Clusters for development not yet formed and disorderly competition abounds
Most of China’s private enterprises are small, lack experience in overseas investment and do not have the ability to cope with international investment risks. They arc faced with difficulties such as institutional, legal and cultural barriers, trade blockade and financing difficulties. In overseas investment, normally they can only engage in a single link of the industry chain, without upstream and downstream supporting facilities. It is easy for them to encounter problems of “high cost, high risk, low efficiency and low income”, which arc common for enterprises operating alone. It results in the difficulty in obtaining more added value.
The development of China’s state-owned enterprises tends to be homogenized, mainly relying on price to win overseas markets. What challenges the going global campaign the most is not foreign competitors, but the internal conflicts between Chinese enterprises. Such conflicts have occurred repeatedly among state-owned enterprises in overseas bidding. During the acquisition of an iron orc mine in Australia, several state-owned enterprises participated in the investment in a mine in Pilbara. However, they raised the price several times and ended up paying a third higher than the original price.
Outdated infrastructure in some partner countries and incompatible technical standards
At present, the development of infrastructure in some cooperative regions is slower than its economic growth and is lower than international standards in both quality and quantity. The backwardness of software and hardware infrastructure has become the biggest obstacle to economic and trade cooperation in the region. For example, the new Eurasia Railway passes through several countries with different rail gauges, and gauge change is both time-consuming and labor-consuming. The port cooperation mechanism among different countries has not yet been formed, resulting in inconvenience in customs clearance and high logistics costs. The backwardness of port facilities in some countries increases the difficulty of commodity trading and service circulation.
Some countries prefer European and American industrial technology and standards, causing huge pressure for Chinese enterprises to enter their market. In spite of their poor technical capacity, some countries have adopted European standards for a long time, thus forming a system of European technical standards with fixed channels and huge groups of vested interest, particularly in the area of electricity, petroleum refining, transportation and other infrastructure construction. Power projects in some countries even made it clear not to use Chinese standards, but instead adopted Japanese and Korean standards or European and American standards.
Financing conditions to be improved, and system building to be strengthened
According to the Asian Development Bank, infrastructure investment in Asia will require USS 8.22 trillion over the next 10 years, or an additional USS 820 billion a year. According to the World Bank, the capital formation rate of low-and middle-income countries is only about 1/4 of GDP, of which only about 20% is used for infrastructure investment, which is about USS 400 billion. There is a huge gap to be filled in financing.
International capacity cooperation projects are characterized by large investment scale, multiple entities, long cycles and low return. Financial demand varies greatly among different regions and cultures. However, China’s financial industry can hardly address these demands in terms of overseas distribution, financing cost, financing structure and service mode.
The distribution of financial institutions overseas is unreasonable. Domestic commercial banks and insurance companies need to follow enterprises overseas so as to support their international operation. However, the number of overseas branches of China’s banks is clearly insufficient. Currently, China’s enterprises have invested in more than 150 countries and regions, while bank branches overseas cover only one third of the number. At the same time, insurance companies set up their branches mainly in developed countries, which is inconsistent with the key countries for international capacity cooperation.
Financial institutions arc not enthusiastic in lending. International capacity cooperation projects are characterized by long investment cycles, high capital demand and low financing cost requirements. However, take for example the main types of loans supporting strategic cooperation projects of China, such as the concessional loans and the RMB export seller’s credit with three preferential interest rates, these loans arc generally lower than the financing cost, and the loss from difference of interest rates needs to be made up by financial institutions’ own business, resulting in reduced willingness of banks to lend.
Domestic financing is characterized by high cost, narrow channels and outdated models. China has preliminarily completed the construction of a financial support system under the Belt and Road Initiative and international capacity cooperation, but our enterprises still face certain problems of high financing difficulties and costs in their efforts to go overseas. First, the standards for loans in USD of general commercial projects arc high, and there is no comparative advantage in financing cost; second, the high insurance rate increased the overall cost of financing, resulting in the high cost of financing for enterprises. In addition, intergovernmental cooperation projects rely mainly on concessional loans and sovereign-guaranteed export credit. However, on the one hand, the cost of obtaining concessional loans is high for Chinese enterprises; banks, on the other hand, are too strict in reviewing and regulating project funds.
