The standard perception of China's outward investments - that they are aimed primarily at securing long-term supplies of strategic raw materials such as iron ore, copper or natural gas - is out of date. As competition intensifies at home and margins in the domestic market fall, more and more Chinese companies are investing abroad in an attempt to establish new markets for their goods. But as a new study shows, they face formidable obstacles. China's outward investments are growing fast (see chart). At the end of last year, the cumulative total of the country's direct outward investments amounted to US$39 billion, roughly the same as the sum of South Korea's foreign investments, despite Korean companies' longer track record of internationalisation. The pace of China's outward investment is only likely to increase. In the early days of the mainland's official 'Go out' policy of international investment, foreign acquisitions were aimed almost exclusively at locking in long-term supplies of strategic resources. Ensuring economic security is still important, as a string of recent bids shows, including CNPC's US$4 billion purchase of a stake in PetroKazakhstan and CNOOC's abortive US$18.5 billion takeover of Californian-based oil and gas company Unocal Corp. But according to a new study by Friedrich Wu, a senior research fellow at the East Asian Institute of the National University of Singapore, other forces are increasingly dominant. Mr Wu, who is originally from Hong Kong, argues that Chinese companies' outward investments are increasingly driven by the need to enter new markets in the face of growing competition from multi-national corporations, overcapacity and shrinking margins at home. Mr Wu cites the example of appliance-maker Haier Group. Faced with static profits and shrinking margins in the massively oversupplied mainland market, Haier earlier this year attempted to expand beyond its niche position in the United States with a takeover bid for ailing appliance brand Maytag Corp. Although Haier was ultimately elbowed aside by US rival Whirlpool Corp, Mr Wu says the Chinese company is looking for other targets. For Haier, expansion overseas has become a matter of survival. But the search for new technologies and credible brands with which to conquer fresh markets is unlikely to go smoothly for Chinese corporations, warns Mr Wu. He examines the case of TCL Corp, which in 2003 set up a joint venture with troubled French television-maker Thomson, closely followed by another with Alcatel to make mobile phones. Neither has been a success. Alcatel backed out of its share in the phone venture in May following heavy losses while TCL's failure to turn around Thomson's television business has inflicted losses at its Hong Kong-listed subsidiary. The jury is still out on the December 2004 acquisition of IBM's personal computer business by Lenovo Group but Mr Wu is not optimistic. 'Chinese enterprises have not yet demonstrated the requisite skills to turn around, integrate and/or sustain the brands which they have acquired, largely because of their limited mergers and acquisitions experiences,' he warns. Even so, with both Beijing and bitter competition at home pushing Chinese firms to expand internationally, China's outward investment is only going to increase.