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Ladies and Gentlemen,
It is a great pleasure and privilege for me to participate in this second China Overseas Investment Summit, and to reflect with you on the future opportunities and challenges for China's overseas investment. And there are certainly many opportunities.
After China's spectacular growth over the past decades has already made it a major trading power, as well as a favoured destination for inward investment, the country is now becoming a key source of overseas investment. Chinese firms have already acquired a range of assets and companies in developed countries, including household names, in for instance, the auto and electronics industries. In developing countries, their investments in the extraction of natural resources have in some instances given a much-needed growth impetus to their economies, which is especially welcome for the poorest nations in Africa. As a result, Chinese overseas investment is having a growing impact on today’s global economy.
Over the past decade, the China’s outflows of Foreign Direct Investment (FDI) have grown by a compound average rate of 25 per cent, compared to 9 per cent for all countries and 6 per cent for traditional investors from developed economies. As a result of this rapid expansion, China now ranks 9th among the top 10 investing countries globally, with FDI outflows in 2011 standing at $65 billion. During the year, Chinese TNCs concluded $34 billion in net M&A purchases, of which 64 per cent targeted developed economies, and announced $40 billion in greenfield projects, of which 74 per cent were in developing economies, especially in Asia and Africa. While the bulk of this FDI in developing countries continues to be resource-seeking FDI, with roughly half of Chinese M&A purchases and greenfield investments in the primary sector or related industries, such as refining, this picture is beginning to change, and a growing share of FDI to developing countries is in other sectors.
Ladies and Gentlemen,
As the theme of this summit reminds us, the global economy is in constant transformation. It is quite appropriate therefore that we have gathered here today to discuss and exchange our views on a new approach for Chinese overseas investment, both for Chinese businesses and recipient economies alike, in order to build more fruitful investment synergies between China and the rest of the world.
Chinese firms have come a long way in developing their competencies over the past decade. Through transfer of technology in various forms, through acquisitions of foreign strategic assets, through forming joint-ventures and, of course, through undertaking their own research and development, Chinese firms have accumulated a considerable degree of technological and managerial expertise. Their growing prowess will play an increasing role in sustaining the impressive growth of the Chinese economy year after year.
One of the side-effects of the success of the Chinese economy, however, has also been a slow rise in costs. This is the path all industrialized economies have gone through, and it is almost a natural corollary of the rise in the living standards in the country. Nevertheless, it presents both challenges and opportunities for maintaining the competitiveness of Chinese firms. The key to the answer is to recognize the importance of global value chains (GVC), and the need to move up the value-chain.
In today’s world, the production processes in many goods and services are highly and systematically fragmented, providing firms with the opportunity to allocate them across the world according to the particular advantages each location offers. Indeed, the production facilities that foreign multinationals established in China often represent a small segment of such a global value chain.
In order to sustain their competitiveness and to evolve into truly world-class players, the next step for Chinese firms is to leverage their accumulated managerial and technological competences to move into more knowledge-intensive activities and to develop or extend their own global value chains. Rather than remaining confined to certain segments of the value chains, as determined by the actions of foreign multinationals, Chinese businesses can participate in, and govern, salient value chains as a whole. For instance, as the Chinese economy becomes more knowledge and capital intensive, there may be advantages for Chinese firms to locate more labour intensive activities to other developing economies. In particular, I would like to draw your attention to the possibilities in Africa in this context.
Here is a continent with a young, burgeoning population, growing markets and improving infrastructure. And yet, most economies on the continent are dominated by natural resource extraction and are struggling to diversify. Governments in Africa are keenly aware of the need for diversification; and the next stage of outward investment from China may represent one opportunity. At the same time, there are clear opportunities for Chinese manufacturing and services firms to develop and extend their value chains to Africa.
This may seem to be a pipe-dream. After all, the distances are great, geographically and culturally. But the same was said of United States investment in South East Asia in the 1970s, which in essence was the progenitor of the modern GVC. I am sure you will all recall the China-Africa forum held last month, at which President Hu pledged $20 billion in loans to Africa, promising funding for infrastructure, agriculture, manufacturing, and small and medium enterprises. The support of both China and African governments are forthcoming. It represents a real opportunity for Chinese firms to extend globally.
Indeed, investments in manufacturing and services by Chinese firms are already beginning to take root. Although a large part of investment projects in manufacturing and services in Africa are related to natural resource extraction such as oil refinery and power generation, Chinese manufactures of automobiles, cement and solar panels, to mention a few examples, are setting up production bases in all corners of Africa. Some of this is linked to infrastructure projects that Chinese firms are involved in across the continents, as well as market opportunities for manufactured goods. Huawei's electronics and IT infrastructure operations - for instance - have found willing customers in every corner of Africa. Most manufacturing investments are established to supply local markets but some are aimed at serving the regional market or even markets outside Africa. I believe this is a very encouraging development.
There are of course pitfalls associated with the extension of GVCs into Africa by Chinese multinationals. I would implore Chinese business leaders to avoid the mistakes made by Western multinationals. In today's inter-connected world, the reputational damage could have far reaching consequences. Environmental damage or social conflicts associated with a multinational in a particular location can and will hamper the global operations of the company. Therefore I would urge Chinese business leaders to take corporate social responsibility seriously. Simply adopting the right policies and measures may not be enough. Chinese firms must make sure that all stakeholders are positively aware of their commitments regarding environmental, social and governance issues.
Another issue I would raise with Chinese business leaders is investing in people. All global companies invest in their employees at home and abroad. To maintain competitiveness, it is simply not enough to find low-cost labour and make use of it. Instead, the smart strategy is to invest in them so that business can be upgraded to ensure long-run sustainability.
Ladies and Gentlemen,
You may recall that in the year 2000, world leaders came together for the Millennium Summit in New York and adopted the Millennium Development Goals, including the goal to reduce extreme poverty. Economic growth in China has been the single most important factor in making progress towards these goals on a global basis. We applaud the contribution of Chinese policymakers and business leaders in this regard. In years to come, I believe that Chinese businesses can contribute to lifting people in other countries and continents out of poverty. This is why I wish this summit every success.
Thank you very much.