Locals indifferent to all-Chinese investments

Por • 26 abr, 2011 • Sección: Internacionales

Jiang An

Aiding African development has already become China’s principal overseas investment strategy. From January 2007 to June 2009, China reportedly signed $16.15 billion worth of contracts with Libya. Even as early as 2008, the contracted value amounted to $10 billion, more than anywhere else in Africa and the second biggest partner for investment by Chinese firms anywhere in the world.

China has suffered a substantial loss in the unexpected massive Libyan chaos. Amid the turmoil, 27 Chinese construction sites were robbed and a number of Chinese workers were injured, causing considerable direct economic losses.

Even though China successfully and rapidly evacuated its 30,000 nationals from Libya, the investors’ confidence there was badly stricken.

China’s investment in Libya was made chiefly by State-owned enterprises and followed a government-supported strategic integral mode. The all-in-one-service mode meant that all the services, including construction workers, cooks and doctors, were exported from China and backed by Chinese bank loans, with no use made of local labor or services. Even the nails came from China.

The domestic circumstances in Libya might have contributed to the formation of China’s characteristic style of investment there. But the model of importing everything from China may face great challenges too.

Above all, the political situation in the nations that China is investing in is unpredictable. Once such turmoil strikes, it could result in an immense property loss, just like during the recent unrest. There might be fluctuations in the exchange rate when purchasing construction materials, facilities, and importing laborers. Local residents there may harbor xenophobic mistrust against Chinese, especially in areas with high unemployment.

When companies bring everything in from China to Africa, it means the locals don’t have the same level of investment in the project as they would if they were working at or supplying the Chinese site. Consequently, there is not yet an interactive protection mechanism to guarantee the investor’s practical economic interest and safety. Ultimately, monopolistic operations may breed irresponsibility tarnishing the image of Chinese enterprises.

I believe that the import monopoly model is doomed to face high risks, which was the major cause of Chinese companies’ loss in this chaos. Here are some suggestions to help avoid risks.

Initially, we need to positively establish a crisis warning system. Chinese investing companies should frame their emergency response plans by taking both their internal response ability and the potential external risks into consideration. Investors should set up a crisis management system to avoid the possible loss before they heading for investment in Africa.

We need to intensify our risk awareness. When investing and operating business overseas, enterprises could purchase insurance against the risks of political situations, contract violations, various natural disasters, and against problems with overseas equity investment, capitals, loans, raw materials, renting trades, materials or the supply of services.

Overseas Chinese firms should be urged to strengthen their localization operations. Tightly coupling the enterprises’ development and the capital and interests of the nations that China is investing in could greatly upgrade companies’ ability to protect themselves and minimize human and material losses during crises.

Investors could create more job opportunities and make greater contributions to the local economy. Chinese staff members could also cooperate in various forms with the locals and look to local banks for part of their funding.

There need to be balancing mechanisms. Overseas Chinese companies could establish trade alliances, based on laws and shared interests, with the related nations to boost diversified co-operation.

Link: http://opinion.globaltimes.cn/commentary/2011-04/647390.html

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