Companies expected to boost overseas investment

Almost 90 percent of domestic companies involved in international trade plan to increase overseas investment, a survey reveals.

Of the 1,024 companies surveyed, about 88 percent say they want to boost investment overseas over the next two to five years, a sharp rise from a year earlier when 61 percent of the firms surveyed said they planned to expand investment.

The China Council for the Promotion of International Trade (CCPIT) and the United Nations Conference on Trade and Development conducted the survey between December and March.

Li Xiaojing, head of the Bank of China's financial market department, says overseas investment will help diversify some of the country's high foreign exchange reserves. China's foreign exchange reserves, the world's largest, hit $3.04 trillion (2.05 trillion euros) at the end of March.

Asia, Europe and North America will be prime destinations for investment and Africa is gaining increasing importance as 22 percent of the firms surveyed had already invested there.

However, overseas investment remains small with about two-thirds of the companies surveyed investing less than $5 million in 2010. Only 8 percent made investments of more than $100 million.

In the next two to five years, about 30 percent of the companies surveyed expect to invest more than $5 million.

The central bank in January allowed the yuan to be used in direct overseas investments. Asia and South America will be potential markets, at least in the initial period, Li says.

But Jia Huai, the survey's project director, says he believed many companies still lacked the technical knowledge to take advantage of the yuan policy but it was a step in the right direction.

Sun Lujun, director of the capital management department of the State Administration of Foreign Exchange, says that the new policy will facilitate overseas investment and better support companies seeking markets overseas.

Sun also says China will continue to loosen restrictions on capital control and facilitate overseas investment by the end of 2015.

In addition to traditional investment models, such as building plants or upgrading existing facilities, a growing number of companies are looking at mergers and acquisitions.

Chinese investment overseas through mergers and acquisitions in 2010 was worth $23.8 billion, accounting for 40 percent of total investment.

Last year saw a new wave of companies targeting overseas acquisitions, including the high-profile private automaker Zhejiang Geely Holding Group buying Volvo Cars and Sinopec Group acquiring a stake in Repsol's Brazilian subsidiary.

Companies investing overseas traditionally favored the machinery and textile sectors, but recently investments in agriculture, mining and energy have surged, the survey says.

Other sectors are also attracting interest. "High-tech and clean energy technology companies are becoming hot targets for overseas mergers and acquisitions," says Xu Weiqing, an analyst with Zero2IPO Group, a capital market research company.

In 2010, Chinese firms invested in 3,125 overseas companies in 129 countries and regions and total direct investment in non-financial sectors rose 36 percent to $59 billion.

China has become the world's second-largest acquirer of foreign companies, only next to the United States, according to a recent research by the Chinese Academy of Social Sciences.

But a lack of diversified fundraising channels also restricts investment overseas, the survey shows.

"Fundraising difficulties and lack of international operation experience are major limitations for Chinese companies hoping to expand overseas, especially for small- and medium-sized enterprises," says survey project director Jia. Using the companies' own capital and borrowing from banks are the two main channels for overseas investment, Jia says.