Chinese firms urged to avoid past mistakes of Western multinationals in Africa

23 August 2012

Delivering the keynote address at the opening ceremony of the 2012 China Overseas Investment Summit in Hong Kong yesterday, UNCTAD Secretary-General Supachai Panitchpakdi urged Chinese business leaders to avoid the mistakes made by Western multinationals in Africa, and 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", Dr. Supachai told the audience of more than 1,200 government officials, business investors, senior managers and experts from over 40 countries and regions, including leaders of China’s state-owned enterprises and top 500 private enterprises.

The theme of this year's 2-day summit is "Global Economic Transformation and New Approaches to China's Overseas Investment", in the context of accelerating implementation of the "go global" strategy under China's 12th Five-year Plan.

Noting that 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, Dr. Supachai said Chinese overseas investment is now having a growing impact on today’s global economy. Chinese firms have already acquired a range of assets and companies in developed countries. In developing countries, their investments in the extraction of natural resources have in some instances given a much-needed growth impetus to domestic economies, which is especially welcome for the poorest nations in Africa.

Over the past decade, the China’s outflows of Foreign Direct Investment have grown by a compound average rate of 25 per cent, compared to 9 per cent for all countries. China now ranks 9th among the top 10 investing countries globally, with FDI outflows in 2011 standing at $65 billion. 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, this picture is beginning to change, and a growing share of FDI to developing countries is in other sectors.


" 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 "
UNCTAD Secretary-General   
China Overseas Investment Summit 2012   
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, Dr. Supachai said. Nevertheless, it presents both challenges and opportunities for maintaining the competitiveness of Chinese firms. The key is to recognize the importance of global value chains, and the need to move up the value-chain, he said.


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, Dr. Supachai advised. 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, particularly in Africa, which with an emerging population and a large market, could prove a real opportunity for Chinese manufacturing and services firms.

In this process, Chinese companies should seek to diversify their investments in Africa, extending from natural resources and construction industries to sectors such as automobiles, IT, electronics, and solar power, he said.

Dr. Supachai noted that at the China-Africa Forum held last month, President Hu Jin-tao pledged $20 billion in new loans to Africa, promising funding for infrastructure, agriculture, manufacturing, and small and medium enterprises.

However, there are of course pitfalls associated with the extension of global value chains into Africa by Chinese multinationals, Dr. Supachai cautioned.

Another related issue raised by Dr. Supachai, was that of investing in people. To maintain competitiveness, it is simply not enough to find low-cost labour and make use of it, he said. Instead, the smart strategy is to invest in them so that business can be upgraded to ensure long-run sustainability.