All the world's a Chinese investment stage

All the world's a Chinese investment stage

China's most important holiday, the Lunar New Year, is drawing near, but entrepreneur Shu Wenbin has no intention of relaxing and taking time out to party. Instead, it's his busiest time of the year.

Apart from meetings with potential partners across China, the general manager of Continental Interior Design and Construction Ltd also plans overseas trips to the United States and other markets to seek out business opportunities he may able to seize after the holiday.

"China's real estate and construction industries have slowed down in the past two years, new residential and commercial projects are seeing sluggish growth, and investment prospects are uncertain," he said.

"Overseas markets, especially in Southeast Asia and South America will be new growth points. Prospects in European and US markets are also good."

Shu's company, which offers interior design and construction services, started its overseas business in 2012 through its partners, big state-owned enterprises operating overseas. The company has about 150 employees and annual revenue of about 300 million yuan (S$64 million), of which about 20 per cent is from overseas.

It used to enjoy about 30 per cent annual growth on average, but in the past two years, with slower growth in the construction sector and rising labour and material costs, searching for new opportunities globally has become an attractive option.

"We are planning to set up a company and operate directly overseas, and I want half of the company's revenue to come from overseas by 2017," Shu said.

His company is typical of Chinese small and medium-sized enterprises that are increasingly going global at a time when the government is accelerating economic restructuring and easing restrictions on overseas investment.

Headline-grabbing mergers and acquisitions by Chinese enterprises of totemic companies in the West suggest an invasion, but it was only in 2014 that China's outbound investment reached $140 billion, for the first time overtaking inbound investment of $120 billion, according to the Ministry of Commerce. President Xi Jinping predicted in 2014 that China's outbound investment will reach $1.25 trillion over the next decade.

This trend is set to accelerate. The 2015 Report on Chinese Enterprise Globalization, published by the Beijing-based Center for China and Globalization, said that in 2014 and the first six months of 2015, the annual number of newly increased outbound investments (686) was about six times the average number (121) from 2008 to 2013.

"We are on the verge of a big wave of Chinese companies going global," said Wu Jianmin, China's former ambassador to France. "In the past, it was mainly big companies that were interested in going global, but now so are smaller and medium-sized companies. Many companies have realised that if they don't look for opportunities globally, they will probably die in China finally."

In 2015, Chinese companies made nonfinancial direct investments of $118 billion in 5,085 companies in 153 countries and regions, a year-on-year increase of 14.7 per cent, according to the Ministry of Commerce.

Wang Huiyao, director of the Center for China and Globalization, said in about 63 per cent of the cases, Chinese companies' overseas investments are between $100 million and $1 billion.

"The number of smaller outbound investments (below $100 million) is growing fastest, as private companies and SMEs are playing a bigger role," he says, adding that, in 2014, private companies' outbound investments saw a year-on-year growth of 295 per cent, and they made up of 69 per cent of the total number of cases.

Xiao Qiang, director of the China Small and Medium-Sized Enterprise Institute, said most SMEs that the institute has helped go global have annual revenue of between 50 million yuan and 400 million yuan and an employee headcount below 2,000.

He said of the total, SMEs' outbound investments account for 30 per cent of the value and 80 per cent by number of cases.

Long Yongtu, former vice-minister of commerce, says the trend of Chinese companies going global is irreversible. China's corporate and private bank deposits amount to more than 138 trillion yuan, and the abundance of capital makes it easier for Chinese companies to invest overseas.

"Globalization is to allocate resources globally. If Chinese restructuring is conducted with a global scope, its economic transformation would be less painful and is more likely to succeed," he said.

Wang Chaoyong, founder and CEO of ChinaEquity Group, a Chinese venture capital institution, said there are three ways for Chinese companies to go global: products, industrial capacity and capital.

"I have observed huge changes in all these three," he said. "In the products, I have seen quality, added value, and brands have improved greatly. In capacity going global, a big feature is that, be it a State-owned company or SME, they co-operate and form clusters to explore overseas markets."

"The number of overseas mergers and acquisitions is also increasing rapidly, through which many companies are able to get overseas products, technology, sales channels, design, and so on," he said.

A recent example is Shenzhen Ellassay Fashion Co Ltd, a high-end female clothing company, which bought a Hong Kong company that owned the German fashion brand Laurel for 11.18 million euros ($12.1 million) as part of its global expansion. The takeover would see Ellassay own Laurel's design, pricing and production rights at all its stores on the Chinese mainland.

A recent report from Dealogic, an international information provider on investment deals, says Chinese outbound M&A volume increased for the sixth consecutive year to a record $111.9 billion in 2015, breaching the $100 billion mark for the first time.

A recent report from Boston Consulting Group shows the changing trends in Chinese overseas M&As. From 1990 to 2014, about 40 per cent of M&As were in energy and resources. But in recent years, only about 20 per cent have involved energy and resources, while about 75 per cent were in technology, brands and market share.

Manufacturing is an important sector that has drawn the attention of Chinese entrepreneurs, who are encouraged by Made in China 2025, China's national strategy to upgrade its manufacturing sector.

Figures from the Ministry of Commerce show that, from January to November 2015, outbound investment in the manufacturing sector was about $11.8 billion, a year-on-year increase of 95.4 per cent, with $5.89 billion going to equipment manufacturing, a year-on-year rise of 117.3 per cent.

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