By Meng Dandan

Private Enterprises Ride the Tides of the Belt and Road

By Meng Dandan

Wang Jinjian (fifth left, back row), Deputy Mayor of Wuxi, Jiangsu Province, led a promotion delegation to the Sihanoukville Special Economic Zone in southern Cambodia.

About the author: Meng Dandan is a reporter with Zaobao, a Chinese-language newspaper in Singapore.

With the implementation of the Belt and Road Initiative, China’s ever-growing private enterprises have joined the momentous ranks of“going global”. Together with powerful state-owned enterprises (SOEs), they are driving another round of Chinese overseas investment. With their knowledge and sensitivity to the market environment, and their more flexible mode of operation, Chinese private enterprises are investing what they have accumulated over the last 30 years, including capital, technology and management experience, into the industrial development of other emerging economies, including ASEAN countries. While seeking business interests, they also try to build themselves into transnational enterprises that match the status as an economic power.

In late October, representatives of media organizations from 10 ASEAN countries were invited to attend the“China-ASEAN Media Journey on the 21st Century Maritime Silk Road 2016”, which took them to the coastal province of Jiangsu in east China and the gateway province of Yunnan in southwest China, to see for themselves how Chinese enterprises have participated in the Belt and Road, and how they have interacted and cooperated with ASEAN countries.

Backbone Enterprises Bring Along SMEs

Jiangsu Province enjoys a well-developed private economy. HOdo Group, a large-scale private enterprise that earned a high reputation in the country with its textile and garment production in the 1980s, has taken the lead in investing in Cambodia, where it established Sihanoukville Special Economic Zone, the largest of its kind in the country.

So far, 148 factory buildings have been built in the industrial park. At the site, 103 enterprises are operating, 88 of which are Chinese enterprises. The park mainly engages in traditional industries of textiles and garments, bags, accessories and hardware machinery.

Chen Jiangang, HOdo’s vice president, told the reporters that China’s traditional advantageous industries meet the host country’s need for economic development at the initial stage of industrialization. In

the future, the industrial park will accommodate 300 enterprises including those engaged in finance and high technology.

Compared with established transnational corporations which have hundreds of years of management experience, many private enterprises new to overseas markets do not have sufficient ability in international operations or the ability to avoid risks. Therefore, stronger private enterprises like HOdo have taken the lead in investing in overseas industrial parks, allowing small and medium enterprises (SMEs) to follow suit.

At present, 46 overseas industrial parks focused mainly in China’s traditional competitive industries of textiles, garments, light industry and electrical home appliances have been built in the countries along the Belt and Road, 23 of which are in ASEAN countries. These industrial parks accommodate 421 Chinese enterprises, with a total investment of US$21.3 billion.

At an interview with the ASEAN journalists, Wang Jinjian, deputy mayor of Wuxi (Jiangsu Province), explained to the journalists that HOdo’s overseas investment in the industrial park is a way for backbone enterprises to bring SMEs to the overseas market, an efficient method that has expanded the market. That is also a model for the local government to make joint efforts with enterprises to promote the “going global” strategy while achieving industrial transformation and upgrading.

Wang Yiwei, a professor of international relations at Renmin University in Beijing, told this reporter that along with the growth of the strength of private enterprises, their overseas development will speed up accordingly.

Wang argued that local governments tend to give priority to private enterprises when they participate in the Belt and Road projects, since many of the projects, apart from infrastructure, concern people’s livelihoods, areas in which private enterprises do best. In addition, the policy in some countries also provides space for private enterprises.

“They make specific provisions on the source of investment — either wholly or mostly from private enterprises, with a small percentage from SOEs,”Wang explained.

HOdo’s overseas investment in the industrial park is a model for the local government to make joint efforts with enterprises to promote the“going global” strategy.

Government Support for Private Enterprises

The Report on Chinese Enterprises Going Global 2015 indicates that in 2014-2015, foreign investment above US$1 billion by large-scale SOEs decreased significantly. Although private enterprises are increasingly active in overseas investment, the support they have received from the government is far less than that of their SOE peers.

Hu Biliang, president of the Emerging Market Research Institute at Beijing Normal University, told this reporter that SOEs have had decades of experience in overseas operation. The government has had the corresponding experience of support. For private enterprises, this is only the beginning.

“What support do they need from the government? How? They have no experience in this regard. They are still exploring the way forward,” Hu said.

Hu suggested that the Chinese government’s support for private enterprises to go global should first focus on the provision of public goods services, including information on the host country’s laws and regulations, social customs, habits and security, to help them avoid collateral investment risks that come with investment opportunities.

SOEs Remain Main Force

China’s private enterprises have maintained a momentum of going global. However, SOEs remain the main force leading Chinese enterprises’ venture in international markets.

The Yunnan International Company (YNIC) of the China Southern Power Grid (CSG) is the executing agency authorized by the Chinese government in LMC electricity cooperation. Si Shuming, YNIC’s board chairman, told the ASEAN journalists that the Yunnan provincial government and the Asia Infrastructure Investment Bank (AIIB) are going to provide financial support for the connectivity of Yunnan’s power grid with neighboring grids. However, he did not disclose the exact amount.

As an electricity enterprise that has pioneered regional connectivity, CSG has managed to supply power to the northern parts of Vietnam and Laos. In addition, CSG has invested in Phase I of Vietnam’s Vinh Tan Power Plant and the BOT project of Lao’s Nam Tha I Hydropower Station, with total investment of US$1.75 billion and US$447 million respectively. The two projects will be running next year or the year after, providing power to southern Vietnam and central and northern Laos.

Last month, CSG signed a Memorandum of Understanding with Cambodia’s Royal Group of Companies on power grid cooperation, which will extend CSG’s grid connection further to Cambodia after Vietnam, Laos and Myanmar.

Integrating into Local Communities

In the process of going global, Chinese enterprises have made efforts to integrate into local communities in order to gain the support of the local population.

Dai Yue’e, deputy board chairwoman of HOdo’s Cambodia branch, explained to the ASEAN journalists that for an enterprise to survive in a foreign environment, it is important to effectively merge into the local community while offering job opportunities. At present, her industrial park in Cambodia employs 16,000 local residents.

After 30 years of practice and accumulation, the ever-growing Chinese enterprises, which used to depend on foreign investment for development, have come to the stage of turning to the international market to provide services of capital and technology for their foreign counterparts. Chinese enterprises have gone global for different purposes, Whatever the purpose, they have become a force that cannot be ignored in Asia and China’s peripheral economic structure.