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| Dongfanghong brand tractors, produced by YTO Group Corp, a subsidiary of China National Machinery Industry Corp, roll off the assembly line at a plant in Luoyang, Henan province. Wang Song / Xinhua |
China's largest external contract engineering service provider in the machinery industry is stepping up its efforts at exploring further business opportunities and high technology.
Xu Niansha submitted a simple but highly focused proposal in March as a new member of the 12th National Committee of the Chinese People's Political Consultative Conference, the nation's top political advisory body.
He said the central government should help and support State-owned enterprises buy high technology from abroad.
A look at what Xu and his company, China National Machinery Industry Corp (Sinomach), is all about shows that his proposal is more than reasonable.
During the past two years, Xu, vice-chairman of Sinomach, has traveled abroad more often - not for leisure or to inspect contract engineering projects but to seek possible energy and high-tech investment deals.
"We are looking especially at European countries, like Germany, France and Italy. In the past, our counterparts in these countries were unwilling to cooperate with us, but now things are different while the European Union debt crisis continues, as some cannot even survive," he said.
With many peers in developed countries on the brink of bankruptcy and struggling to raise capital, Sinomach, China's largest machinery manufacturing company, is diversifying its business and looking at companies in the high-tech sector, in particular, in an attempt to improve technology and enhance its industrial competitiveness in the global market.
"We expect to add investment abroad in the industrial manufacturing and energy sectors, while we continue to strengthen our presence as a major external engineering contract service provider worldwide," said Xu.
"We are carrying out investigations into some foreign companies from the machine tools and equipment manufacturing industries and we are always prepared to spend on deals that we want."
Sinomach is not a new name worldwide. It has thermal power stations in Indonesia, rail projects in Argentina and power stations in Africa.
Its projects cover 75 nations and regions, and in Africa alone, its business involved more than 20 nations by the end of 2011.
Besides engineering contracts and design, its business stretches to equipment manufacturing and research and development, and foreign trade.
During the 11th Five-Year Plan (2006-10), Sinomach's sales from the contract engineering business jumped by as much as 200 percent.
Against the backdrop of Chinese companies flexing their muscles in going abroad since the financial crisis, Sinomach is quickening its step.
"We are a freshman as an investor", but the company is highly passionate in investing abroad, Xu said.
In 2011, Sinomach acquired the agricultural machinery parts maker McCormick France SAS in a deal worth 8 million euros ($11.19 million) in an attempt to strengthen its dominant position in the domestic high-end tractor market.
In 2012, China CAMC Engineering Co Ltd, a subsidiary of Sinomach, took a 60 percent stake in Vancouver-based Procon Holdings (Alberta) Inc, also a mining contracting and mining service provider, for 737 million yuan ($117 million), which helped Sinomach enter the North American engineering market.
Since the global financial crisis, China's outbound direct investment has been rising, despite a drop in foreign direct investment worldwide, and in 2011 the country became the fifth largest investing nation worldwide in terms of volume.
However, China's "going global" strategy started with bids for contract engineering projects abroad a few decades ago by a slew of State-owned enterprises, led by Sinomach, which built up a variety of infrastructure and facilities including roads, bridges, electricity plants, schools and hospitals.
While Chinese companies became more involved in overseas projects and their names became increasingly recognized in foreign communities, they also started investment projects in recent years, either through setting up factories or conducting mergers and acquisitions.
In 2012, the nation's ODI in the non-financial sector grew 28.6 percent year-on-year to $77.2 billion, according to the Ministry of Commerce.
Zheng Chao, former commercial counselor at the Department of Outward Investment and Economic Cooperation at the Ministry of Commerce, once told China Daily that as Chinese firms became more capable, and desire for globalization and competition in the global contracting market becomes fiercer, Chinese contractors are diversifying from merely working on contract engineering projects to expanding investment deals and seeking engineering contract project management programs.
More investment will help domestic contractors get more engineering deals abroad," said Zheng.
By the end of 2012, China's cumulative signed external contract engineering projects were valued at $998.1 billion, according to the ministry. In 2012, the nation's newly signed contracts grew 10 percent year-on-year to $156.5 billion.
Ren Hongpeng, vice-president of China Road and Bridge Corp, said the company's long-term strategy is to shift into investment, and such a transformation is unavoidable, especially for Chinese contractors, although contracting for engineering projects is still its traditional business.
According to Xu from Sinomach, the company mainly targets energy and infrastructure projects in developing countries, led by Southeast Asian nations, and manufacturing deals in developed markets through mergers and acquisitions.
In 2012, Sinomach's sales reached 221.4 billion yuan, and profits were 8.5 billion yuan, said Xu.
The company is aiming for sales revenue of 500-600 billion yuan by the end of 2020, with profits reaching 25-30 billion yuan.
Xu said the company has an ambitious plan to invest abroad, without elaborating on the budget, and he attributes this to its aspirations to improve its technology and research capabilities and expand its market presence overseas.
"China still lags far behind its Western counterparts in many high-tech manufacturing industries, but we can learn from them, especially the European countries including Germany and France," he said.
As part of its 12th Five-Year Plan (2011-15), the central government has pledged to add investment to innovation and industrial upgrading. While China became the world's largest exporter and manufacturer in 2009, it is challenged by industrial overcapacity and shrinking global demand for Chinese goods.
But developed countries and regions, including the United States and European Union, have placed restrictions on shipments of a wide range of high-tech goods to China.
"Partnering with companies owning advanced technology in the West provides us with a shortcut and easier access to improve technology," said Xu.
"We have the capital they need, and also, as the Chinese market is a priority for many of our Western counterparts, partnerships can help them expand market share in China."
The Government Work Report of 2011 pointed out that China will encourage enterprises of all types to expand their global presence, facilitate brands and enhance technological competitiveness through mergers and acquisitions in manufacturing, services, infrastructure and energy.
The report this year also said China will adopt a more proactive opening-up policy and improve relevant rules and regulations to provide Chinese firms looking to go abroad with a more favorable environment.
During the past three to four years, more Chinese enterprises have become increasingly aggressive in expanding to the West, and European countries in particular.
In 2011, China's ODI in the European Union surged by 94.1 percent to $4.28 billion.
According to Shi Mingde, Chinese ambassador to Germany, China's ODI in Germany gained by more than 100 percent last year, accounting for 50 percent of its ODI in Europe.
The momentum will be sustained as Chinese companies expand to obtain technology, expand their sales networks and enhance branding, he said.
"But Germany and German companies have many concerns, complaining that China's investment deals hurt local jobs, although such concerns don't make sense," Shi said.
Distrust and investment barriers were also encountered by Sinomach in going abroad. "The problem is that Western countries are more and more alert to China's growing investment and have set restrictions in various forms. They always doubt China's intention. They ask China to create more jobs, but they are unwilling to transfer technology to us," said Xu.
He cited the deal with McCormick France SAS in 2011. Sinomach promised to add another 400 jobs to the local community by the end of 2015, besides agreeing not to fire any foreign staff after the deal was completed.
"But, unfortunately, technology transfer is still an unresolved problem," said Xu.
According to corporate figures, Sinomach's projects in Africa alone helped generate as many as 13,000 jobs directly and indirectly in foreign communities there.
"Wherever we have been abroad, we actively get involved in the local community, committed to taking local social responsibility and addressing concerns over jobs and the environment," said Xu.
Life aboard a fishing boat under bridge in city of Chongqing
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