CBRC Assistant Chairman Yan Qingmin delivered a speech at the China Overseas Investment Annual Meeting

--- Sticking to the Development of Real Industries and Constantly Improving Financial Services

 

The CBRC Assistant Chairman YAN Qingmin attended and addressed the China Overseas Investment Annual Meeting. He made three points on how the banking sector would support the overseas investment strategy of Chinese companies.

First, to fully understand the new climate facing Chinese companies in implementing their “Go Global” endeavor.  Globally, the economy and financial industry has become even more uncertain particularly in three regards. Firstly, in Europe, the risk of sovereign debt remains high and the banking system is quite worrying. Secondly, due to financial “deleveraging” and slowdown of international trading activities, advanced economies are short of inherent dynamism and emerging economies are faced with slowdown of growth and inflation. Thirdly, conflicts are demonstrated in a more uncertain and diverse way.

Meanwhile, we need to be aware of some favorable factors, e.g. there are strong demands for money from international markets, some investment objects are under-valued, and China enjoys steady and rapid economic growth. But it is important to watch the rising protectionism, political and social unrest in some regions, and low demands in overseas markets. Chinese companies need to devise appropriate strategies before going global. It is also important to work with Hong Kong-based companies and make best use of Hong Kong as an international financial center and RMB offshore RMB center to mitigate the risk of “going global”.

Second, banking support should be given to those companies of strategic importance. Firstly, priority should be given to strategic investment projects that will support future economic growth, to projects concerning emerging industries, such as IT, energy efficiency, environmental protection, new energy, bio-tech, and new materials, and to projects that are conducive to deepening mutually-beneficial cooperation  in the field of energy, resources, and irreplaceable high-tech and advanced manufacturing. Secondly, priority should be given to those Chinese companies that enjoy well-known brand, strong technical expertise and comparative advantages. Thirdly, priority should be given to projects that will help the companies’ to improve core competence and attain the scale of economies.

China’s banking sector has actively supported Chinese companies to “go global”. As of end-June 2011, Chinese banking institutions have set up 97 overseas operations and acquired 16 overseas institutions. Next step, the banks should focus on three things. Firstly, they should conduct market research and target client segmentation, and on that basis strengthen the financial support to Chinese companies going global by offering such services as acquisition loan, international trade financing, guarantee etc. Secondly, they should soundly operate such businesses as export credit, import credit, overseas project contracting loans, overseas investment loans, and government concessional loans. In addition, they should provide wide-ranging financial services to Chinese companies going global, including payment settlement, account management, risk management, financial planning and information consulting, etc. Thirdly, they should make efforts to develop new financial businesses, such as venture investment, PE, industrial fund, etc., so as to meet special financing needs of hi-tech and hi-growth companies.

Third, Chinese banks should pay attention to risk control. In this regard, they need to manage and control 4 major risks. Firstly, risk associated with decision-making prior to investment. They need to help Chinese companies gather information about the laws, policies, institutions, markets, society, culture and geography of the destination and fully assess the country risk, legal risk and cultural risk concerning the destination. By understanding the potential risks facing the companies and warning them against such risks, the companies are able to make better decisions. Secondly, transaction risk in the course of investment. The banks should help the companies perform investment investigation and assets evaluation, prudently assess the deal’s viability, and  design safe, stable transaction structure and reasonable financing plan. Thirdly, post-investment operating and management risks. The banks should help the companies address the legal and policy changes in the destination markets, and effective resolve the issues concerning resources integration and cultural inclusion. They should also actively encourage the companies fully tap local financial resources and improve risks control capability. Fourthly, banks’ own operating risks. The banks should develop “go global” risk management strategies in line with objective judgment of international political, economic and financial trends, and prudently determine their own risk preferences. They should also try to understand the industrial policy orientations of the destination to fully assess the potential risks they may be faced with, and develop contingency response plans to contain the risks.

In conclusion, assistant Chairman Yan pointed out that “going global” is an important strategy of China during the 12th five-year-plan period. China’s banking sector will continue to implement this strategy and provide “safe and premier” financial services to Chinese companies going global, so as to share the opportunity presented by the transition of global economic growth mode and facilitate overall, steady recovery of global economy.

 

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