TIANJIN, June 12 (Xinhua) -- In Texas, United States, oil pipe casings are coming off the production lines at a plant built by Tianjin Pipe Corporation Limited. It is the largest greenfield investment made so far by a Chinese manufacturer in the U.S.
As the Belt and Road initiative is rolled out, an increasing number of China-based companies are opting to “venture overseas” via greenfield investments. Statistics by data service providers owned by Financial Times indicate that in the first four months last year, Chinese companies invested in 126 greenfield projects overseas, forking out USD 29.43 billion.
Greenfield investment is an investment mode whereby multinational corporations and other investors establish wholly-owned or jointly-owned enterprises in a host country, thereby fostering growth in the country’s production capacity, output and employment levels.
Wu Lei, Assistant General Manger of Tianjin Pipe International Economic & Trading Corporation — a subsidiary of Tianjin Pipe (Group) Corporation Limited for international trade — said that despite the company’s constant efforts to enter the international markets by enhancing product competitiveness, it is of particular significance to build plants domestically in order to deal with the stringent US market regulations. Tianjin Pipe’s investment in the US and site selection process grabbed the attention of leasing departments in several US states.
In comparison with cross-border acquisitions, greenfield investments by Chinese companies have the potential to facilitate significant growth in the production capacity, output and employment levels in host countries.
The Husab Uranium Project invested by China Guangdong Nuclear (CGN) Power Group in Namibia is one of the typical examples of China indulging in greenfield investment in developing countries and generating economic and social benefits for the host country.
This project is China’s largest industrial investment in Africa and is scheduled to be fully completed by 2017, with an annual capacity of 6,500 tons of natural uranium. In Namibia, it is considered as a window to showcase the country’s capacity. The uranium sector is one of the pillar industries in Namibia. CGN’s operations at Husab uranium mines have created 4,500 temporary jobs and 2,000 permanent employment roles for the country, boosting tax revenues for the local government.
Judging by the fruits borne by greenfield investment by Chinese companies, it is safe to deduce that greenfield investment is widely popular because it significantly increases the aggregate economic output of host countries and generates new growth areas for local economy, as compared to positive impacts of mergers and acquisitions.
Feng Baiwen, Head of Overseas Investment Business at KPMG China, said that developed countries often face the need for replacing or upgrading their infrastructure and thus have launched sizable infrastructural renovation and development schemes with the aim of fostering economic recovery and driving up employment. However, this approach requires a significant amount of capital to make up for funding shortage due to fiscal deficit.
In the meanwhile, Chinese companies are faced with their own problems in greenfield investment. When it comes to outbound investment, the cross-border merger and acquisition approach can secure fast entry into the overseas market, while greenfield development requires a healthy capital outlay and competitive edge. As greenfield investment requires significant preparations and involves lengthy construction cycle, this raises higher requirements for the financial capacity and business experience of the investor organization.
He Weiwen, senior analyst at the Center for China and Globalization, said that Chinese companies are facing several other issues in their current overseas investment moves, including the high investment ratio in real estate and laggard acquisition and investment in advanced manufacturing.
However, the experts opined that a summary can be made on the key “venturing-out” acquisition projects that required larger capital for developing overarching plans for new investment projects in line with the directions set in the 13th Five-Year Plan and the state’s requirements for developing industrial systems. In addition, the guiding directions for greenfield investment in the new context can be identified and strategic frameworks to lower the risk associated with uninformed investment moves can be developed.
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