Breaking down China’s overseas investment, Part II: A source of warmth amid economic chill

During the global financial winter, a breeze of fresh air from Chinese investors bring warmth

Since the outbreak of the global financial crisis, China’s outbound investment has proved to be the answer to the ailing economies’ prayers. Chinese investors have lent a big hand in helping them get their economic houses in order and enhance their economic prosperity.

The Tangible Wealth

From a global perspective, the increasing Chinese overseas investment has had a positive impact both upon the world economy and China’s trading partners.

“As global financial woes spread, China’s outbound investment provided timely support for the world’s financial sector and, to a large extent, eased the financial crisis,” remarked Shi Mingshen, one of China’s most influential financial commentators.

“It is evident that China’s direct outbound investment could help boost international trade while avoiding trade frictions with the country’s partners,” Cui Xinjian, a professor and deputy dean of the School of Business at Central University of Finance and Economics (CUFE), observed.

“If China’s outbound direct investment (ODI) continues to grow at this rate, it will surpass the country’s foreign direct investment (FDI) in a few years, and that would be potentially beneficial to China’s export partners,” said Kevin Chu, a senior business consultant and former Chinese diplomat.

From the host countries’ point of view, Chinese investment may bring them a wealth of benefits, including both the tangibles and intangibles.

Increased tax revenues and more job opportunities are the most tangible ones.

According to official statistics, in 2011 alone, Chinese companies operating overseas paid a total of more than $22 billion in taxes to the host countries.

While some Western politicians often raise fears about Chinese investment stealing jobs, statistics and studies showed a totally different picture.

According to China’s official statistics, by the end of 2011, the total number of the employees working in overseas Chinese enterprises was 1.22 million, 888,000 of them were foreign workers, and 100,000 were from developed countries.

In 2011 alone, Chinese companies operating overseas hired as many as 1.2 million people, the statistics showed.

Chinese lighting giant NVC has a fully owned subsidiary in the United Kingdom. Out of the 80-plus employees at its Birmingham factory, only three are Chinese, whose main job is to liaise with NVC’s China factory on the dispatch of product orders, said Gerry Pass, director of NVC UK.

A report issued in October by Rhodium Group, a New York-based consultancy that analyzes global trends, showed that “the 600 Chinese direct investment transactions made between 2000 and 2012 support 27,000 jobs in the US today.”

“Chinese investment helps create new jobs in a much more profound way than the US official statistics show,” said Daniel Rosen, cofounder of Rhodium. “At least 30,000 people have benefited from new posts set up by Chinese companies in the country. That figure is five times higher than records from US government agencies.”

The study also found that more than $3.5 billion worth of greenfield investment, or investment in new facilities, has added 8,000 US jobs since 2000.

Rhodium predicted that, by 2020, there would be 300,000 Americans on the payroll of Chinese companies’ US affiliates should the United States could attract between $150 billion of Chinese outbound investment.

The Intangibles

For the past decade, Chinese overseas investment has not only brought tangible benefits to the table, but also the intangible ones.

One that is under the radar is that Chinese companies investing in overseas businesses may help them tap the vast Chinese market.

Fosun International, a major private Chinese investment group, acquired a 7.1 percent (later raised to 9.3%) equity stake in the French luxury resort operator Club Med in June 2010, and bought 9.5 percent of the Greek luxury brand Folli Follie Group in May 2011. Fosun subsequently used its own resources and expertise to help both brands strengthen their presence in the Chinese market. Club Med’s first Chinese resort followed six months after Fosun partnered with the French leisure company.

This practice of working in partnership with some foreign businesses has been shared by many other Chinese companies, which acquire minority stakes in overseas corporations.

“Many foreign businesses would like Chinese investors to acquire minority interests in their operations, because it will help them enter the Chinese market more easily,” Dr. Cui with the CUFE told this journalist.

“The commonly mentioned benefits that Chinese overseas companies brought to the host nations are their investments in the local people’s livelihood.”

Chinese overseas businesses have been actively involved in promoting such social benefits as investing in local infrastructure, exporting technologies and training services as well as carrying out charitable activities, among others.

In Africa, apart from exploiting copper mines and oil, Chinese enterprises also made investment in the construction of processing plants and refineries. They improved local labor force’s skills through technical training; they built hospitals and schools, paved roads and dig wells; they donated money to carry out the “Brightness Action” activities, helping more than 1,000 local cataract patients have their sight recovered, according to various media reports.

Furthermore, China continually sends such skilled staff as seafarers, medical care personnel, teachers and engineers to work in Africa.

“To the best of my knowledge, most Chinese companies operating overseas have been well aware of their corporate social responsibilities (CSR), and indeed did a lot of work on improving local people’s livelihood,” Dr. Cui said.

Vivid Cases

Real cases speak louder than words. The followings provide a glimpse into how Chinese investors have helped their overseas businesses get the ‘houses in order’.

In January, China’s leading heavy machinery manufacturer Sany Group announced its acquisition of Germany’s largest concrete pump maker Putzmeister for $476 million.

“After the global financial crisis, the world saw a declining Europe and the U.S., and a developing China,” said Norbert Scheuch, CEO of Putzmeister. “The landscape of the global engineering industry has experienced a dramatic change.”

According to Scheuch, Putzmeister once inquired some European and U.S. engineering enterprises about whether they had any interest in acquiring the German pump maker. The feedbacks were either “a lack of capital” or having no interest to buy. The result was that, of all the eight bidders for Putzmeister, five came from China.

Sany Chairman Liang Wengeng promised that, after the merger and acquisition (M&A), Putzmeister would function as Sany’s overseas headquarter of concrete operations and maintain a high level of independence. Sany would ensure Putzmeister’s position as a high-end concrete pump manufacturer.

“There had once been 3,000 employees, but only 2,800 remained afterwards because of the business shrinking,” said Putzmeister CEO Scheuch, pointing to a large, empty room in the Putzmeister’s office building.

He said that, after the merger, Putzmeister’s operations remained the same, and no employees were laid off.

“Perhaps, we will even hire more staff in the future,” said Scheuch.

According to Lin Zuoming, president of the State-owned Aviation Industry Corporation of China (AVIC), the aviation conglomerate has acquired several foreign companies over the years. It follows the two following principles: 1) No layoff; 2) Helping those acquired companies to secure orders in the Chinese market.

“The biggest Australian aviation enterprise AVIC acquired has now turned around,” said Lin. “AVIC not only didn’t have any cut-backs, but add over 500 people to the payroll instead.”

Chinese lighting giant NVC’s fully owned UK subsidiary has received much support from its parent company in China while still operating as a UK company.

According to NVC UK director Gerry Pass, who has worked in the British lighting industry for 25 years before joining NVC UK in 2009, the Chinese parent company has invested heavily to help its UK subsidiary grow, but at the same time also allowed its British executives to make their own decisions.

He added that the salary and employee benefits that NVC UK offered are higher than those provided by many British companies.

“In these 10 years, Chinese overseas investors won and the world won,” remarked Dr. Cui.

Author: Li Zhenyu
Source: People’s Daily Online
Li Zhenyu authors the “Golden Decade” column for People’s Daily Online.