Private firms to play bigger role as China's ODI continues to increase

The energy and mining sectors will be the major focus of Chinese companies investing abroad through mergers and acquisitions, as the nation's overseas direct investment continues to grow, said Li Tong, executive director of the China Enterprise Forum.

"Private companies will play a bigger role in the M&A wave," Li said at the 2012 China Global Outbound Investment Summit in Beijing on Friday.

China's ODI surged last year by 1.8 percent year-on-year to $60 billion. And 37 percent of the cases by value were realized through M&As, in the mining, manufacturing, transportation and retail sectors.

Li predicted that growing numbers of Chinese companies will focus on buying energy and mining assets worldwide.

"Look at the structure of China's energy consumption. About 70 percent of China's energy comes from coal, 22 percent from crude oil and natural gas and 7 percent from hydroelectricity," said Li.

"If China is expected to sustain stable economic growth, energy demand will grow rapidly, so does China's enterprises' demand for investing abroad in energy and mining sectors through M&As," he said.

Michel Wormser, vice-president and chief operating officer of the Multilateral Investment Guarantee Agency of the World Bank Group, agreed.

"It's very important for China to have access to commodities worldwide," he said.

But for Wormser, another important thing for Chinese companies planning to invest in energy and mining globally is to benefit the local community.

Due to the large volume of its foreign exchange reserves, growing corporate demand for expansion abroad and the spreading debt crisis in the Europe, China's overseas direct investment has been growing.

In 2010, China overtook Japan and the United Kingdom to become the fifth-largest global investor. China was the largest investor among developing economies in 2010 and last year.

Gerald Lyons, Standard Chartered Bank's chief economist, said recently that "we are going from made-in-China to bought-by-China".

In May, Dalian Wanda Group, China's largest entertainment group, agreed to buy AMC Entertainment Holdings Inc for $2.6 billion including debt, in a bid to expand into the United States.

The deal marked the largest-ever buyout of a US company by a Chinese firm, and also made Wanda the second-largest cinema operator in North America.

Li added that China's private enterprises will become a more important driver behind the nation's ODI growth.

"Private companies are more flexible than State-owned enterprises," said Li, adding that "more supportive policies" are being introduced to help them.

China's State Administration of Foreign Exchange recently allocated funds worth $5 billion to China Minsheng Bank, in a bid to help private enterprises invest abroad.

According to Eugenie Lai, general manager of China Business Development with Towers Watson, "China's ODI is at the early stage".

"Compared with SOEs, China's private firms are more ambitious," said Lai.

dingqingfen@chinadaily.com.cn