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Print Edition> Nation
UPDATED: October 25, 2010 NO. 43 OCTOBER 28, 2010
Investment Moves Up and Out
Chinese companies look to make global names for themselves by eyeing overseas markets and expansions

Establishing a long-term mechanism to expand consumption, as well as optimizing investment structures and quickening the pace for building a new growth pattern, were at the top of discussions at the Fifth Plenary Session of the 17th Central Committee of the Communist Party of China held in Beijing from October 15-18.

Two years after the sweeping financial crisis, the Chinese economy quickly recovered. Policy-makers doled out a handful of powerful stimulus measures that swiftly restarted the country's growth. Consumption is now bursting—one example being the auto industry where sales are booming, enabling China to replace the United States as the world's top auto market. Meanwhile, hard-hit exporters healed their pains, though trade protectionism and an appreciating renminbi still threaten their stability.

Overall investment picked up momentum as well, providing a driving force for economic recovery. While domestic investment continued to roar, more Chinese entrepreneurs expanded abroad.

China's outward direct investment came in at $56.53 billion in 2009, the largest among developing countries, said a recent Ministry of Commerce report.

By the end of last year, Chinese enterprises had established at least 13,000 companies in 177 countries. The manufacturing industry has been the most coveted area for Chinese investment, followed by the wholesale and retail sectors and tenancy and business services, said the report.

For many an ambitious company, the prospect of laying a cross-border foothold is truly tantalizing. Successfully expanding overseas takes production closer to the markets it serves and generates greater returns from the economy of scale. Overcapacity at home and a stronger yuan are also forces pushing Chinese capital offshore.

As domestic firms try to graduate from low-cost manufacturers, mergers and acquisition (M&A) are proving to be a convenient route to the world stage. A total of 99 outbound M&A deals were announced in the first half of this year, surging 50 percent from one year ago, said a report by the international accounting firm PricewaterhouseCoopers (PwC).

The buying spree was driven partly by China's thirst for natural resources. In the latest move, China National Offshore Oil Co. Ltd. (CNOOC), the country's largest offshore oil and gas producer, on October 11 agreed to pay $1.08 billion for a one-third interest in a shale oil and gas project of the U.S. Chesapeake Energy Corp. This is its first acquisition in the United States after the failed Unocal Corp. bid in 2005.

While Chinese investments flow outward, the obstacles are usually hard to overcome—a lack of experience with cross-border operation or marketing to sophisticated consumers, and sometimes tough regulatory hurdles stand in their way.

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