Firms urged to play by the rules when overseas

PUBLISHED : Monday, 28 November, 2011, 12:00am
UPDATED : Monday, 28 November, 2011, 12:00am

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Chinese firms, which are becoming increasingly important offshore investors, were urged to pay greater heed to issues of corporate social responsibility (CSR) at the recent China Overseas Investment Summit in Hong Kong.

'Chinese firms must improve their CSR because the international community assesses them on this basis,' said Wang Zhongyu, vice-chairman of the 10th Session of the Chinese People's Political Consultative Conference.

'If they improve their image, it will improve their competitiveness. When Hong Kong and Chinese firms partner in investing abroad, they must give priority to CSR in environment, as well as respect for local governments and communities,' said Wang, also the president of the China Enterprise Confederation.

Wang Zhile, a researcher at the Ministry of Commerce, told delegates that Chinese firms did not lack funds when they went abroad, but they faced a challenge when it came to abiding by the rules. This year, about 30 United States-listed Chinese firms had trading in their shares suspended or were delisted, Wang noted.

'If this problem is not solved, the ability of Chinese firms to continue expanding overseas will be affected,' Wang said, warning that firms found guilty of paying bribes faced stiffer sanctions since the UK Bribery Act took effect in July, and the provisions of the US Foreign Corrupt Practices Act (FCPA) were strengthened.

On September 15 last year, the US Congress passed a law that bans firms that violate FCPA provisions from receiving US government contracts.

'In developing markets like Myanmar, Laos and Africa, CSR is a big issue that Chinese firms must pay attention to,' said Wang. For instance, the World Bank could ban Chinese firms from tendering for its projects if they were found guilty of corrupt practices, he said. In September, the bank banned China First Metallurgical Construction, a state-owned firm, for three years for alleged fraudulent misconduct over a project in Bangladesh.

'International organisations are now very strict in cracking down on this and Chinese firms have no choice but to adhere to international standards,' Wang said.

As of the end of last year, Chinese firms had invested a cumulative US$317.2 billion in 178 countries and regions, said Zhang Xiaoqiang, deputy director of the National Development and Reform Commission. During last year alone, overseas investments rose 21.7 per cent to US$68.8 billion, overtaking Britain and Japan to make China the world's fifth-largest international investor, Zhang said.

China's foreign direct investment in the US jumped 81 per cent to nearly US$1.4 billion last year, said Zheng Lili, executive president of the Deloitte Asia Pacific International Core of Excellence project. 'A large part of China's foreign direct investment went to the US in 2010.'

Although China accounts for just 1 per cent of the current foreign direct investment in the US, it has been the source of the fastest-growing flow of such investments in America, at an average annual growth rate of 53 per cent between 2005 and last year, said Matt Matthews, acting US consul general to Hong Kong.

Markus Ederer, the European Union's ambassador to China, told delegates that the rise of Chinese investments in the EU was welcome and that European firms did not shy away from competition.

However, only 2 or 3 per cent of Chinese foreign investments currently go to the EU and vice-versa, and Ederer said it had not been easy for European firms to penetrate China's market.

Andrew Busch, a global strategist at the Bank of Montreal, said the current European debt crisis was affecting virtually every major bank globally.

'It's not a very friendly environment in which to ask any bank from the EU for funding. The opacity of some Chinese firms makes foreign lenders pause. A lot more willingness to share information with bankers is critical to getting loans in this environment,' he said.