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Barriers remain as Chinese companies go global

2014-12-05 09:07 Ecns.cn
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(ECNS) -- Global markets will witness a new wave of Chinese outbound investment as the nation's authorities continue to simplify approval procedures, but Chinese firms must prepare for risks and challenges as many lack experience in overseas markets.

The second milestone for 'going global'

The year 2014 might be the second milestone for Chinese companies "going global", said Long Yongtu, former vice-foreign trade minister and chief negotiator for China's World Trade Organization (WTO) accession.

China's outbound direct investment (ODI) is estimated to reach US$120 billion by the end of 2014, surpassing foreign direct investment (FDI) for the first time.

Long said at a forum in Sanya, Hainan province, that the first milestone was China's entry to the WTO in 2001.

China's Ministry of Commerce has been continuously lowering the threshold for companies investing overseas, so that in future, 99 percent of outbound investment projects would only need to register, instead of undergoing long procedures for approval, according to Wang Yaohui, director of thinktank Center for China and Globalization (CCG).

The thinktank recently released a report on the globalization of Chinese enterprises.

Wang added that reform should continue, making the procedures even simpler and lifting restrictions on investment volume and industries.

Financing challenges for SMEs

Private enterprises are a strong force in overseas investment and will gain momentum as time goes by. Of the Chinese investment bound for the US in 2013, 76 percent came from the private sector, while private companies own 90 percent of all Chinese investment projects in the States.

Unlike their state-owned counterparts, private companies have major difficulties in getting sufficient capital for overseas projects, as financing channels are limited and costs high.

A survey by CCG and the China Association for International Economic Cooperation showed that large state-owned companies, mostly listed and enjoying easy access to the capital markets for financing, also enjoy preferential treatment from both commercial and policy banks. Bank loans and special-purpose loans open a larger door to these entities than to small- and medium-sized enterprises (SMEs).

Qing Jing, deputy general manager of the Special Financing Department at the Industrial and Commercial Bank of China, admitted the existence of partiality for large and state-owned enterprises.

He suggested smaller companies pledge some assets as collateral and thus raise credit ratings when conducting overseas mergers and acquisitions.

"If company assets are in good condition, banks are willing to offer loans to certain projects," he said.

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