By Zhang Jingwei Source: Global Times Published: 2018-6-11
Corruption and coup d`états are two headaches of Chinese investors when going global.
There`s a saying in China that "money comes from danger," and some businessmen believe that getting close to the powerful will bring results. But the huge speculative and moral risks arising from such behavior are unfortunately ignored.
No matter whether it`s money and capacity exported in relation to the Belt and Road (B&R) initiative or capital flows resulting from globalization, the honest and upright image of Chinese capital must be upheld.
This goal requires Chinese-style wisdom. After all, to be righteous in a complicated international investment environment is easier said than done.
According to the Corruption Perceptions Index covering 176 countries and regions compiled by Transparency International, the economies involved in the B&R initiative mostly rank in the bottom 50 percent. For example, the Philippines has 35 points, ranking No.101, Ethiopia and Egypt both score 34 points, tied for No.108 and Cambodia has 21 points, ranking No.156.
This means that many targeted economies for Chinese investors overlap the list of those with large corruption risks. The risks in recent years were mostly in Africa, Asia and Latin America.
Dilemmas abound in China`s investing abroad. In terms of the entanglements caused by corruption, most Chinese investors are innocent. They pay a high price for their lack of knowledge of local political cultures, market environments and legal systems. Others fail when their willingness to take risks is exploited by politicians.
Statistics show that from 2014 to 2016, China invested more than $50 billion in the economies involved in the B&R initiative, and China`s total trade with those economies exceeded $3 trillion. China`s investment projects abroad have been widely fruitful, and this is recognized among not only the African, Asian and Latin America countries, but also among developed countries, so investment will continue.
A Financial Times article in March said that regardless of global trade protectionism, China`s outbound investment may reach $2.5 trillion in the next 10 years, citing a report from global law firm Linklaters. Coupled with the expansion and scale of China`s investment abroad, the challenge of fighting corruption and avoiding entrapment is rising.
China, for its part, is an active participant in international anti-corruption cooperation.
This situation will not only be reflected in the B&R initiative and foreign investment - it will also have profound anti-corruption implications.
Clean investment demands complicated efforts. When it comes to the B&R initiative, in addition to strengthening international anti-corruption cooperation, investment guidelines listing positive and negative activities should be provided at the government level to prevent investors from falling into the corruption trap. Investor preparation is key to avoiding corruption risk.
First, when in Rome, do as the Romans do. Investors must be familiar with the political cultures, legal systems and market environments of the destination countries. Mutual understanding is helpful for making proper decisions.
Complying with local laws and regulations and adapting to the local market environment will ensure investors avoid corruption traps and will also help them safeguard their rights.
Second, maintaining communication with people from all walks of life is important. Beyond managing smooth relationships with local governments, Chinese enterprises should also befriend other parties.
Telling China`s story to a broader section of the public as well as non-governmental organizations, and associating with more sections of the local community, will lower the corruption risk and provide more protection from political shifts for Chinese investors.
Third, all Chinese investment projects worldwide should uphold openness and transparency, and this point should be conveyed to all audiences in the relevant economies, including the local government, other political groups, the news media and the public.
Investment projects that are exposed to the light may have higher costs, but they will also avoid corruption and suffer less in cases of political turmoil.
Going global is risky, so it`s important to remain continuously on guard. To avoid the risks of corruption and political shifts, Chinese investors need to get smart.
The author is a visiting research fellow with the Chongyang Institute for Financial Studies, Renmin University of China.