IT has been a relatively quiet year for China’s outbound direct investment. The hot offshore bargains created by the global financial crisis in 2008 have diminished in volume, and the rash decisions of the past that sometimes proved disastrous have tempered zeal.

However, the trend toward China becoming a major player in global mergers and acquisitions is unmistakably set.

Indeed, 2014 may become the first year when outward investment supersedes incoming investment. According to the Ministry of Commerce, outbound direct investment, excluding purchase of securities, totaled US$81.8 billion in the first 10 months, a 17.8 percent gain from a year earlier. Inbound foreign direct investment during the same period totaled US$95.8 billion, a 1.2 percent decline.

Zhang Xiangchen, an assistant commerce minister, predicted that outbound investment is going to grow by at least 10 percent a year in the next five years.

"We should look upon this from two angles," Zhang said. "First, we are proud to be growing into a major investor. At the same time, we are still far from a strong investor, with room for improvement in the quality of competitive global companies that we own.”

It is all a sharp contrast from 2002, prior to China’s entry into the World Trade Organization, when outbound investment was only US$2.7 billion. Last year, China was listed as the world’s third-largest investor. Currently, about 25,000 Chinese-funded companies operate overseas, managing assets of more than US$3 trillion.

Danny Tong, a partner at Deloitte specializing in mergers and acquisition and president of East and Central China Committee of CPA Australia, said China’s outbound direct investment has entered a growth phase of relative stability and maturity.

“Chinese overseas investment has become more diversified,” Tong said. “The diversity is reflected in the areas targeted by Chinese investors, in their geographic location and in more participation of companies other than just state-owned ones.”

China’s offshore investments initially targeted natural resources, but investments are now flowing into other areas, including consumer goods, health care, agriculture, high-tech machinery and real estate, Tong said.

Indeed, investment flowing into foreign energy sectors, like oil, gas and precious metals, now accounts for only 23 percent of ongoing projects.

“The purchasing power and eagerness for better services by Chinese people are developing,” Tong said. “Chinese investors are smart to position themselves in the services sector in foreign countries.”

Diversified investment

At the start of this month, the Shanghai-based Fosun Group offered to raise its stake in French leisure company Club Med, after successful bids buying into Portuguese hospital operator Espirito Santo Saude, US film production company Studio 8 and Italian menswear manufacturer Caruso. According to the Commerce Ministry, 4,977 overseas companies received investment from China in the first 10 months. Many of them are in developing areas of Eastern and Central Europe and in Latin America.

More than 40 percent of the investment is now conducted by privately owned Chinese companies, according to the ministry. That’s a departure from the past, when state-owned enterprise dominated offshore investment.

That doesn’t mean every foreign foray is successful. In the past decade, some projects have turned out to be duds where profit is concerned, triggering warnings from experts about risk assessment.

An Agence France-Presse report last month cited analysts who said that some Chinese investment overseas is driven by government policy rather than good business sense. It claimed the outflow of funds reflected a declining confidence in China, and it also noted that some countries on the receiving end were none too happy about the source of the money.

Wang Jiahua, executive vice chairman of the China Mining Association, was reported to have claimed that “80 percent of Chinese mining investment abroad has failed.” The statement was subsequently misquoted as “80 percent of Chinese outbound investment has failed.”

Indeed, there have been high-profile failures. But according to Pratibha Thaker, regional director for Middle East and Africa at the Economist Intelligence Unit, Chinese investment in Africa has not been all that unsuccessful.

“I think most Chinese companies in Africa are successful,” London-based Thaker told Shanghai Daily in an exclusive interview in Shanghai in late October. “You can tell from the way that bilateral trade has been rising — a reflection of the strong business relationship in between,”

China overtook the United States to become Africa’s biggest trading partner in 2009.

“African mining ventures are heavily influenced by Chinese demand,” Thaker said. “China as a major global purchaser has a large impact on setting global prices and can affect African mining ventures indirectly through the global pricing mechanism.”

Thaker said tensions arise from too little use of local labor, lack of awareness about local sensitivities and undercutting local enterprises.

“China is learning quickly from some difficult lessons and is addressing the criticism and failures, leading it to change its approach to doing business in some localities,” Thaker said.

“For instance, China is embarking on a charm offensive by launching high-impact projects like building schools, hospitals and health centers, pledging substantial investment packages and preferential loans, recruiting and training local workers, providing scholarships and building local networks,” Thaker said.

Go beyond being rich

Huang He, an associate professor of international relations and politics at Fudan University, said China should follow the example of the United States, which became a giant and welcomed investor overseas because of the international public good it created.

“Now Chinese investors are perceived as being rich, and it requires more wisdom and efforts to be viewed as being constructive,” he said.

The argument that China’s rising outbound investment is a result of weakening confidence at home is open to argument.

Ge Junjie, vice president of Shanghai-based Bright Food (Group) Co, said last month that his company will accelerate the pace of globalization next year, with a focus on businesses related to dairy, sugar and modern agriculture to feed the domestic market.

“Globalization is a strategic part of Bright Food's growth plan,” Ge said. “Such acceleration is in response to the vast domestic demand for better food. Few companies will move to overseas markets without considering their domestic roles.”

Bright Food announced it would buy a majority stake in Italian olive oil producer Salov in September, which helped raise the number of its acquired overseas companies to five. Bright Food is also in talks with Israeli food maker Tnuva.

British cereal firm Weetabix and Australia's Manassen Foods, two companies that Bright Food acquired earlier, are considering stock market listings.

Such progress is surely not evidence of Bright Food’s sagging confidence in China. On the contrary, the expansion is backed by strong and steady economic growth at home.