Upgrade outbound investment

Apart from R&D efforts, developed economies are likely to be more engaged in manufacturing, which will have a far-reaching influence on the global industrial layout. In the wake of the global financial crisis, many countries have loosened their grip on approving foreign investment and even proposed policy incentives to attract foreign investors, and many have enhanced economic stimulus efforts and boosted infrastructure investment. The Asian Development Bank and the Organization for Economic Cooperation and Development estimate that Asia alone will invest $8 trillion in infrastructure projects from 2010 to 2020.

The explosion in demand in emerging markets such as Asia, Africa and Latin America will present enormous opportunities for Chinese investment. Although the Doha round of talks within the framework of the World Trade Organization are still deadlocked, regional economic cooperation, especially in the Asia-Pacific region, has thrived. Washington is pressing ahead with negotiations on the Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership, both of which boast rules that liberalize trade and investment among the parties concerned. With the rules-based global investment system undergoing profound changes, bilateral and multilateral investment agreements will cover more areas, including providing a high level of protection for investors and ensuring wider market access for foreign investors. These will further facilitate transnational direct investment.

Under the new circumstances, Chinese companies need to increase their inputs to optimize intangible resources such as talent, technology and management. Many Chinese companies in recent years have simply relocated their employees overseas and copied the management pattern at home in the host countries, but such investment with few localization efforts often fails to yield the expected returns. Moreover, the service sector, which includes high-end financial services, is at the high end of the global value chains and deserves greater input, so that China can better position itself in the international division of labor within the global value chains.

More need to be done to maintain China's market advantage in developing economies and meanwhile sharpen Chinese companies' competency in the developed markets. This is by no means an easy task given that competition in developed markets tends to be more intense.

Chinese investors need to grasp the chances derived from the growing demand of developed economies for foreign investment and acquire the technologies needed to enter the developed markets through mergers and acquisitions.

Great importance should be attached to corporate social responsibilities, as these have a direct bearing on a company's image and its overseas operations.

Equally important is support from the government, which is responsible for building a sound regional and even global economic and trade environment, facilitating the proposed establishment of free trade areas and balancing its position as a host and home country for international investment.

More efforts should be made to reform the outward investment system, streamline the administrative approval procedures and encourage State-owned and private sectors to invest abroad. Reform of the country's foreign exchange regime should be accelerated to encourage commercial banks to go global, too, so that they can better integrate into the process of financial globalization and meanwhile offer support to Chinese companies with global operations.

The Chinese version of this article first appeared in Study Times.

(China Daily 11/08/2013 page8)