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Beyond Aecon: China’s shifting view of global investment

Tuesday,Oct 31, 2017

From:The Globe and Mail

 

Deals such as the $1.45-billion agreement for China Communications Co. Ltd. to buy Aecon Group Inc. – employees of which can be seen working on the John Hart Generating Station project in Campbell River, B.C. – are still the benchmark for Chinese investment abroad: Using state ownership and enormous resources to snap up companies around the world.


It was less than five years ago that Chinese energy giant CNOOC Ltd. swallowed Nexen Inc. in a $15.1-billion (U.S.) deal that stood as the high-water mark in the country’s hunger for foreign resources.

Things are changing – and not just in Calgary, where the visits by big-moneyed Chinese state firms long ago slowed to a dribble.

A new generation of Chinese investor has begun to circle the globe, armed not just with cash or goods but with their own technology and ideas.

China’s digital economy has been among its brightest sparks in recent years, speeding the country’s tilt away from primary and secondary sectors toward a more modern structure. It has also been a haven for the innovative ideas that have, in some areas, made China a world leader.

Now, some of those firms are staging global expansion campaigns, taking abroad new business models and concepts – from bicycles to banking.

"We are seeing a new wave of Chinese investment," said Wang Huiyao, president of the Center for China and Globalization (CCG). Still a nascent phenomenon, the capital involved in bringing new Chinese innovators overseas pales next to companies investing with the well-trodden existing model, using state ownership and enormous resources to snap up companies around the world. Witness, for example, the $1.45-billion (Canadian) agreement by China Communications Construction Co. Ltd., to buy Aecon Group Inc. Such marquee deals still make up the lion’s share of the Chinese dollars flowing into other countries.

But in quieter form, Chinese innovators are also working to bring the rapid speed and vast scale of their own creations to both developing countries and established markets, including Canada.

Take online giant Alibaba. The company has sought to stock its enormous shopping shelves with growing numbers of foreign goods – thousands of people attended recent events held by the company in Canada and the United States.

At the same time, however, it is aggressively exporting the payment platform it has built. Alipay can now be used in 19 currencies in 30 countries – among them Canada, where it has rapidly expanded since its launch last year. Alipay is now accepted at Birks jewellers, Harry Rosen stores, airport vendors and a growing number of other retailers and service providers who use one of two payments platforms, RiverPay and OTT Financial, that have connected to Alipay.

Alipay is "a superhighway connecting the Chinese consumer with local merchants," said Souheil Badran, Alipay general manager for North America, in an interview.

It’s not just about providing a convenient new platform for moving money by seamlessly transferring yuan into loonies at a transaction cost of about 2 per cent, less than foreign-currency fees exacted by many credit-card providers. It’s also, for those willing to join, an opportunity for Canadian retailers to leap into an Alipay app that can recommend products and services and provide coupons.

"We’re now giving them the ability to attract the Chinese consumer, offering a free marketing platform in the app itself," Mr. Badran said.

"We view Alipay as a digital lifestyle enabler. The app itself does more than just payments."

Tencent, the other titan of the Chinese digital universe, has embarked on a similar international expansion with its own WeChat Pay. For both companies, moves abroad have been in pursuit of Chinese travellers, but analysts say that strategy is only a first step. What starts with the "diaspora could expand to other markets as well. That’s a natural process," Mr. Wang said.

Other companies are already moving down that path. Chinese travel booking giant Ctrip last year bought U.K.-based Skyscanner, and is working to attract foreign customers to its offerings.

In Canada, for example, it began to expand advertising efforts last year, hoping to draw travellers away from more familiar platforms like Expedia.

Some firms have sought local customers from the outset. Mobike and Ofo, the leaders in China’s bike-sharing campaigns, have launched aggressive international campaigns. In mid-2017, Ofo was in four countries. By the end of the year, it aims to be in 20. Founder and chief executive Dai Wei has said he wants to bring the company’s distinctive yellow bicycles "to every city in need of convenient short-distance travel solutions." Mobike, similarly, has said it is more interested in reaching new markets than pursuing profit.

The rise of "going-global" Chinese companies is set against the swift changes in the country’s foreign direct investment, or FDI. Last year, Chinese firms invested nearly 10 times more money in overseas consumer products and services than in energy, according to Rhodium Group statistics.

A government campaign to curb capital flight has dramatically slimmed the flow of Chinese money overseas this year; the country’s outbound investment fell 42 per cent in the first eight months of the year.

But the slowing big-ticket acquisition spree may also provide space for the new entrants stepping abroad. "Private equity and venture capital firms can now step in and potentially define Chinese FDI in the coming years," wrote Joy Dantong Ma, a research associate with the Think Tank at the Paulson Institute, in a recent article.

China’s private equity and venture capital is already among the biggest on Earth, raising about $73-billion (U.S.) last year alone.

One of the key advantages for China’s tech firms is that those built for the local market have already mastered building to size. "A lot of Chinese companies have hundreds of millions or a billion users – so their R&D, operations, marketing and experience are very different," said Wei Fangdan, chief executive of Beluga Global, which tracks China’s "going-global" companies across a range of sectors.

The current trend began in 2012, he said, when mobile gaming companies such as Cheetah Mobile and Sungy Mobile began exporting their games.

Still, international expansion is rarely easy, even for the best-financed firms. Though Alibaba and Tencent’s mobile payments have brought innovations to Chinese customers not initially available overseas, Western tech firms with more established international markets have been quick to adopt similar ideas.

Chinese firms, meanwhile, often face more hostile environments overseas than at home, where governments keen to stoke innovation have proved surprisingly lenient, providing space for companies to experiment in grey areas of the law.

Take China’s bike-sharing firms, which have introduced a new business model, but in the process jammed sidewalks and streets with so many bicycles that they impede pedestrian movements – and, in one case, even hampered ambulances from reaching a hospital.

Not every Western city is willing to see that happen, not even those that have sought to be the most bicycle friendly.

"We’re concerned about having countless bikes filling our sidewalks and side streets," Vancouver mayor Gregor Roberston said on a recent trip to Beijing, speaking while he stood "in a forest" of shared bikes.

Vancouver has its own shared bicycle program, but what the Chinese companies are doing is "not legal currently" in the city, Mr. Robertson said.

"So we’re taking it one step at a time and ensuring that the bike infrastructure continues to improve as the availability of public bikes increases. We want to make sure people are safe on the roads."

 

From The Globe and Mail,2017-10-30

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