110423 Locals indifferent to all-Chinese investments
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Source: Global Times
By 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.
Illustration: Liu Rui
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 governmentsupported 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.
The author is head of
opinion@globaltimes.com.cn
Shenzhen
Internationalization
and
Development
Research
Center.