Finance:Go Out policy

Short description: Chinese national policy supporting overseas investment by Chinese companies

Go Out policy (Chinese: 走出去战略; pinyin: Zǒuchūqū Zhànlüè) is the People's Republic of China's current strategy to encourage its enterprises to invest overseas.

Most nations favour attracting inward foreign investment, and support outward foreign investment only passively. The People's Republic of China, however, attaches importance to both inward and outward foreign investment.

Causes

• The People's Republic of China has amassed huge amounts of foreign reserves, thus putting upward pressure on the foreign exchange rate of renminbi, the Chinese currency. Indeed, there have been much demand from the international community for the PRC to float its currency. In order to deflate that demand, the PRC seeks to employ its foreign reserves by acquiring assets overseas.
• The PRC is opening up the domestic market in mainland China as a result of its open door policy, which is further accelerated by its commitments when entering the World Trade Organization. Therefore, the PRC can foresee that world class competitors are now competing for business in the Chinese market, and so the PRC is seeking to equip the domestic firms and their management with international experience so that they can take the competition to the home markets of the foreign nations and so that they can compete better at mainland China's own domestic market.

History

The Go Out Policy (also referred to as the Going Global Strategy) was an effort initiated in 1999 by the Chinese government to promote Chinese investments abroad. The Government, together with the China Council for the Promotion of International Trade (CCPIT), has introduced several schemes to assist domestic companies in developing a global strategy to exploit opportunities in the expanding local and international markets.

The programs launched so far by the Chinese Government have these goals in mind:

1. increase Chinese Direct Foreign Investment (FDI)
2. pursue product diversification
3. improve the level and quality of the projects
4. expand financial channels with respect to the national market
5. promote brand recognition of Chinese companies in EU and US markets

Since the launching of the Going out Strategy, interest in overseas investing by Chinese companies has increased significantly especially among State Owned Enterprises. Statistics indicate that Chinese direct foreign investments rose from US$3 billion in 1991 to US$35 billion in 2003. This trend was underscored in 2007, when Chinese FDI reached US$92 billion. This boost in foreign investment can also be attributed to the Chinese Government's ability and commitment to create the right environment for foreign investment; and China's huge production capacity, coupled with low labor costs. With a dynamic economy, and a strong business-friendly culture, the outlook for Chinese companies will continue to be positive.

As part of its efforts to restructure state-owned enterprises, the Chinese government has established the SASAC (State-Owned Asset Supervision Administration Commission), which develops China's equity exchange market, while supporting Chinese foreign investments. SASAC's responsibilities include:

1. supervision and evaluation of state-owned enterprises
2. oversight of state-owned assets
3. recruiting of top executive talent
4. drafting of laws, administrative rules and regulations that promote increased development of corporate law in China
5. coordination of local state-owned assets as prescribed by law

The SASAC operates through several equity exchanges such as CBEX (China Beijing Equity Exchange), which is the largest and most prestigious in terms of trading volume. It is headquartered in the heart of Beijing financial district. Presently, CBEX has established three international platforms in Italy, Japan and the United States of America. The Italian CMEX (China Milan Equity Exchange), created in 2007, is CBEX's first international partner, operating as a liaison to facilitate the penetration of Chinese companies into the Italian and European markets and of European companies in China. Following the trend of the Go out policy, some of the most prominent Chinese professional institutions are expanding their business on the international markets. King & Wood Mallesons, the largest Law Firm in China with more than 800 lawyers and lobbyists, opened branches in various cities of the United States and Japan , while Grandall Legal Group (one of the most prominent Chinese Law Firms, with a staff of more than 600 professionals) through its International Department has established a European hub called the “China-Europe Legal Group” to assist Chinese companies in legal and lobbying work operating and expanding in Europe. Carone & Partners is a member law firm of the “China-Europe Legal Group” in Italy.

Recent examples of the Go out policy

The following list of M&A transactions performed by Chinese companies overseas are just some of the most notable examples of the successful implementation of the Go out policy:

• June 2009: Proposed purchase of Hummer by Sichuan Tengzhong Heavy Industrial Machinery Company
• February 2009: Chinalco injected $19.5bn cash into the Australian mining company Rio Tinto, increasing its stake from 9 per cent to 18 per cent
• February 2009: Minmetals unveiled a friendly A$2.6bn ($1.7bn) takeover offer for the Australian Oz Mineral
• September 2008: Zoomlion, controlled by the Hunan provincial government, bought a 60% stake in Compagnia Italiana Forme Acciaio, the Italian construction equipment & machinery company, with full takeover possible 3 years later
• May 2005: Lenovo bought IBM's personal computer division

There are also many more recent examples of smartphone app makers who have branched out globally.

See also

• Economy of China
• Foreign policy of the People's Republic of China
• SinoLatin Capital

External links

• National Development and Reform Commission
• Ministry of Commerce
• This Time, China Is Different by Chinese economist Chen Jing
• SASAC State-owned Assets Supervision and Administration Commission
• CBEX - China Beijing Equity Exchange
• CMEX - China Milan Equity Exchange
• GPKeyistone
• CPLEX - Carone & Partners Law Firm