Stage set for surge in effective Chinese outbound investment
Last Updated: 2016-12-15 10:11 |
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The last decade has seen a surge in Chinese outbound investment. Thanks to rapid growth and the opening up of the economy, Chinese firms are spending overseas as a means of opening up new markets, diversifying their portfolios and forging links with foreign firms.

However, navigating unfamiliar overseas markets is a challenge for Chinese companies, who have to face the difficulties of differing business regulations and culture.

GCL System, a world leading solar energy company based in Suzhou, is one of many Chinese companies that can relate to the problems outbound investors can face, and as such is appreciative of the value of Suzhou Industrial Park's (SIP) experimental program aimed at bolstering outbound investment.

"We've faced a lot of challenges in our overseas foray and there are three main types of obstacles," says Sean Tzou, Executive President of GCL System. "Firstly, the barriers established by different countries. Secondly, the rules of the game - for example, credit ratings, finance and patent protection. Then comes the risk management."

In September 2015, SIP became China's first experimental zone approved by the State Council to carry out "comprehensive experiments on opening-up and innovation." Since then, SIP's State-level Outbound Investment Services Demonstration Platform has helped 239 enterprises from within the Park secure 372 outbound projects with contracted investment totaling 8.27 billion USD. In 2016 alone, the contracted investment totaled 920 million USD, an equivalent of a 219% year-on-year growth rate.

According to Barry Yang, Chairman of SIP, the platform aims to bring the number of corporate investors conducting outbound investment to a new height, and increase the breadth and visibility of Chinese investors on the global stage.

"The main investments we've seen are largely focused in developed countries because these countries have more mature legal framework, regulatory and policy systems, as well as better infrastructure in place," says Yang.

This pooling of experience and expertise is of great value to Chinese companies that may be inexperienced in doing international business, says Elton Huang, senior partner at PwC.

"The most heartfelt note that I have heard from Chinese entrepreneurs has been - 'you know what keeps me awake in the mid-night is exactly the fact that we've never experienced an economic cycle in the true China it seems to be an ever-up mode'," recalls Huang.

"Thus I think it's imperative for Chinese overseas investors to view risk management as a high priority," he says. "Without adequate risk management, Chinese enterprises could well find themselves paying a high price when navigating at the political, sectoral and corporate levels."

Laying solid foundations for outbound investment promotion

Via the arm of SIP Cross-border Investment Promotion Center, the Park is perfectly placed to facilitate the project, which covers overseas industrial investment, M&A's, capital market investment and VC investment.

In 2015, SIP's GDP was RMB 207 billion, with tax revenue exceeding RMB 67 billion. Per capita GDP reached 40,000 USD. Accumulated FDI exceeded 28.3 billion USD.

SIP is a hotbed for some of China's most forward-looking businesses in advanced areas such as bio-medicine, nano-technology and cloud-computing.

It is also a favorite among leading Chinese companies for siting headquarters. At SIP's Jinji Lake CBD, there are more than 70 registered headquarters projects, 776 financial institutions and 385 professional service organizations.

SIP's expertise in cross-border business makes it the ideal launching pad for companies looking to invest overseas. It was China's first pilot area for Sino-Singapore Cross-border RMB business, as well as a pioneer in areas such as two-way cross-border RMB lending, overseas bond issuing, QFLP, and macro-prudential management of external debt.

SIP has also accumulated a vast experience of successful project development and management, encompassing project and site selection, operation, infrastructure building, plant set up and attracting talent.

Meanwhile, it enjoys strong ties with colleges and universities across the world, giving access to the business and innovation leaders of tomorrow.

"We have mobilized both national-and grassroots-level resources to get on board our platform," says Barry Yang. "For example, in this alliance we have government entities from multiple countries promoting cross-border investments, professional service providers, and an information database. In all, it's a comprehensive platform to make flows of information, talent and policy fluid and stakeholders' supply-and-demand seamlessly integrated."

Far more than just a helping hand

One of the main ways SIP aids Chinese companies that are seeking to make outbound investment is helping them to overcome their inexperience. This is done with a raft of support services, including access to a vast database of information, as well as expert advisors who are well versed in the intricacies of foreign markets.

Barry Yang points out that there are a number of ways companies can invest overseas, and that SIP can provide guidance as to which is most appropriate.

"Many foreign countries welcome the setting up of local industry parks, and this is something we can share our experience and expertise in," he says. "As for M&A's or capital-leverage investment, we have well-networked support from, and connection with, capital markets, private equity and big funds, and can leverage their financial service capabilities."

SIP can also offer subsidies to qualified outbound investment enterprises for their preliminary expenditure, office rent, international market and training.

One of the program's biggest attractions is its Professional Service Provider Alliance, which is composed of law firms, accountants, banks, tax and business consultants, insurers and government entities in target markets.

"The platform helps to fill in the knowledge and service gaps that have so far made it difficult for Chinese companies to look at overseas opportunities," says Jiang Ying, Vice President of Deloitte China, which is a member of the alliance. "By being a one-stop shop of services - including a database of available overseas projects, experts to help with the process and a platform through which companies can share their experiences - it makes it easier for companies to walk a path that previously was filled with many unknowns and potential pitfalls."

Win-win for all parties

The program is proving attractive to overseas partners, not just in terms of garnering investment, but also when it comes to forging relations, sharing insight on best practices, and building strong bonds for future collaboration.

SIP has received as many as 100 delegations from countries and regions like Belarus, Africa and Southeast Asia, who came to learn about the process and best practices in terms of cross-border investment.

As well as learning how to attract and retain Chinese investment, the delegates were also interested in learning the wider benefits of industrial parks as effective leverage in national economic growth, of which SIP is a shining example. SIP has even set up training centers abroad for the development of overseas executives.

"China has a very good and learnable model in this regard," says Barry Yang. "I do believe that this type of intangible, knowledge-transfer is a part of our notion of 'going out.' Indeed, it makes the notion more meaningful."

The growing tide of outward investment, as facilitated by SIP, will also have wider benefits for the country's overall economy, according to Yang.

He believes it will help Chinese companies engaging in overseas investment to deal with an increasingly sophisticated and crowded domestic market.

"In terms of transformation on the domestic front, keeping an open mind is key - it shouldn't be that, whenever we talk about R&D or self-dependent innovation, it means closing the door to the outside," Yang says. "Orienting toward innovation means FDI will no longer be the sole target."

He emphasized that key to attracting good companies is building an environment that can attract and retain top talent. "They are the ones who will drive growth," he says. "Elite talents, of course, have higher requirements in terms of living standards, including hospitals, education and culture. On that end, SIP has the advantage over other places because of its unique mix of rich historical heritage, modernization and livability."

The wider transformation that SIP is promoting through its overseas investment initiatives feeds not just into the development of domestic companies, but also into the mindset of policymakers.

"How the government and administrators perform their functions has to be updated, along with the changing needs from the corporate side," said Yang. "Rather than holding that good infrastructure, hardware, policies and large capital inputs suffice to lure high-end business, we need to reinvent ourselves by adopting a new service-oriented mindset."

To this end, SIP holds a large number of networking events and seminars, has built information platforms, and has facilitated a better pipeline for coveted talents.

"One highlight endeavor of recent years was to streamline all cross-function processes, from corporate registration to administration, taxation, supervision and legal enforcement processes - thereby creating a one-stop shop of regulatory services," Yang says.

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