Country suffers huge loss from overseas investments

China incurred massive losses in its overseas investments as of last year, as domestic companies failed to do adequate risk control in their overseas businesses, analysts told the Global Times yesterday.

"By the end of last year, China suffered a net loss of $26.8 billion in overseas investments," said Zhou Zhongshu, vice president of the China International Council for the Promotion of Multinational Corporations, at a conference over the weekend in Beijing.

Zhou said Chinese companies need to be more cautious while looking for mergers and acquisitions (M&A) in overseas markets and simply buying technology can not significantly improve the strength of domestic companies.

Sun Fei, director of the China Enterprises Overseas Development Center in Beijing, echoed Zhou's opinion. Many Chinese companies did not engage in proper risk management and prior due diligence in overseas markets, which led to huge losses, he told the Global Times yesterday.

"Moreover, among Chinese companies seeking overseas business opportunities, many are State-owned, which usually lack efficiency and innovation," said Sun, noting that such companies, which enjoy pretty profits in the domestic market through monopolies, have not adapted to overseas markets.

According to the Ministry of Commerce over the weekend, China's overseas direct investment reached more than $380 billion by 2011, and Chinese companies established over 18,000 subsidiaries in 178 countries and regions. The country's overseas assets amounted to nearly $1.6 trillion by last year.

M&A is the most common form of overseas investment for domestic companies.

"A comprehensive understanding of the local business conditions, including the local regulatory system and worker unions, is a prerequisite for overseas investment," said Sun, noting that the challenging global economic situation is also one of the reasons why the country suffered losses in its overseas investments during the past few years.

According to a survey by PricewaterhouseCoopers (PwC), one of the world's Big Four accounting firms, outbound M&A activities rose by 10 percent to a record 207 deals in 2011, with a total value of $42.9 billion, compared to a year earlier.

George Lu, a partner at PwC, told the Global Times that the major M&A players are State-owned companies, and "deals in the resources and energy sectors continued to dominate China's outbound deals, accounting for 83 percent of value."