Overseas Investment State-owned and Private Enterprises Face Success or Failure
More than 90 percent of over 20,000 Chinese enterprises investing overseas are loss making, whether state-owned, central or private enterprises, admits mainland official. Mao Yushi, mainland economist points out that most of the state-owned enterprises fail to get overseas investment, but with private enterprises it’s to the contrary. Why there is so much difference between state-owned and private enterprises in overseas investment? Let’s see the detail.
Wang Wenli, vice president of the China Council for the Promotion of International Trade (CCPIT), disclosed Chinese companies invested 80 billion dollars in the US, involving computers, wind power projects, mechanical and real estate. A large part of the investment, about 20 billion dollars are in real estate
Media and academics often discuss reasons for the lack of overseas investment in Chinese enterprises. These include: different political systems, results in different economic operating modes and different business operation ideas. For example, the function of trade unions is completely different between China and other countries. Chinese environmental standards fall short of international so the additional investment needed is unprofitable. The mature Western market economy opposes monopolistic behavior from Chinese state-owned enterprises and so on.
Mao Yushi: “it’s a common problem due to different cultures, environment and systems. We cannot say 100 percent failure because most private investment is a success. The losers are mainly the state-owned enterprises because they spend other people’s money and do not care.So the 90% means the state-owned enterprises; the private enterprises are to the contrary, 90% successful."
Lloyd Blankfein, head of Goldman Sachs, in the top US 500. points out that we need to distinguish between Chinese private and state-owned enterprises in investment. For China state-owned enterprise investment and acquisition, US regulators need to consider not only national security, but also whether the intention of their economic behavior is for business or nation. There is actually only one controller for the different state-owned enterprises – the Chinese authorities. So they are subject to U.S. domestic antitrust law constraint.
Political commenter Lan Shu: “the official enterprise operation is not much different in China because it is still a government enterprise operation under the same totalitarian system. Their processes include decision-making still not using international standards which leave their marketing sensitivity, marketing and customer service processes a long way to go."
According to a mainland media report last year, China’s overseas mining investment failure rate is up to 80 percent. For example: Australia is a mining country, but China mining investment there dropped to its historic lowest point in the first half last year. Chang Yuguo, director of China Mining Association International Finance Project disclosed, China has very little success in investment in potash and iron ore areas. The Chinese Communist Party Ministry of Land Resources and Commerce entrusted the Mining Association to release the report showing that investment in potash and iron ore has slowed
But more and more mainland private enterprises are on the world economic stage. Shandong private enterprise Yuhuang Chemical Company announced late July investment of 1,850 million dollars to build a world-class methanol production plant in the US. They picked abundant natural gas resources and the lowest market price in the world in the US.
Mao Yushi: “most private enterprise investment is successful. State-owned enterprise investment not only failed in foreign countries but also in China. The core issue is not between a foreign country or China, but between state- or private-owned enterprises. Chinese private enterprise investment is all successful no matter in Southeast Asia, or in Europe and Africa. “
Many years ago, mainland economists pointed out that the reason that the state-owned enterprises fail overseas investment is because they do not understand the overseas environment; lack investigation and blindly invest in construction projects. They can’t avoid weakness to go from the actual, but want to compete with local successful enterprise; lack the real talents to adapt to local market needs; manage in semi-government status not market-oriented; adopt inadequate monitor mechanisms with unfair distribution; transfer state assets with ill will.
Ms. Gao who lived abroad for many years revealed that her husband worked in the embassy in foreign countries after he graduated from Peking University Foreign Language Department, then worked in overseas state-owned enterprise offices. Their work is done by domestic instruction. If officials or business executives visit, they have to try their best to welcome them by leaving their work.
Interview & Edit/TangYin Post-Production/Chen Jianming