VANCOUVER, B.C. - The global recession is taking its toll on the overseas investment plans of Chinese companies. According to a survey of more than 1,000 companies in China undertaken last month jointly by the Asia Pacific Foundation of Canada and the China Council for Promotion of International Trade, more than three-quarters of respondents said the recession had impacted their foreign investment plans. Some 40% reported they have cut back their planned investment offshore because of the slump.

Even so, 42% of respondents say their companies will increase overseas investment in the next two years. Among companies that have already invested abroad, the intention to increase overseas investment in the next two years rises to 59%.

Only 14% of companies identified Canada as a likely investment target in the next 3-5 years. In a similar survey in 2006, 24% of Chinese companies said they had thoughts of investing in Canada. Overall, the picture that comes through of corporate Chinese outward investment is that it is a relatively new activity – only 27% of the companies surveyed had already invested overseas – and they are relatively small-scale investors. Of those that are looking overseas, 69% plan to invest less than US$1 million. Only 7% expect to place more than US$10 million offshore.

The companies surveyed give many reasons for looking at overseas investment, although government policy and associated incentives – Beijing’s “go global” policy -- tops the list. Other important considerations include the saturated demand in the domestic Chinese market; a desire to acquire advanced technology and modern manufacturing know-how for use in China; and, perhaps surprisingly, to offset rising production costs in China.

Companies give several reasons for looking to Canada as an investment target. It is ranked along with the US as the economy that is most open to Chinese inward investment – although that response was based more on reputation than experience as only 7% of the companies that already have foreign investments have capital invested in Canada. The key reason given by companies that already have overseas investments or are intending to invest overseas is to gain access to the NAFTA market.

On the other hand, the main obstacles to investing in Canada were seen to be a lack of understanding of legal and market risks in Canada; lack of managerial and professional expertise generally; and a lack of product/process innovation suitable for the Canadian market. The proposition that Chinese investment might be received negatively by the Canadian government and public was not cited as a major challenge.

Commenting on the survey, APF Canada President and CEO, Yuen Pau Woo, said: “Chinese outward investment is on the rise, but not as quickly as some might expect. While there have been recent announcements about major Chinese offshore investments in the resource sector, most Chinese enterprises are not planning to go overseas in a big way.”

The survey was undertaken jointly with the China Council for the Promotion of International Trade (CCPIT), the leading organization in China for the promotion of international business. It surveyed CCPIT member companies that have engaged in international trade and have annual revenue of at least Rmb 1 million (US$147,000). There were 1,104 valid responses to the survey, which was carried out in China between December, 2008 and February, 2009. Just under 46% of the companies surveyed were private. Another 22% were public companies and 19% were state-owned. About one third were manufacturing companies, with the remainder spread widely among the IT, agri-food, chemicals, resources, construction, finance and transport sectors. Thirty-five percent of the companies surveyed had annual revenues over Rmb100 million.