Risk Control for Outbound Port and Shipping Enterprises

In recent years, more and more Chinese enterprises are “going out”, investing heavily on foreign ports.Behind the seemingly impressive achievements,many projects are full of twists and turns and have encountered many dangerous situations.

According to Report on theSustainable Development of Chinese Enterprises Overseas 2015which is jointly issued by SASAC Research Center and Academy of Ministry of Commerce, only 13% of enterprises have made considerable profits, and those in flat or at a loss accounted respectively for 24%.How will Chinese enterprises “go out and go out steadily”, Xu Lirong, the Chairman and Party Secretary of China Cosco Shipping Corporation Limited said on China Development Summit 2016 which was sponsored by the development research center of the state council, that terminal projects were infrastructure industry, and the industry should pay attention to and try to solve two problems with regard to international port business investment: firstly, to avoid political risk of investment, secondly, to advocate capital as the link to strengthen the cooperation of enterprises of global upstream and downstream industry chain, expand capital source and financing channels, reduce the investment risk, improve the rate of return and enhance the level of international cooperation.Especially, “the Belt and Road”strategy involved many countries and heavy investment,Chinese enterprises must carry out a detailed and deepcomprehensive assessment of the risks which they may encounter in the destination nation when they go out.

Firstly, it would be the political risk.The so-called political risk is the impact on projects after party alternation or government changes.

Secondly, it would be the risk of war, such as the war risks in Libya, Syria and Iraq, these need be treated carefully.During the Libya war, China invested a lot of resources in order to send overseas Chinese and workers back home.These risks sometimes are hard to predict,and can cause heavy losses.

Next, it would be the market risk.Different investment projects have their own risk characteristics.There are also external and other risks.

It is worth mentioning that even in the same region, the risk level in different countries is different.

In addition to guarding against the external risk, for many Chinese SMEs which have gone out, lack of international talents and team who can adapt to “going out” and the necessary professional abilities related to finance, information, law, tax and insurance has led to even higher losses in overseas investment.Therefore, it is very important to review the internal risks of enterprises.

For the financing risk, how to solve the fund and ensure the implementation of the fund is the first thing to consider.In the internationalization process of Chinese enterprises, the ability or means to connect with international capital market is relatively weak.Financial innovation and the combination of production and financing is an important aspect for solving financing risks.Exchange rate is the second risk and is an eternal topic, and it is always there in the process of settlement of the whole investment behavior.Especially after RMB internationalization, we may have more ways to choose,but the exchange rate risk still exists.Some measures need be adopted to address this issue according to the project characteristics, fund recovery or the condition of cash flow, such as swap value, etc.Another one would be the tax risk, each country’s tax system is not completely consistent, ways of collection and management are different either.Some tax may not be a problem in China,but it may be a big issue in foreign countries, which can determine the overall profit and loss of the project.

The internal risk also includes some risks of merging with the local.In the process of Chinese enterprises going out,if they cannot change according to local characteristics,it would cause more risks.At the same time, to make the management localized sometimes has some risks, which cannot be solved in the short term.This requires talent training over a long period of time and the accumulation of the local management experience.

In addition to “people”, there are some issues about“material” and “equipment” for project implementation.

Lastly, it would be the contract risk.In the international engineering contracting market, contract is signed through agreement or contract agreement, if the partners involve local government department, then in the process of investment, special attention should be paid to the arrangement of contracts, especially risks involving technical standard, guarantee and payment.It is obvious that the risks encountered by ports and shipping enterprises when they “go out” is complex and various and systematic measures are needed to deal with them.