Mainland companies investing overseas must pay attention to risk management and mitigation, COIS attendants urged on Wednesday.

Despite the risks associated with investment, mainland companies have generally done well in overseas investments in the past decade, said Liu Yuhua, deputy head of the Ministry of Commerce's (MOC) department of WTO affairs.

"They have matured from being partners in local projects to being important shareholders, and are better poised to undertake higher caliber programs," Liu said.

Liu Shuwei, a researcher in Chinese corporations at Beijing's Central University of Finance and Economics, described overseas investment as a "natural trend" for mainland enterprises.

"As China's intensive and cheap labor force is losing its edge, not only foreign companies have relocated their operations from China in search of cheap labor, Chinese companies are also seeking bigger markets overseas," she said.

Although a clearer way out for the global economy is yet to be found, and China has seen an economic slowdown in the first-half of this year, excessive worries are not necessary as the situation is due to macroeconomic fluctuations, she said.

However, she warned that although overseas investment seems like a nice cake, it appears to be a hot one, as overseas investment is complicated, fraught with all sorts of risks and challenges. "It's not merely an economic activity, it's a social integration with local society."

"Overseas investment is a test for Chinese companies, especially those with less experience, as political hazards like wars and successive power shifts, cultural shocks and religious clashes, management risks, ignorance of local laws, and financial risks like currency and counter-party risks all are likely to appear," she said. "Whether or not they could make profits after M&As is not certain and this is a challenge to the wisdom of the companies."

According to Liu Shuwei, mainland companies need to deal delicately with the relationship with various interest parties - the local government, labor unions and environmental groups - when investing overseas, and to have social responsibility and a mindset of mutual benefit when searching for solutions.

Professor Fei Fangyu of Shanghai Jiaotong University told the summit another risk that should not be ignored is that arising from inadequate business evaluation. Companies should optimize their due diligence, scenario analysis and stress testing in their project financing, and prepare for the worst with stand-by solutions, he said.

Wang Zhile, a researcher at the MOC, touched on Hong Kong's role as an international financial platform, saying the city should be more professional and industrialized in terms of its advantages in credit rating and industry analysis services in order to connect China with Europe, America, Africa and the other parts of Asia. This, he said, would present the best scale merit of its funds and capital, and become a place where talent can be nurtured.

He suggested that companies use hedging tools wisely as the differing prices of financing, costs and products might otherwise increase risks rather than oppress them.

(HK Edition 08/23/2012 page2)