The Importance of Management Regarding Chinese Investments

The Development of China

China was a poor country fifty years ago. The country did not have much international influence. China has since experienced fast-paced economic growth, making the country an economic powerhouse. They have become an international leader for both investments and trade partners. China developed differently than the majority of countries. This led to economic and political issues slowing the growth of the country far below their potential. Today, China offers investments capable of benefiting developing countries. China’s political and economic clout has increased, this may form a link with the Asian and European markets.

Chinese investments have the potential to help transform developing countries. This is especially true for countries trapped by low investments and slow growth. The best way to maximize the benefits of the investments is to ensure they are regulated and properly managed. Key investments are available in the Chinese markets for manufacturing, services, agriculture, and mining. The majority of Chinese firms participating in overseas investments are mid to large-sized businesses. Some are owned by the state or are a subsidiary of a company owned by the state. This means their government backing and connections are good.

The Bargaining Power of China

Local counterparts provide China with excellent bargaining power. It is important to note the agreement terms may be in their favor. These risks are very real pertaining to countries with small local enterprises with limited administrative and financial skills. The need for guidelines, regulations, and laws to make certain the agreements are equitable and fair is urgent. Although this is crucial for every sector, this is especially true for mining and similar activities. These sectors need enormous investments and the agreement can last for decades. Public oversight is incredibly important for certain assets such as financial parameters and royalty payments including insurance fees, depreciation rates, and interest rates.

The prices in the local market for the Chinese output must be fair and affordable for the consumers. Transport pricing is when a business sells to their parent company overseas for a much better price to lower tax liabilities and profits. There must not be any transfer pricing for exports because this decreases the foreign exchange for the host country. Levies, duties, and taxes must be paid promptly to mitigate the impact of a negative environment. The workers must receive fair wages, education, and medical assistance. The landowners, tenants, and farmers must not be displaced from their homes.

The Chinese Investments

Chinese investment should not be made just to make a fast return. The investment is meant to be a partnership for the long term with shared mutual benefits. Most countries have the same conditions for transnational investments. The companies in China should be willing to adhere to these conditions. Pressure from lobbying, lawsuits, and boycotts during the last couple of decades is responsible for numerous multinational companies conforming to these laws. A lot of these companies now have significant programs for corporate social responsibility. If the Chinese businesses are planning on competing with the Western corporations, they will have to conform to the law.

It is the duty and prerogative of every government to establish guidelines, regulations, and laws for the management of investments overseas. If the government is in a developing country with a limit to their capabilities, it is extremely difficult to enforce these laws. This is especially true for large, well connected Chinese investors. The chances are good China’s civil society groups, pressure groups and NGO’s are not going to lobby against the manufacturing operations or unfair trade policies of another country despite the fact this is exactly what Europe and the United States did. The responsibility for a developing country is with the judicial system, the press, and society.

This process is difficult and assistance from the international community is necessary. At the political level, the government requires assistance from the official agencies and the UN for the drafting of regulations and laws. The organizations in the developing countries need help from international consumer associations, lobby groups and NGO’s. The most difficult task will be for the governments of the developing countries to see the judicial system, the press, and the civil society organizations as partners for development as opposed to a block for financial and trade partnerships.

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