China: Inbound & Outbound Investment

Opportunities for investment between China and Europe continue to abound, with European companies seeking to access China’s consumer market and build good relations with the world’s new economic power-house, and Chinese companies seeking to expand their knowledge base and diversify their businesses overseas. However, in both cases it is important to be well-prepared and thorough: while the financial papers are full of success stories and high-profile deals, in reality few achieve their full potential.

Setting the stage

The central government in China has placed a significant emphasis on outbound investments as a sustained policy. In large part, this is due to the country’s need to secure a reliable and long-term supply of natural resources. To a lesser extent, it is due to swelling foreign exchange reserves and upward pressure on the Renminbi. Meanwhile, businesses, and even governments across the globe, are actively seeking Chinese investors to help bolster their economies, many of which are still recovering from the global financial crisis.

Notwithstanding the explicit “Going Abroad” policy of the Chinese government, and the efforts that have been made to increase access to foreign exchange and streamline domestic approvals, the outbound investment process itself remains complex, unpredictable and time-consuming. This is true of both the internal and external procedures required of Chinese investors. As a result, investments involving Chinese entities are often delayed, or fail altogether. Just as Chinese investors must anticipate this difficult approval process when undertaking projects abroad, their foreign partners are advised to study and understand it thoroughly.

Meanwhile, even as political and economic reforms have opened up further opportunities to foreign investors in China, subtle shifts have taken place in the environment for companies seeking to invest in the People’s Republic of China (PRC). While the desire for foreign technologies and know-how remains strong, Chinese companies, government officials and consumers alike have become increasingly sophisticated and selective with regard to how, and with whom, they do business. For example, localization through training and overseas higher education is creating in a strong, multi-lingual force of managers in Chinese companies. This has clear advantages for those companies as they explore investments overseas. It makes it easier for investors from outside China to interact with them; but it also means greater competition among foreign enterprises, experts and job-seekers in the PRC market.

Doing business internationally: be prepared and open-minded!

To stand apart from the crowd and conclude transactions successfully, it is important for any investor venturing into a foreign country – including to or from China – to be well prepared. This sounds obvious and easy, but in practice demands focus and dedicated resources.

  • Identify clear goals, and prioritize them.
  • Select and identify the right opportunity: know your partner’s background
  • Make sure your company qualifies for the big and/or meets local regulations
  • Think carefully about the market consequences both at home and abroad
  • Understand labor laws and employment regulations: do not assume that what applies in one’s home country will apply in the target jurisdiction.
  • Become familiar with the local business environment, community, customs and practices.
  • Be flexible and innovative – this will help you deal with issues you could not anticipate.
  • Surround the project with good advisors.
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