It may sometimes seem that cash-rich Chinese companies are gobbling up every enterprise that comes up for sale or acquisition in the rest of the world, but a new report says that China's Tai Pans remain cautious about splurging money abroad.
The survey of 962 Chinese state-owned and private companies found that over half feel their companies are ill-equipped with the talent or experience necessary to operate on the global stage. Those willing to stride out into the world feel far more comfortable establishing themselves in North America, Europe and the secure economies of Asia rather than in developing countries. The United States, Hong Kong and Japan were the most popular investments destinations for Chinese companies last year, with the U.S. the clear leader of the pack.
The survey was carried out by the Asia-Pacific Foundation of Canada (APFC) in partnership with the Chinese Council for the Promotion of International Trade and with the assistance of the Beedie School of Business at Simon Fraser University. The results were presented at the China Goes Global symposium hosted last week by the APFC.
It is the latest of similar surveys done since 2005 and looked particularly at differing attitudes and approaches to foreign investment by China's state-owned and private companies.
Perceptions of China are often complicated and inflated by the fact that even small percentages produce very large numbers.
In 2000, when China joined the World Trade Organization and Beijing launched its "Going Global" policy to encourage overseas investment, Chinese companies staked only $1 billion abroad. Last year China's foreign direct investment was nearly $88 billion, the world's third largest, and 17.6% up on 2011. China's cumulative foreign investment is now $US531.94, the 13th largest in the world. Over 16,000 Chinese companies have nearly 220,000 enterprises in 179 countries.
However, the survey suggests these big numbers mask a hesitant approach to foreign investment. For the respondents, exporting their products to foreign markets was seen as a far more important business strategy than establishing their own subsidiaries abroad or establishing joint ventures with companies overseas.
Just over a third of the 962 companies in the survey had overseas investments last year. However, for most of those companies their overseas ventures are only a small fraction of their operations. Of that one third, nearly 36% said their incomes from offshore ventures are less than 5% of their companies' totals, and 39% said foreign investment represents less than 5% of their total investments. Forty-two percent said overseas assets are less than 5% of their total assets.
The reasons for Chinese companies' caution are both internal and external.
Just over half the respondents cited a low level of international co-operation and a lack of international management talent in their companies as the major obstacles to boosting their international business and investment.
Also high on their list of reservations is uncertainty about their competitiveness in the internal trade forum, and several reasons stemming from their ignorance of the business and social cultures of target countries.
Perceptions of risk differed quite significantly between investment destinations and depending on whether it was a Chinese state-owned company or a private enterprise responding. In dealing with developing countries, the Chinese respondents listed breach of contracts, sudden policy changes, political unrest and war, corruption, and political interference as their major concerns.
The survey found the Chinese companies are much less anxious about investing in developed countries, but there are worries there, too.
Most important are the prospects of policy changes – especially tax hikes – labour disputes, adverse reactions to Chinese investment by the governments, and deteriorating macroeconomic conditions.
It is not surprising that the survey found Chinese state-owned enterprises are more willing to invest abroad and feel more protected when they do so.
SOEs said a sudden deterioration in macroeconomic conditions is the greatest risk to their foreign investments, while private companies said their greatest risk is nationalization of assets by the host country. •
Canada well down the list of popular investment destinations for Chinese companies
Despite this year's US$15.1 billion purchase of Calgary's Nexen by the China National Offshore Oil Company, the largest single foreign investment by a Chinese company, Canada is not at the top of China's shopping list.
A new survey by the Asia-Pacific Foundation of Canada and the China Council for the Promotion of International Trade has found that Canada was ninth on the list of popular destinations by Chinese companies investing abroad last year. On the league table of countries investing in Canada, China is in the same position: ninth.
And even though China's investment in Canada remains relatively small, it has grown dramatically in recent years. It has rocketed from zero in 2006 to about $12 billion a year now.
In the course of that liftoff, China's investment in Canada brushed past Canada's money going the other way in 2007. Canada's investment in China has risen with glacial slowness for the last 20 years and is now bobbing along at a bit over $4 billion a year.
However, even though Chinese investments in Canada tend to get caught in political headlights, especially as most of them are by state-owned enterprises, they represent only 2% of foreign direct investments here.
The United States dominates the field, with its $326 billion invested in Canada last year representing 51.5% of the total. Distant also-rans are the Netherlands second, the United Kingdom third and tax haven Luxembourg fourth. Among Asia countries, Japan remains a far more important investor in Canada than does China.
Canada's resource industries, especially mining and oil and gas operations, have been the prime target for Chinese acquisitions, joint ventures or minority investments in recent years.
That picture is beginning to change. In September last year Chinese companies formed their own business association in Canada, the Toronto-based Canada China Chamber of Commerce. Its members are mostly Chinese state-owned companies, but they are from sectors ranging from finance, transportation, import-export, pharmacy, real estate, equipment and machinery as well as energy and minerals.
