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4 Sep, 2012

Chinese Companies Expanding Abroad Urged to be Wary of Investment Risks

China Daily Commentary

September 03, 2012 – The Ministry of Commerce’s latest estimates show that China’s outbound direct investment reached 74.65 billion yuan ($11.8 billion) in 2011, a historical high. At the same time, it noted more than 27 percent of the enterprises that State-owned companies have set up overseas reported losses for that year.

That loss percentage was higher than the one recorded for all overseas Chinese enterprises, which stood at 22 percent. Such figures should be enough to give pause to any domestic company that is itching to try its luck on foreign soil.

The Chinese economy’s rapid growth in recent years has greatly bolstered Chinese companies’ finances. With such new-found strength, it’s only natural that they would want to seize business opportunities they see overseas. Commerce ministry data show that Chinese investors have set up 18,000 enterprises in 177 countries and regions to date.

The notion of “going global” has become one that stirs the ambitions of many domestic enterprises, especially when the US, European Union and other large economies find themselves trapped in a lingering downturn.

Amid such excitement, the losses reported by enterprises that have established operations overseas should come as a reminder that such investments come with risks.

Meriting serious attention is the number of State-owned enterprises that have reported overseas losses, since those involve public money. The Ministry of Commerce did not put an exact figure on the investment losses. Even without that, the seriousness of the situation is evident in the fact that such a large percentage of enterprises reported them.

As the financial difficulties of Western economies persist and China gains more economic prowess, more and more enterprises are almost certain to try expanding abroad.

That’s why it is important, now more than ever, for Chinese investors who are eagerly eyeing foreign markets to think about the risks they may encounter in such places, especially since there are few reasons to believe the West will soon leave its economic difficulties behind.