China to Micro-monitor Overseas Operations of its Firms

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Last updated at: (Beijing Time) Monday, December 16, 2002

China to Micro-monitor Overseas Operations of its Firms

China, a powerful magnet for foreign investment, is mulling over how to improve its capital presence overseas, and a new micro-monitoring system is proof of the government's ambition.

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China, a powerful magnet for foreign investment, is mulling over how to improve its capital presence overseas, and a new micro-monitoring system is proof of the government's ambition.

An official from the department of foreign economic co-operation with the Ministry of Foreign Trade and Economic Co-operation (MOFTEC), said the new system - which appraises overseas investments by domestic companies - will be effective from next year. Appraisals will be conducted each April.

The purpose of the appraisals is to ensure the healthy development of the overseas business operations set up using China's investment, the official said.

The annual appraisals will be jointly carried out by MOFTEC and the State Administration of Foreign Exchange.

Different aspects of the overseas operations of Chinese companies will be assessed, including the efficiency of capital operations and asset quality, the official said.

The government has encouraged domestic companies to expand overseas to make them more globally competitive.

According to MOFTEC statistics, the government had approved overseas investments of 6,849 domestic companies by the end of September, with a combined contracted investment of US$13.5 billion.

But the lack of a tracking system, among other reasons, caused some of the investments to perform badly.

Academic research has found that less than half of the foreign Chinese-invested operations are making a profit.

The new appraisal system shifts the government's focus from approval before the investment to the monitoring afterwards, the MOFTEC official said.

If the foreign operations fail to pass the annual appraisal, their applications for foreign-exchange buying, new investment and new personnel will not be approved.

Li Gang, a senior expert with the Chinese Academy of Foreign Trade and Economic Co-operation, a MOFTEC think-tank, said the new system indicates the government's determination to gradually reform the current management framework for Chinese investment overseas.

The old management system, centered on approval procedures, does not suit the "going out" strategy proposed by the government in 1999 to create Chinese multinationals, Li said.

The approval system, with its jumble of procedures, adds to the investment costs of quality companies, while the lack of monitoring allows State assets to drain overseas, Li said.

The government has initiated many favourable loan, tax-rebate and equipment-export policies for these overseas investors.

But responsibility for the policies is shared by various departments, making them hard-to-gather carrots, Li said, adding that a single panel should be given control of all of them.

Cheng Keqing, an official from the China International Marine Containers (Group) Co Ltd echoed Li's call to streamline the procedures.

Overseas investment takes at least seven months to get going even if it is a small amount, he said.

As China is poised to edge out the United States for the first time as the largest recipient of foreign direct investment worldwide this year, it is also expected to be an important investor.

Jiang Xiaojuan, an analyst from the Chinese Academy of Social Sciences, said according to research by the country's highest-level think-tank, a country's investment overseas tends to stay at the same level relative to investment flowing into the country.

The proportion is about 25 per cent of the incoming investment, she said.

With this in mind, it's easy to predict that China's overseas investment is due robust growth.

Foreign direct investment in China hit US$48 billion in the first 11 months of this year, up 14.59 per cent from the same period last year.

The government pledged in its 10th Five-Year Plan (2001-05) to provide a supportive policy framework to create favourable conditions for enterprises to establish overseas operations.

The plan said a "going out" strategy will be implemented to encourage enterprises with competitive advantages to make investments abroad, establish processing operations, win contracts for international engineering projects, and increase the export of labour.

So far China has signed investment-protection agreements with 103 countries and regions and agreements to avoid double-taxation with 66 countries and regions. (China Daily news)

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