Investors 'must be alert to US risks'

Updated: 2012-06-22 01:41

By Gao Yuan (China Daily)

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The United States may benefit from more Chinese investment as the European Union remains mired in debt problems, but domestic enterprises should remain alert to potential risks, experts warned at a forum on Thursday.

"It is certain that some investment that was meant to enter the European market is now flowing to the US," said Liu Debing, board chairman of China General Consulting and Investment Co Ltd, one of the first overseas investment advisory bodies to be established in China.

However, Chinese enterprises should be "prudent" when investing in the US because of economic uncertainties and possible bias against Chinese companies, Liu suggested in the forum organized by the China Center for International Economic Exchanges and Harvard Business School.

The depreciation of the dollar against the renminbi is one of the risks facing Chinese investors, according to Zheng Lixin, vice-chairman of the CCIEE.

"The US should protect the assets of Chinese companies in a bid to attract investment," said Zheng, adding that misunderstanding of China's State-owned enterprises, or SOEs, in the US, could also hinder investment from China.

"Despite the fact that many SOEs have already listed on US markets, the US still tends to take precautions against merger cases involving SOEs," Zheng said.

The involvement of State-owned banks also attracts the attention of US regulators, a private equity chief said.

"Listed SOEs usually have company shares allocated to large State-owned banks," said Yuan Bing, managing director of Hony Capital, a private equity firm sponsored by Chinese conglomerate Legend Holdings Ltd.

"This is another reason that could see US regulators hesitating in approving merger and acquisition deals."

Lack of respect for intellectual property may also increase investment risk, experts said.

Some Chinese companies have a history of infringing intellectual property rights, which made investments harder to finalize because US companies had to establish a relationship built on trust, F. Warren McFarlan, professor at Harvard Business School, said.

In addition, most of the enterprises — especially SOEs — were not actually ready to enter the US market although the government pledged to support the globalization of local brands, said Liu from China General Consulting and Investment.

"Most of the large State-owned conglomerates lack initiative in exploring overseas markets," Liu said. Chinese companies should work as a group in exploring the US market, he said, rather than carry out their own research.

However, the biggest problem may arise after the merger and acquisition is closed.

Companies often lack the capability to manage their overseas assets, Yuan, from Hony Capital, said.

"Chinese companies should create a profitable business in developing economies before entering developed markets, especially the US," he said.

"A continuously growing business in the domestic market will provide sufficient resources and experience that the company can draw on when it joins an overseas market, especially the US."

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