Twists and turns for Chinese SOEs abroad

CHONGQING -- Chinese State-owned enterprises have learned the hard way to become internationally competitive as almost every successful overseas investment has involved a tough battle against unfamiliar legal and business environments.

Jiang Hong, an official dealing with overseas investment with the Chongqing Foreign Trade and Economic Relations Commission, told Xinhua on Thursday that it was not going to be easy to see the Municipality's 200-plus enterprises growing their business soundly overseas.

Citing the largest Chinese investment in Germany clinched between the State-owned Chongqing Light Industry & Textile Holding Group and auto part supplier SaarGummi in Berlin last June, Jiang said that the former's unfamiliarity with German laws posed a last-minute challenge to the 68-million-euro acquisition.

Under German laws, the liabilities of all subsidiaries of the company to be acquired must be taken over by the acquiring corporation. But one subsidiary of SaarGummi, assuming the parent firm's obligations, had been missed in the original acquisition agreement, said Jiang.

Chongqing Light Industry & Textile consulted their advisors with BNP Paribas and Ernst & Young, who suggested an outright purchase of the subsidiary from SaarGummi.

When SaarGummi agreed to sell it at one euro, however, Chongqing found itself unable to execute the contract because it had not been domestically endorsed to start any overseas investment, and a lack of a foreign currency account to transfer the one euro.

"If Chongqing Light Industry & Textile failed to tackle the one-euro problem, the massive acquisition contract would be a flop. So we facilitated the approval process and helped it set up its foreign currency account," said Jiang.

"When it comes to overseas investment, uncertainties might crop up anywhere. Chinese enterprises, especially the State-owned ones, must stay on high alert," said Jiang.

According to statistics from the Commerce Ministry, the direct investment made by Chinese enterprises overseas has reached $320 billion so far. In 2011 alone, China invested $60 billion abroad, 22 times of that in 2002. More than 80 percent of the total came from the SOEs.

From "wolf coming" to partners

As SOEs were born from the planned economy, which dominated China for nearly 30 years until the opening up and economic reform in late 1970s, foreigners felt uneasy with Chinese SOEs venturing into their territories.

"We felt they had sounded an alarm call to say 'wolves are coming'. As time passed, more foreign enterprises recognized the value of Chinese SOEs," said Jiang.

Zhang Wenkui, deputy director of the Enterprise Research Institute under the Development Research Center of the State Council, said SOEs were no longer the implementors of the patriarchal planned economy. Thanks to gradual shareholding reform, their ownership has been diversified.

Under China's Corporate Laws, both SOEs and private enterprises must strive to maximize corporate profits while in SOEs. Management face strict performance assessments to avoid losses in State-owned assets and to fulfill corporate social responsibility, Zhang said.

Bitter lessons

Going global is far from a smooth trip for Chinese enterprises, as nearly 30 executives of large multinationals warned at the annual advisory meeting for the Mayor of Chongqing held on Monday.

Kim Fejfer, senior Vice-President of A.P. Moller-Maersk, told the meeting that when cultural differences were underestimated, key talent and customers might leave if they felt uncomfortable with the changes in company culture following an acquisition.