigh the cost and
benefit in terms of productivity.
Transnational M&As can be better utilized for Chinese firms to set
up a foreign presence on the run. Equity purchase and exchange sometimes
are the most efficient way to get into a foreign market, with the benefit
of branding and marketing channels realized instantly.
Strategic alliances are more difficult to manage in the long term than
M&As, but their benefits can also be more enduring. When one joins
hands with a suitable partner, be it a MNC or a university-lab, synergy
is the most important factor. Market access and name recognition are also
some of the strengths that foreign partners can share with a Chinese company.
If you are facing accusations of dumping or troubled by quota limits,
or if you depend heavily on crucial product inputs from another country,
it is high time you seriously considered going out and establishing your
business presence outside China.
China International Fair for Investment & Trade (CIFIT), China's
sole nationwide international investment and trade event, is held
annually during September 8-11 in Xiamen.
CIFIT's seven successful sessions, thanks to major themes of "Introducing-FDI
and Going-Global", have attracted the participation of numerous
overseas and domestic governmental organizations, quasi-official
organizations, and enterprises. The event has proved an effective
platform for international investment promotion.
The 8th CIFIT will be held in Xiamen International Conference and
Exhibition Centre from Sept. 8 to 11, 2004. To meet the growing
demand from various countries expecting Chinese enterprises to invest
overseas, the Ministry of Commerce of China will hold Going Global
serial activities during the 8th CIFIT so as to enable foreign countries
to showcase their investment environment, investment projects and
market information, and to foster continued development of bilateral
co-operation. We cordially invite you to participate in the 8th
CIFIT's Going Global serial activities!
For more information about Going Global Serial Activities, please
Suggestions for participation in Going Global Serial Activities
1. Please fill out the Reply Slip in the specified format. Stamp
the slip and then mail or fax it, together with a valid copy of
your Business Licence (for enterprises only), to the CIFIT Organizing
2. After receiving your Reply Slip and copy of Business Licence,
the Organizing Committee will verify your participation qualifications.
If your organization is qualified, a written qualification confirmation
will be delivered to you.
3. Within 10 working days upon receipt of the Qualification Confirmation
Letter, the exhibitor shall remit the full amount of the booth fee
into an account designated by the Organizing Committee, and then
fax the remittance receipt to the Organizing Committee. In addition,
you are required to send your exhibition personnel's photos (max.
4 persons for each booth).
4. After receiving the booth fees from the exhibitor, the Organizing
Committee will arrange exhibition booths in order of payment precedence
and on the basis of exhibition categories, and then forward the
Booth Confirmation Letter (Booth Number), Exhibitor's Guide and
other relevant information to the exhibitor.
5. The exhibitor shall ship the exhibits and make relevant customs
declarations as stipulated in the Exhibitor's Guide. The exhibitor
shall, in accordance with the specified time and at the indicated
location, carry the Booth Confirmation Letter and copy of remittance
receipt to register with the Organizing Committee, which will provide
a Booth Certificate and grant access to the exhibition pavilion
in a specified period to fit out the booth.
Method of Payment
The exhibitor shall remit the full amount of the booth fee into
the following account as designated by the Organizing Committee.
Name of Account Holder: China (Xiamen) International Investment
Opening Bank: Bank of China, Xiamen Siming Subbranch
Bank Account No.: 43001124708091001
Liaison Department of the Organizing Committee of CIFIT
Add: 10/F, Workers' Building, No. 47, Xinhua Road, Xiamen, 361003
Contact Person: Wang Yajuan, Cai Weihua, Huang Xuan
Tel: -86-592-2669826, 2669828, 2669829