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China issues first guidelines for outbound investments

By Ye Xiaonan (People's Daily Overseas Edition)

16:07, September 13, 2011

Edited and Translated by People's Daily Online

China's Department of Commerce, the National Development and Reform Commission and the Foreign Ministry recently issued the Guideline on Investment Overseas 2011, which mainly discusses the major industrial goals in 115 countries.

Some insiders said that the amount of China's outbound investments and the frequency of its international cooperation have been growing at a particularly rapid rate over recent years. China's small and medium-sized enterprises that seek overseas expansion still need to learn a lot because overseas investments offer great opportunities but carry enormous risks.

Those insiders believe that Chinese companies still lack experience and talent, although they have achieved considerable success in overseas investment. The guidelines can help domestic companies integrate their own transnational business expectations with the industrial development goals and preferential development industries of the investment destinations, so as to avoid blind investment and promote the sustainability of Chinese overseas investments.

The guideline makes an intensive introduction to the industrial development goals, preferential development industries and admittance rules about foreign invested industries of these 115countries. It also provides relevant information about signed foreign bilateral investment protection agreements and how to avoid double taxations.

An official from the Ministry of Commerce said Chinese companies should objectively assess their own abilities before making overseas investment decisions and get a clear picture of the investment environment, especially the laws, regulations and policies concerning industrial development in these countries. In this regard, the guidelines will provide domestic companies with in-depth advice.

Avoid blind overseas investments

Although China's overseas investments are developing rapidly, they are still in the initial stage, said Shen Danyang, spokesman of China's Ministry of Commerce.

Insiders pointed out that although the amount of China's outbound investments is increasing and has surpassed that of Japan and the United Kingdom for the first time, China is not a large outbound investment country in terms of either cumulative net investment (stock investment) or investment pattern. China's outbound investments are still in the initial stage and still have much room for improvement. In fact, Chinese enterprises have failed to complete some overseas acquisitions and mergers and learned bitter lessons over recent years. Therefore, they should abandon the impetuous attitude toward overseas expansion and draw lessons from successful and unsuccessful experiences.

According to Sun Fei, head of the Financial Investment Committee under the China Association for Promoting International Economic and Technical Cooperation, there are four key points for Chinese enterprises to "go global": first, competence and core competitiveness; second, risk control capabilities; third, familiarity with foreign countries' laws and conditions; and fourth, developing business in politically stable countries. Of these, the second is the top priority. Before going global, the enterprises shall be well prepared in order to avoid blind investments.

Mei Xinyu, a senior researcher from the Research Institute under the Ministry of Commerce, said that as China's outbound direct investment is highly concentrated in the developing countries and energy industry. Furthermore, the generally good economic situation in emerging markets has caused serious asset bubbles and inflation, and the risks related to macroeconomic reversal are rapidly mounting.

In addition, Chinese enterprises' surging levels of overseas investments over the past several years have deteriorated their asset structure and liabilities. Thus, they need to slow down and even stop expanding. What these enterprises really need to do is to bring their oversea business on the right track instead of continuing radical expansion.

The government should offer more aid

According to data, Asia and Latin America are the regions with the greatest concentration of China's overseas investments, and these two continents account for 72 percent and 14 percent of the total, respectively. China's overseas investments in developed countries and regions account for only 9 percent of the total.

Insiders said that this kind of distribution is easy to understand. China is geographically close to these Asian countries and is familiar with their economies and cultures, and China's advantages of investments and operations are quite obvious in these countries. Due to the differences in legal systems, it is much harder for China to enter into developed countries in America and Europe. Therefore, the Chinese government should play more effective guiding roles in this area.

Sun Fei said that the "Going global" strategy has become a trend. For China's enterprises, the biggest problem is that they cannot manage and control the risks sufficiently: They are not quite familiar with other countries' laws and regulations. They do not fully and deeply know their politics, economies, cultures and legal environments so that they tend to make mistakes in practical operations and give other excuses to be blamed.

Therefore, the Chinese government should issue more investment guidelines, deepen its relationships with investment promotion associations of host countries and help the enterprises learn more industry and legal policies of host countries in addition to offering more consular and legal services to help them avoid market risks.

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