New challenges for firms going global

Shortage of efficient domestic support needs to be addressed

The global competition for markets and resources is intensifying with many advanced Western economies implementing "re-industrialization" policies for the re-flow of capital and retracting investments in developing countries such as India and Vietnam.

Amid this global scenario, Premier Li Keqiang said that China's GDP growth target for this year has been lowered to 7 percent in accordance with the new normal rate of expansion, indicating that a series of changes is about to take place for domestic enterprises that intend to "go global".

The "go global" wave among Chinese enterprises is strong. The country's "go global" strategy, proposed in 2000, has yielded results as overseas investments have widened and increased in scale. According to the Ministry of Commence data, foreign investments over the past five years have enjoyed high growth rate, ranging from 15 percent to 20 percent a year. In 2014 alone, industry-wide direct foreign investment amounted to $116 billion making China the world's third-largest investor for three years in row. Last year also saw China almost striking a balance between inward and outward investment.

Besides, investors from the Chinese mainland directly invested in more than 6,000 overseas enterprises in about 156 countries and regions in 2014, covering 15 different industries including leasing and commercial services, mining, manufacturing and real estate. And unlike in the past when major State-owned enterprises took the lead, more and more non-SOEs and small and medium-sized enterprises have ventured into overseas investments.

Another noteworthy fact of the "go global" strategy is that domestic brands and capital, rather than products and factories, have made inroads into foreign markets. By establishing local sales networks, purchasing patents, building research centers and industrial parks in foreign countries, more and more Chinese investors are conducting cross-border mergers and acquisitions to further their overseas expansion.

These achievements have not only eased the pressure stemming from excessive capacity and trade surplus in the domestic market, but are also in line with China's economic "new normal". But Chinese investors still have a long way to go when it comes to overseas business management. For instance, the lack of long-term planning, funding, technologies and talents has dealt a blow to many enterprises' foreign investments. Needless to say they are also short of information on situations and conditions, including market-related policies and business partners, in their investment destinations.

Moreover, Chinese investment still faces harsh political and legal restrictions in foreign markets that range from security reviews and industry access to environmental protection norms and labor rights. Even if some Chinese enterprises get entry into a foreign market, they could face local political and economic unrest, and even terrorist attacks. The shortage of efficient domestic support in investment approval, foreign exchange and risk management is also to blame for the situation.

Therefore, to help more Chinese enterprises "go global" and, more importantly, to maintain their foothold, joint efforts from all sides are needed. To begin with, the government should push for institutional innovation and reform to forge a supportive risk management system in which foreign investment is better secured and promoted.

The Minister of Commerce, on its part, should participate in bilateral and regional investing negotiations, as well as in discussions on emerging global investment rules. In particular, the "go global" policy should work in tandem with the Silk Road Economic Belt and the 21st Century Maritime Silk Road initiatives, and make full use of the economic cooperative zones near and across China's borders.

There is need for China to seek greater cooperation with other countries in strategic projects that involve infrastructure construction and energy development. More importantly, smart economic and cultural diplomacy, along with more people-to-people exchanges could strike the right balance between China's exports, foreign aid, overseas investments and use of inward investment from other economies.

The author is an associate researcher at the Chinese Academy of International Trade and Economic Cooperation in Beijing. The views do not necessarily reflect those of China Daily.

(China Daily Africa Weekly 03/20/2015 page10)