High stakes in investment race

The Chinese companies making the running in ODI remain China's large State-owned enterprises (SOEs). Sixteen of the top 18 Chinese multinationals with the biggest holdings of foreign assets are SOEs, according to a survey by the Vale Columbia Center, part of Columbia University in the United States.

The only two private sector companies making the top 18 ranking were Lenovo Group, which bought IBM's PC division for $1.25 in 2004, and Haier, the Chinese consumer goods maker which has operations around the world.

CITIC, the State-owned investment company had the largest holdings with $43.75 billion of assets, more than double the next biggest investor China Ocean Shipping Company with $20.34 billion.

Other companies with major holdings include China National Petroleum Corporation ($9.4 billion), Sinochem Corporation ($6.4 billion) and China National Offshore Oil Corporation ($5.25 billion).

"Chinese ODI is still very much a State-owned enterprise phenomenon. I think this can sometimes act as a barrier to the growth of Chinese overseas investment," says McKern at CEIBS.

"There are concerns in some countries about the governance of these companies and their level of disclosure. I also believe there is a lot of ill-informed nationalism that comes into play."

China's SOEs are perhaps also not naturally equipped to nimbly buy up assets around the world as and when they like.

Their decision making processes often tend to be slow and they might not be quick enough to respond to an opportunity should it arise.

"There is a lot of evidence that State-owned firms have difficulty getting deals concluded," adds Innes-Ker.

"When a foreign company comes up for a takeover, Chinese SOEs tend to be like lumbering giants. If, for example, a valuation rises above an initial bid, they often have to go back to the ministry to make a higher bid and this can take a couple of months. By then, it is often too late."

But the European Council on Foreign Relations, a think tank, insists that far from being "lumbering", China is actually engaged right now in a full scale "buying up" of Europe.

In a paper published on July 11, entitled "The Scramble for Europe" it compared China's activities in Europe with that of the colonial powers in Africa in the 19th Century.

Jonas Parello-Plesner, co-author of the report and a senior policy fellow at the ECFR based in London, believes China has now moved away from a resource industry ODI model and is looking to acquire technology businesses in Europe.

"There has been an exponential rise in China's ODI in Europe over the past year, particularly the beginning of this year. Some of the single deals done now dwarf what has been done in the past," he says.

Parello-Plesner also says that China is rewriting the ODI rulebook in that it invests in areas where it has weaknesses whereas most acquisitions tend to be in areas where companies have strengths.

"China is looking to move up the value chain and it wants both technology and brands and that is what Europe has to offer," he says.

Many believe China's ODI ambitions will only be realized when China's capital markets open up further and it becomes easier for money to leave and enter the country.

There still remains the prospect even now of a very significant acquisition that will send a signal that the Chinese have arrived.

Some speculate that such a multi-billion-dollar purchase of a troubled European bank such as the Royal Bank of Scotland might be such a breakthrough deal.

Lu Jinyong at the University of International Business and Economics in Beijing has no doubts this could happen.

"I think a takeover of that order could happen at any point. I think if they were willing to sell it, we would be willing to buy it."