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ODI set to become more diverse

Updated: 2013-10-16 07:05
By Bao Chang and Li Jiabao ( China Daily)

"Although resource-related transactions still dominate Chinese investment, Chinese investors have broadly expanded into sectors such as agriculture, real estate, renewable energy, power and utilities in Australia," John Li, partner at E&Y's China business group Oceania, said.

Australia's new government has launched a major infrastructure plan, attracting great interest from Chinese engineering companies, Li said.

During an interview with China Daily, Peng Yali, director and head of research of KPMG Global China Practice, said that the major destinations of China's overseas direct investment are shifting among different regions, as Chinese companies are increasingly interested in infrastructure investment and other sectors.

E&Y's report has found that China's outbound investment is diversifying beyond energy. For the first half of the year, the energy and metals sectors accounted accounted for 64 percent of such investment, down from 78 percent in 2009.

Meanwhile, overseas investment in agriculture and technology saw a dramatic increase, representing 15 percent of total value, compared with 4 percent in 2009.

"Agribusiness and food processing will be a highlight in China's future overseas direct investment," said Peng.

Wong said that Chinese companies may need to reconsider their asset portfolios and seek a more balanced risk management threshold. They should also consider moving up the value chain to compete more effectively with counterparts from Southeast Asia, Japan and South Korea. While going abroad to tap international markets, Chinese companies face challenges from both the external environment and internal management.

KPMG said that China's outward direct investment in the near future is likely to face a phase of adjustment and the pace may slow after the fast growth in the past decade.

The slowdown and occasional fluctuations could be opportunities for Chinese companies to reflect on their strategies for improvement while the overall trend of China's ODI will grow, accord to KPMG.

In 2012, China ranked third among all economies in terms of outward foreign direct investment flows. The country's outward direct investment into non-financial sectors stood at $77.73 billion, up 13.3 percent, according to the 2012 Statistical Bulletin of China's Outward Foreign Direct Investment.

"Insufficient understanding of local cultures may lead to labor disputes for Chinese enterprises. Chinese enterprises should also be aware of the concerns of local governments, communities and non-governmental organizations" while maintaining good partnerships with host governments.

"Their standards in business operations should be higher than local standards, especially regarding soft laws," Sean Gilbert, director of climate change and sustainability at global consultancy KPMG, said.

"When Chinese enterprises extend their reach to overseas markets, better coordination in corporate management should be introduced to ensure smooth communication and supervisions between the overseas branches and the headquarter," Gilbert added.

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