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Domestic Firms Need to Develop 'Global Vision'
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While China's fast-growing economy continues to draw hefty foreign direct investment (FDI), more efforts are needed to help local companies expand into the global market.

At a high-profile seminar yesterday, government officials and experts called for stronger financial support. It also wants better understanding among Chinese companies of the global marketplace, to aid a so-called "go-out" strategy the nation is implementing to tap into the global market.

With the Chinese economy continuing to grow rapidly in recent years, more countries are setting up special offices in China to promote overseas FDI, recognizing China as an important source of investment, said Khalil Hamdani, officer in charge of the Investment, Technology and Enterprise Development division under the United Nations Conference on Trade and Development.

Mergers and acquisitions (M&As) by Chinese companies in foreign markets witnessed a growth rate faster than its impressive 9.9 percent economic growth of last year, while overseas engineering contracts have risen an average of 25 percent in the past five years.

Still, China's overseas investment still accounts for a meagre 0.5 percent of global foreign direct investment, and holds an insignificant 2.1 percent share of the international engineering market.

In stark contrast, China has been one of the world's largest recipients of foreign direct investment in the past few years.

"We need to be aware that overseas investment by Chinese companies is still in its infancy," Zhou Laizhen, deputy director of Enterprise Development for the Ministry of Finance, told the international forum.

"Chinese enterprises widely lack experience in cross-border investment, the risk management system for such investment is still absent, and related policy support still needs to be strengthened," he said.

But Chinese companies' lack of understanding of the global market is dwarfed by protectionism in some other markets. China National Offshore Oil Corporation Ltd (CNOOC) withdrew last year from a widely-watched bid for US oil company Unocal Corporation, largely as a result of strong political opposition from the US Congress.

Although the bid helped raise CNOOC's international reputation, a key lesson was the company "underestimated international political resistance," Zhou Shouwei, deputy general manager of the company, admitted yesterday. "Opportunity elapses quickly."

Dismissing worries of the "China threat," which is believed to be the main reason Chinese companies encounter political resistance, Zhou Laizhen, with the Ministry of Finance, said: "There is an essential difference between the motivation of Chinese companies' overseas resource development compared to other nations. China supports a win-win approach, and co-operation is based on helping the host countries utilize resources, protect the environment, promote job creation and tax growth."

Besides the need to improve international competitiveness and circumvent trade barriers, the "go-out" strategy can also reduce China's huge trade surpluses, which have complicated its monetary policy operations and increased the upward pressure on the exchange rate for the renminbi, said Li Dongrong, deputy director of the State Administration of Foreign Exchange.

Chinese companies will need to pay more attention to the difference between domestic and international markets when seeking M&A opportunities, learn to reduce operational costs, better understand financial instruments widely used in international markets, and enhance their international management capacity, said Chen Jian, assistant minister of commerce.

(China Daily April 28, 2006) 

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