Outbound investment has great growth potential

Chinese enterprises have to go abroad

Since the "going-out" strategy was proposed officially in 2001, the Chinese economic structure has began to change.

As competition in common manufacturing has become fiercer due to increasing domestic cost and overcapacity, in addition to the need of promoting international competitiveness, Chinese enterprises have no choice but to go out.

As of now, the Chinese economy is at a turning point, where the economic model is shifting from export and investment driven growth to the one powered by domestic demand.

At the same time, China is seeking to climb from the end of the global value chain, featuring low costs and profits, to high productivity and high added value end.

The UN World Investment Report 2013 pointed that the global value chain occupies about 80 percent of global trade, "longer-term, GVCs (global value chain) can be an important avenue for developing countries to build productive capacity, including through technology dissemination and skill building, opening up opportunities for industrial upgrading."

Viewed from the perspective of the global industrial landscape, the Chinese economic transformation should be carried out by adopting two internationalization strategies: Firstly, quitting part of low-end manufacturing industries to reduce cost. Secondly, seeking quicker access, via mergers and acquisitions, to technology, brands and markets in order to achieve "an overtaking on a curve".

Both strategies need to be implemented through overseas investment activities by Chinese enterprises.

Private investors to play bigger role

Statistics by Dealogic showed that since 2000, some 54 percent of the total value of China's overseas M&A (merger and acquisition) deals has come from the energy and resources sectors such as natural gas, oil and mines, where state-owned companies take a majority.

As a result, China's most significant and successful cross-border M&A cases were primarily done by state-owned enterprises over the last decade.

However, private companies are likely to become the leading force in China's next round of overseas investment as China's economy is becoming more and more market-oriented.

"Looking ahead, the next wave (of overseas investment) will probably involve more privately owned companies doing smaller deals, particularly technology companies that are intrinsically more global," Financial Times' reporter Henny Sender said.

Premier Li had told the Summer Davos Forum participants that the Chinese government will further relax limits on the "going-out" steps of the domestic companies.

According to data provided by Wang Yanguo, vice president of the China International Chamber of Commerce for the Private Sector, private companies accounted for 45 percent of China's total non-financial FDI in 2012, while the figure was only 14 percent and 20 percent in 2008 and 2011, respectively.