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Only one third of Chinese enterprises' overseas investment projects successful
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14:48, April 24, 2009

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Amid the global financial crisis, Chinese enterprises' "bargain hunting" impulses to "go abroad" for investment and M&A deals are increasingly strong.

Nevertheless, to date one third of the overseas investment projects of Chinese enterprises have been successful, one third failed, and one third broke even. This is according to a survey report on the outward investment situation and investment plans of Chinese enterprises' that was recently issued by the Economic Information Department under the China Council for the Promotion of International Trade.

"With regards to the precious overseas investment and takeover opportunities that have been offered by developed countries amid the financial crisis to Chinese enterprises, Chinese enterprises should take a positive and cautious attitude toward these opportunities and avoid blindly bargain hunting." This was according to remarks made at a symposium by Wang Chao, Vice-Minister of Ministry of Commerce (MOC).

Developed countries offer a series of olive branches

Wang said that in light of the current new international situation, Chinese enterprises now have rare opportunities to "go abroad" to developed countries. First of all, the international external environment is relatively favorable. Affected by the crisis, developed countries have more need to raise funds from China, and have eased some restrictions concerning access to some areas, which has reduced barriers for overseas investment and takeover by Chinese enterprises. Secondly, developed countries have adopted economic stimulus plans, gradually put bailout funds in place, and have pressing needs that include expanding market opportunities, developing environmentally-friendly and energy-saving products, constructing green economies and building brands and commercial networks.

Thirdly, China currently holds about 2 trillion USD in foreign exchange reserves, while China's foreign direct investment stock only accounted for 0.76 percent of the global stock in 2007. As a result, Chinese enterprises eagerly want to "go abroad" and are likely to enjoy bright prospects.

Government officials and business associations from Canada, the UK, France, Germany and the Netherlands came to the symposium to introduce their country's investment policies, environment and resources.

Being aware of investment risks

Liu Wei, a lawyer who is an executive partner of the Beijing Representative Office of DLA Piper, expressed during an interview with reporters that there have been many failed attempts by Chinese enterprises to make investment overseas in recent years, many of which he himself participated in. He reiterated that enterprises in China that want to go "bargain hunting" in developed countries should be aware of five major investment risks.

The first risk involves investment decision-making, namely the risk incurred as a result of insufficient research into the destination country.

The second risk related to financing. China's domestic banks are currently still unable to provide sufficient support for overseas financing efforts of China's multinationals. China's enterprises lack international financing capabilities due to their unfamiliarity with the international financing environment.

The third risk is operational. Various differences between Chinese and foreign cultures and business environments, especially differences between legal systems, affects the operation of overseas investment enterprises.

The fourth risk involves cross-border property rights. The property of the overseas investment of enterprises is under the control of local governments who have the right to erode the property right of foreign corporations through legislation, either directly or indirectly.

The fifth risk is related to review and approval. Review and approval procedures in foreign countries are so complicated that the competitiveness of Chinese enterprises' overseas investment can be influenced.

Remain active and prudent in light of impulses to "bargain hunt"

On one hand, enterprises should prevent "waiting in vain, consuming time without efforts and asking for help," as well as weathering the difficult times negatively; on the other hand, they should also prevent blind bargain hunting, and respond to both the risks and the opportunities brought by the current international situation with an active and prudent attitude.

Wang Chao said that for the next step, the investment promotion group organized by the MOC will soon leave for the US to carry out a field study.

The MOC will also regularly issue guidelines for overseas investment and cooperation currently covering more than 160 countries and regions.

With regard to coordination and guarantee mechanisms, the ministry will be dedicated to establishing bilateral and multilateral consultation mechanisms to solve difficulties and problems faced by Chinese overseas enterprises, protecting the legitimate rights and interests of Chinese enterprises in accordance with law. The MOC will also formulate a plan for rapid response to overseas emergencies.

By People's Daily Online






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