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Accelerating outward

(China Daily)
Updated: 2009-03-17 07:48

The Commerce Ministry's new regulation on outward investment will serve as a tailwind for Chinese enterprises eager to invest more abroad. By streamlining the approval process, it will enable domestic companies to more easily seize investment opportunities they see internationally.

Meanwhile, an imminent surge of Chinese investment in other countries will also help reduce global imbalances, a key step to pull the world economy out of the slump it's now in.

However, in spite of all the obvious benefits of their accelerated "going-out", Chinese companies should by no means expect a warm welcome from recipient countries.

The beginning of this year has seen a flurry of such deals in which Chinese investors have secured stakes in long-term supply contracts with foreign companies. Yet, to make 2009 a really big year for outward investment, domestic companies should plan carefully in order to ensure the viability of overseas forays to long-term growth.

Several Chinese enterprises have already drawn bitter lessons from their outward investments since the going-out policy was initiated a number of years ago.

The considerable appreciation of the Chinese currency in recent years has given domestic firms much more buying power on the international market. And low commodity prices or stock prices have made some foreign companies more attractive targets for Chinese investors. But success is far from assured if domestic companies fail to prepare fully for all the risks associated with transnational investment.

Faced with climbing trade and investment protectionism in some countries, the Chinese government should urge the international community to stand firmly together against this unhealthy trend.

We've heard that some countries have introduced stimulus package clauses encouraging the purchase of domestic products only. We also notice that some other countries intend to save jobs or financing for their own citizens.

It will be a shame if some nations make themselves a champion of investment protectionism at a moment when global cooperation is badly needed to restore growth.

An expanded flow of outward investment may help bring China's capital account for 2009 into balance to reduce global imbalances.

Moreover, China's investment in global supply-side capacity, with its growth currently inhibited by low prices and problems with credit availability, may prevent some price volatility in future and thus put the world economy on a more solid foundation for growth.

(China Daily 03/17/2009 page8)