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Print Edition> Business
UPDATED: April 13, 2015 NO. 16 APRIL 16, 2015
Market Watch No. 16, 2015


Stop Pulling Chinese Overseas Investors' Legs

As the Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road has been released, China is bound to witness a surge of outbound investment. Nonetheless, if not thoroughly prepared and planned, these overseas investments are liable to risks, including complete failure, which is not new to Chinese enterprises.

There are numerous examples. China Investment Corp., the country's sovereign wealth fund, lost billions of dollars for its investments in American private equity giant Blackstone and Wall Street investment bank Morgan Stanley. China Overseas Holding Ltd. lost more than 1 billion yuan ($162 million) when constructing expressways in Poland, and the project has not been wrapped up yet. A branch of Sany Group suffered a loss of at least $20 million when its attempt to build wind farms in the United States was blocked by the U.S. Government.

While lamenting these investment tragedies, people can easily find that investing enterprises involved should be held accountable in some cases.

Take China Overseas Holding Ltd. for example. A few years ago, it landed a $500-million highway project in Poland and planned to build it into a prototype project and trailblaze its way into the European market. Unexpectedly, due to the eruption of risks, mismanagement and sluggish progress, the company suffered heavy losses and failed to cut a figure in Europe.

In addition, companies must also adhere to local environmental regulations. In countries like Poland, environmental protection is a focus of public attention. Since the highway contracted to China Overseas Holding Ltd. goes through the habitat of some rare tree frog, the local government required the company to relocate these tree frogs to safe places. If not, it would have to pay a huge fine. Caught in its negligence, the company had to lay aside the project and move the frogs.

At present, many countries have imposed bans on the use of foreign workers, and required companies to employ local workers to serve in technical positions. Low prices offered by Chinese companies have always been based on the low-cost and hard-working Chinese laborers. In countries where employing foreign laborers is forbidden, those Chinese companies have to hire local workers, who might refuse to work overtime. Thus, many projects funded by Chinese companies end up breaking even or dipping into the red due to soaring costs.

In addition, due to project mismanagement and poor communication, contrasting feelings could be generated between local people and companies, which leads to the abortion of the projects, brings financial losses to the Chinese companies and tarnishes their corporate image.

Of course, many of these overseas investment failures were caused by force majeure. In the case of Sany Group, a group of American politicians forced the company to terminate the project under the pretext of national security, alleging that these wind farms are in the vicinity of a military base. In the past few years, Chinese companies such as Huawei and China National Offshore Oil Corp. were also ousted in similar situations in Western countries.

To avoid such investment tragedies, Chinese companies should be equipped with market awareness and the ability to control risks. For one thing, they need to preserve their competitive edge, adapt themselves to local conditions, and make decisions in a calm and practical way; for another, the Chinese Government should take necessary measures to cope with these countries which tend to demonize Chinese enterprises.

For China, outbound investment is about to experience explosive growth and a process of diversification. Commercial property developer Dalian Wanda Group Co. Ltd. has bought properties and cinemas overseas, PC maker Lenovo Group Ltd. has set up factories in the United States and telecom equipment maker and service provider Huawei Technologies Co. Ltd. is eyeing for a lion's share of the global telecommunication market. Even emerging e-commerce businesses are going global. For example, Qbao.com, an Internet intelligence service provider based in Nanjing, east China's Jiangsu Province, has teamed up with Spanish football club Real Sociedad to propel the development of Chinese football, especially for juniors.

It's time for China, who has a foreign exchange reserve of $4 trillion in hand, to take the stage as a global investor, not just in fields of road, ship and high-speed rail construction, but also in cultural exchange and cooperation. The Belt and Road Initiative will definitely bring about more opportunities. Yet, Chinese investors should be vigilant of risks and make worthwhile investments.

This is an edited excerpt of an article published in Economic Information Daily



Net profit growth of the Industrial and Commercial Bank of China in 2014

$895.5 bln

China's outstanding external debt at the end of 2014, up 2.5 percent from 2013

176.3 bln yuan

Investment into the construction of railways, roads and waterways in China in the first two months of 2015, up 16.9 percent year on year

831.5 mln

Number of passenger arrivals and departures recorded at Chinese airports in 2014, a rise of 10.2 percent from 2013


Profit growth of Yunnan Baiyao Group Co. Ltd., a leading traditional Chinese medicine manufacturer, in 2014


Number of Chinese mainlanders holding assets worth no less than 500 million yuan, according to the China Ultra High Net Wealth Report 2014-15 jointly released by China Minsheng Bank and the Hurun Research Institute

1 bln yuan

Online sales target of Deli Group, a leading office supply maker in China, for 2015

927 bln yuan

Combined net profits of China's five largest lenders--Industrial and Commercial Bank of China, Bank of China, China Construction Bank, Agricultural Bank of China and Bank of Communications--in 2014, nearly 60 percent of the entire industry's total

Copyedited by Kylee McIntyre

Comments to yushujun@bjreview.com

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