More caution overseas

The Chinese Ministry of Commerce has simplified its approval procedures to encourage Chinese businesses to invest overseas.

The deepening global financial crisis has led to shrinking investor confidence and the devaluation of some high quality assets. This presents some good opportunities for Chinese businesses.

The new simplified approval procedures will help Chinese business. The government can do even more by providing financial support to qualified businesses. With this kind of backing, businesses can be expected to perform well overseas.

By the end of 2007, Chinese businesses had invested in more than 10,000 enterprises overseas, with an accumulated investment volume of $117.9 billion. Last year alone, overseas direct investment, not including that of financial institutions, reached $40.6 billion, a year-over-year increase of 63.6 percent.

The way has not always been smooth. There are successful examples like Lenovo and Huawei, but there are also failures. Last year Chinese financial institutions paid an expensive price for their overseas investments because of bad judgment. These failures should serve as lessons to other industries.

Chinese businesses must ask themselves if they have acquired overseas management ability, whether they understand the cultural differences and whether they are familiar with local labor-related rules and regulations.

The Ministry of Commerce is also aware of the potential risks. Under the new method, the Ministry reserves the right to examine overseas investments exceeding $100 million before approval.

China Business News

(China Daily 03/23/2009 page2)