Rules for Chinese Overseas Investment Relaxed, Guidelines Issued

Posted by Reading Time: 2 minutes

Apr. 13 – The Ministry of Commerce released its first guidelines for overseas investment by Chinese companies on Friday. The document, encompassing some twenty countries approved by the central government to receive Chinese investment, are part of the ministry’s strategy to assist Chinese companies abroad and come on the heels of last month’s relaxing of government requirements to invest abroad.

In March, the central government reduced the approvals process to provincial or municipal level for investments of US$100million or less. Previously, state level approval was needed. It is understood that state level permission may still be required to obtain approval for investing in countries other than the twenty designated nations.

The moves come as China seeks to encourage overseas investment and at the same time take advantage of deflated asset prices overseas, including the acquisition of foreign companies, many of whom are perceived as potentially struggling with cash flow problems as domestic markets in the United States and Europe continue to remain deflated. China’s overseas investments have shown significant increases over the past few years. Chinese outbound investment rose by 63.5 percent in 2008 to US$41 billion in the non-financial sector.

Certain Chinese companies, such as those involved in domestic infrastructure projects, could stand to reap benefits, especially in markets in Africa and India, where infrastructure is often dire and local political issues, coupled with the high cost of Western-based project businesses, have proven insurmountable. Lower cost Chinese business models, based on smaller wages and an ability to accept lower standards of living in developing countries, may start to make Chinese firms far more attractive in competing for tenders for road, rail and other transportation links across the Asian sub-continent and Africa. At the same time, Chinese companies have long cherished the idea of infiltrating the American supply chain industry and beginning to make margins on the delivery, logistics, and point of sale services of what in many cases are Chinese made goods, sold across the United States.

In terms of Asia, New Delhi has apparently been tendering for security expertise in the buildup to next summer’s Commonwealth Games at which 71 competing teams will participate, and Chinese expertise in this, on the back of a successful Olympics last year, is increasingly being seen as the benchmark to reach. The Ministry of Commerce is increasingly taking a bilateral view to China business, and the new guidelines firmly point the direction in which China now sees its domestic businesses going, overseas.

Meanwhile, China’s first overseas investment fair – the China Overseas Investment Fair– will take place from November 3-7 at the China World Trade Center in Beijing. Details of the event can be found at their website.

This article has been amended to reflect the following correction:

Correction: May 19, 2009
The first overseas investment fair was misidentified as the China International Industry Fair to be held in Shanghai.