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Special> 40th Anniversary of Sino-German Diplomatic Relations> Beijing Reivew Exclusive> Features
UPDATED: February 8, 2012 NO. 6 FEBRUARY 9, 2012
Promising Future
China brings a sense of economic stability to nervous Davos
By Hu Yue

Going global

Cash-rich Chinese firms are accelerating their pace of going out, but their outbound forays are usually hindered with pitfalls, such as stringent political scrutiny. Some Western critics have even raised suspicions that China may be seeking to exploit the economic weakness of advanced economies to grab valuable natural and technological resources.

Richard Levin, President of Yale University, said the rest of the world could be grateful for China's current investment interest, as eventually the country of more than 1 billion people will have to start spending more of its cash on problems at home, including the lack of proper social security for an aging population.

Pascal Lamy, Director General of the World Trade Organization, said the prejudice problems would get worse as China's overseas investments shoot up. China's outbound direct investments in non-financial sectors grew 1.8 percent year on year to reach $60.07 billion in 2011, said the Ministry of Commerce. By the end of 2011, Chinese companies had established more than 18,000 overseas firms in 178 countries and regions.

One way for China to ease the rest of the world's fears about its extravagant corporate shopping sprees is to be more open about its vast poverty problem at home, said Lamy.

John Zhao, CEO of Hony Capital, a China-focused private equity investment firm, admitted there is some bad behavior by Chinese companies abroad. "But the vast majority of Chinese companies are trying to learn and follow the rules as they understand them," he said.

Zhao said he had lost out on investment opportunities because of the image problem, citing the example of a German company selling out to a French rival, even though he had offered a higher price.

Nasdaq CEO Robert Greifeld noted that Chinese companies aren't the only ones with a reputation problem.

"We in the Western world have had a long tradition of corporate misdeeds," he said, citing Enron of the United States and Parmalat of Italy, both of which collapsed after years of hiding massive holes in their accounts.

He Yafei, Chinese Ambassador to the UN Office in Geneva, said overseas Chinese firms should honor their corporate responsibilities, fully respect the cultural and religious traditions of local markets, and make greater contributions to local economic prosperity.

"The international community is also supposed to coordinate efforts to fight protectionism and create a fair and open investment environment," added He.

A stronger yuan

In Davos, the U.S. Treasury Secretary Timothy Geithner said China's currency exchange policies were damaging to not just their commercial economic trading partners but also the sustainable world trading system.

In response, Li Daokui said the attack is totally unfair as the yuan has been continuously appreciating.

"Perceptions about the yuan exchange rate in the international community are absolutely groundless, as the yuan is probably the only emerging economy currency that has been rising against the U.S. dollar since August last year," said Li. "Take India's rupee for example. The currency has declined about 20 percent against the U.S. dollar, while the yuan has been rising continuously," he added.

Since June 2010 when China restarted reform to the exchange rate regime of the yuan, the currency has appreciated by more than 7.5 percent against the U.S. dollar.

Taking into account the higher rate of domestic inflation in China than in the United States, the yuan has appreciated even faster against the U.S. dollar, added Li.

Especially during October and November last year, many Chinese private investors started using the yuan to buy U.S. dollars, which is an indication that the Chinese currency is near an equilibrium level," said Li.

Because of a stronger yuan, China's trade surplus has shrunk to around 2.3 percent of the GDP in 2011, down from 8 percent in 2008, according to official statistics.

Email us at: huyue@bjreview.com

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