Expert: Challenges and Opportunities Both Remain for Chinese Firms' Overseas Acquisitions

A new policy to loosen curbs on direct investment overseas for Chinese companies will take effect starting next month.

Chinese entrepreneurs are gearing up for the overseas plan. But the Rio Tinto case is a reminder of how bumpy the journey can be.

Wang Ling has more.

Reporter: China's outbound foreign direct investment has increased steadily. Figures from the country's Ministry of Commerce show 20.5 billion US dollars were spent last year for overseas acquisition while the number in the first two months of this year has exceeded 20 billion US dollars. Song Hong, an expert on foreign trade at China's Academy of Social Sciences, explains.

"Chinese companies, generally, are at a key stage to upgrade manufacturing and compete in more profitable areas like distribution, design and branding. We are not independent yet is the area of core technology. Hopefully some Chinese companies will acquire strategic resources from expanding their business overseas."

Given the latest overseas acquisitions, the focus of Chinese companies appears to be in areas of energy and automobile. Song Hong says this trend reflects the enterprises' interest in long-term growth.

"The overseas acquisition is basically poised to grow markedly in the long term. The importance of these investments to Chinese firms is to change its growth model with improved technology and competitiveness."

However, Song Hong says though the acquisitions are expected to serve the interest of both sides in the long term, challenges will still remain in the overseas venture.

"We are immature in the practice of cross-border acquisition and we do lack talents in the area. Challenges also remain after the acquisition such as how to integrate the introduced branding and technology into our own production and distribution; and how to improve management of international coporations."

China's Ministry of Commerce has issued guidelines for overseas investment and cooperation in over 160 countries and regions. It hopes to help Chinese companies seize investment opportunities, reduce decision-making blindness, and avoid risks involved in overseas investment and cooperation.

Wang Ling CRI news.