Chinese enterprises should "become bold" in acquiring stakes in overseas enterprises, especially in the energy and resources sectors, a senior policy advisor has said.

Zheng Xinli, vice-director of the Policy Research Office of the CPC Central Committee, suggested that the government use its US$2-trillion foreign exchange reserves to encourage overseas mergers and acquisitions (M&As), especially in sectors of strategic importance.

Economists said the policy advisor's comments, published in Monday's People's Daily, are "very likely to become national policy".

"These are rare opportunities for Chinese enterprises which want to expand overseas," Zheng said in his article. "The financial crisis has resulted in mounting difficulties and shrinking asset values for such enterprises in developed countries."

He said the government should take the opportunity to remove the long-existing energy and resource "development bottleneck".

"We should encourage both State and private enterprises (to invest overseas) and, especially, be active in energy and resource exploration and development."

Lin Yueqin, economist at the Chinese Academy of Social Sciences, told China Daily that as an advisor to the highest leadership, Zheng's suggestions are very likely to become central government policy.

The government should prepare more detailed investment guidelines which "identify investment in which sectors and countries is attractive and profitable", Lin said.

"This is extremely important for private investors, as they are not familiar with the global economic geography."

After decades of painstaking efforts in attracting foreign investment, the government unveiled a strategy encouraging enterprises to "go out" at the turn of the century, with the goal of fostering 30-50 State-owned enterprises (SOEs) to become competitive multinationals by 2010.

"But this time, Zheng's message is clear: That China will possibly encourage enterprises of various ownership to invest overseas," said Lin. "That's good news for the private sector."

To implement the overseas investment plan, Zheng said the government should act in tandem with investors, if necessary, by offering preferential loans to improve the infrastructure in destination countries.

Wang Xiaoqi, head of planning and development at the State-owned Assets Supervision and Administration Commission, said at a forum in Beijing last Friday that the national SOE caretaker had already picked 10 major players to explore opportunities overseas.

"The M&As require careful planning and we should avoid vicious competition among Chinese bidders," said Wang.

Direct investment overseas is expected to reach US$45 billion this year, up from last year's US$26.5 billion.

"China is gradually becoming a capital exporter," said Lu Jinyong, a professor in overseas investment at University of International Business and Economics in Beijing.

Lu said Chinese enterprises have been given the opportunity to catch the tide next year. He forecast that by 2010, overseas direct investment might reach US$70-80 billion, roughly equal to the inflow of foreign direct investment in 2007.

(China Daily December 23, 2008)