Driving China’s international investment activities

Li Keping, vice-chairman of China Investment Corporation, explains why working together to achieve shared goals must play a key role in China’s overseas investment strategy
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China's overseas investment strategy is not just a vision imposed by the government on the country's enterprises. Rather, it is rooted in their development needs and the necessity of upgrading China's economic structure. It is informed by the global economic environment and complementarity of countries around the world. Such strategic planning is inductive and supportive, aiming to follow the demands and needs of stakeholders at home and abroad.

As such, China's internationalisation strategy does not serve as a ‘train' with room in the carriages for free riders. It is more akin to an organised camel team. While it is provided with guidance, support and services, the team still relies on the effort from every single enterprise to reach the final destination. This entails more than simply committing resources to the journey.

While making investments overseas, some Chinese enterprises automatically borrow from their domestic experiences and business models. Very often, they make their investment decisions from a macro perspective. Moreover, many experts and scholars discuss the investment strategy of a particular industry based on the basic macroeconomic data. Investment environments vary from country to country, however, limiting the usefulness of this data. When pouring capital into a project, enterprises should, as a matter of priority, pay attention to the local laws and regulations, as well as rules and requirements on land use and environment. They must be ready to adjust their mindset and way of decision-making when they face problems.

It is important stakeholders from both countries are able to establish a long-term and mutually beneficial cooperation mechanism
Li Keping, China Investment Corporation

During the past few decades, the Chinese government has played a major, sometimes dominant, role in economic development and reform. However, this may not be the case in other countries. The aspiration and vision of the politicians of two countries does not necessarily translate into smooth and successful business cooperation between them. It is important that stakeholders from both countries are able to establish a long-term and mutually beneficial cooperation mechanism. Therefore, Chinese enterprises should not be overoptimistic about – or even rely on – intergovernmental agreements and willingness to cooperate; otherwise, they may lose the initiative in investment decision-making and suffer losses.

The long game

Overseas investment is not a one-off event, but a process of long-term integration and value creation. The reason why so many enterprises have failed in the past is because they focused too much on the initial investment and overlooked the importance of subsequent operations, management and value creation. They missed the real purpose of making that investment and producing returns in an appropriate way. Investment is like marriage: pouring resources and energy into the wedding does not necessarily guarantee a subsequent happy family life.

Moreover, while it has large amounts of capital to invest in absolute terms, China is still a developing country with a per capita GDP of $7,000. Therefore, it is important to invest wisely.

The Chinese government has taken the initiative to build a multilateral financing mechanism for infrastructure investment in emerging markets by establishing the BRICS Development Bank and the Asian Infrastructure Investment Bank. These institutions can not only bring about large amounts of capital, they can also serve as an innovative way to solve problems through multilateral coordination and cooperation.

Investment strategies

Now, Chinese enterprises need to strengthen their role in overseas investment activities. Enterprises ought to set clear goals and strategies to achieve internationalisation. They should continuously discover, utilise and improve their comparative advantages, without which enterprises will not be able to achieve sustainable international development.

Chinese enterprises ought to set clear goals and strategies to achieve internationalisation. They should continuously discover, utilise and improve their comparative advantages
Li Keping, China Investment Corporation

Enterprises should set up clear business goals, conduct follow-up research and carry out full due diligence on investment projects, utilise legal contracts as safeguards, and have specific post-investment management and operational plans to increase corporate value.

Enterprises should also find ways to create ‘win-win' situations and ensure there are mutual benefits. This is more than just a concept and slogan. Specific and favourable arrangements should be made so Chinese enterprises are able to achieve sustainable development in host countries, with a particular emphasis placed on localisation efforts.

Diversification benefits

In terms of regional strategies, while China should continue to focus on investment in emerging economies, it should also diversify its investment destinations, so the systemic risk in some regions can be reduced and the resource allocation balanced more evenly around the world. Furthermore, investment sectors should not be considered only on the traditional complementary portfolio of the energy and resources, but also be taken into account on the need to upgrade industrial structures and embrace innovative technologies. Though ‘going out' is becoming more and more popular, ‘bringing in' is also necessary.

In carrying out its internationalisation strategy, the Chinese government has the responsibility of providing guidance, service and support to domestic enterprises. It also needs to strengthen bilateral and multilateral coordination in the international community, so that it can better protect the legal rights and interests of Chinese investors when conflict of interest occurs, and also create a more open, transparent, and predictable investment environment.

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