China CITIC Bank International (CNCBI) expects the flow of China’s outbound foreign direct investment (OFDI) to grow at a CAGR of more than 20% in the next five years, subsequently reaching over $200 billion in 2017.
This is the view of Liao Qun, chief economist and general manager of research department of the bank.
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In the China report titled A New Era of Chinese Enterprises Large-scale "Going Out": opportunities and challenges published, Dr. Liao points out that Chinese enterprises "going out", that is, Chinese enterprises’ outbound direct investment achieved overstepping progress in the last 10 years as evidenced by the increase of OFDI flow and stock of 47.9% and 35.2% CAGR respectively.
However, various indicators have shown that the current scale of Chinese enterprises "going out" is still far from commensurate with China’s economic status in the world. As such, Chinese enterprises must "go out" on a larger scale.
Liao explains the motivations for Chinese enterprises large-scale "going out" in view of the country’s external and internal demands. Externally, the real economies in countries across the globe including developing and developed countries have huge demand for capital despite global liquidity affluence.
Internally, the needs for acquiring markets, resources and technologies & brands as well as for reducing costs require Chinese enterprises to "go out" on a larger scale. The demand for learning and training in international markets and setting up overseas
one-stop service infrastructures for China’s trade and investment generates further needs for Chinese enterprises to "go out".
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By GlobalDataLiao notes, Chinese enterprises’ hard power including business scale and capital sizes are obvious, and their soft power is also growing increasingly. In addition, supported by China’s vigorous implementation of its "go out" strategy and the country’s
high foreign exchange reserves strategy, Chinese enterprises are increasingly equipped with the prerequisites for "going out" on a large scale.
Despite this, challenges remain enormous. External challenges stem from rising investment protectionism overseas and increasing risks in the global investment markets, remarks Dr. Liao. Internal challenges, meanwhile, emerge from the scarcity of international management experience, inadequate assessment of the global investment environment, a lack of international talent and so on.
The key to overcome such challenges, the report suggests, is for Chinese enterprises to muscle up. To this end, Chinese enterprises must establish a genuine modern enterprise system and innovation-promoting mechanism; learn how to handle overseas investment disputes; build up a global investment environment assessment system, accelerate the cultivation of international management talent, and upgrade its overseas investment strategy towards the high-end of the investment chain.
