Luo Jie / China Daily

China has become the country with the largest number of investment projects in Germany, the country's Federal Ministry of Foreign Trade and Investment says. Figures the ministry issued a fortnight ago put the number of projects at 158. Last year the number of overseas mergers and acquisitions by Chinese mainland companies was a record.

Recently Sany has agreed to buy a 90 percent stake in Putzmeister, a German concrete pumps maker, Guangxi Liugong bought a unit of the Polish steel company Huta Stalowa Wola, Shandong Heavy bought a 75 percent stake in the Italian yacht maker Ferretti, and the State Grid Corporation of China bought 25 percent of Portugual's national energy network.

Private enterprise has become a new force as Chinese enterprises spread their wings. Last year non-State-owned enterprises accounted for about 44.4 percent of the country's foreign investment flows, and this percentage is increasing year by year. State-owned enterprises have been at the forefront of overseas investment, but for investment in developed countries, private enterprises will play an increasingly important role.

Of all the direct investment by China to the United States, private enterprises accounted for more than 70 percent.

With the change in China's industrial structure, the country has gradually relocated industry with high labor costs. At the same time, to cope with industrial transformation, to help enterprises to expand internationally, Chinese foreign investment tends to go into high-tech industries such as biopharmaceuticals. Indeed the government encourages investment in this area.

China's overseas investment focus is on three major areas: the electronic information industry, the financial sector and mining.

With the internationalization of the yuan, the pace of cross-border mergers and acquisitions is accelerating, and the emerging markets are particularly attractive. At the same time small- and medium-sized enterprises are playing an expanding role.

The country's 12th Five-Year Plan (2011-15) holds that in order to get a foothold in world markets, a new channel for products needs to be created. In recent years China's overseas investment has focused on overseas research and development teams. The hope has been that through acquisitions, production lines would be transferred to China, while R&D and sales teams would remain in local places, with an eye to gaining access to overseas markets.

In February, the Chinese environmental protection industry set out its ideas for development. This included a call for leading corporations to grow their markets and to fully embrace the idea of international competition. With that in mind, the finance and commerce ministries have plans afoot to set up a special fund to help leading enterprises to expand globally.

At the end of last year the presence of Chinese enterprises overseas came in the shape of more than 18,000 corporations and more than 1.2 million employees. The value of their assets totaled more than $1.5 trillion (1.13 trillion euros).

The big numbers may belie the size of the effort they face in being successful. Success depends on being fully acquainted with overseas conditions and customs, in legal matters, industrial relations, investment policies and in many other areas that can be a minefield for the uninitiated.

In recent years, China's overseas investment ambitions have repeatedly run into a protectionist barrage, cases in point being CNOOC, Haier and Lenovo. It seems that if the would-be buyer is Chinese, it touches a raw nerve, particularly among politicians in the US, and before long they are talking about "national security".

Barriers to overseas markets appear to be sprouting up everywhere, and Chinese enterprises are likely to see a debt-crisis stricken Europe as a good investment option, especially brands and technologies through mergers and acquisitions.

But that is much easier said than done. As much as there may be an urgent need in the European Union for capital, complex political hurdles need to be negotiated there, and Chinese investors remain picky.

For example, in January France set up committees to keep an eye on core industries, including automotive, aerospace, naval and rail transport, luxury goods, consumer industry, science and technology, healthcare and renewable energy. Italy has decided to do likewise with industries considered of strategic importance, such as energy, telecommunications, science and technology, defense and food to thwart unwanted foreign mergers and acquisitions.

Chinese enterprises setting up operations overseas often tend to overlook or ignore labor law issues. In such cases huge numbers of employees are involved and the imprimatur of trade union groups is needed. In tough negotiation with the unions, Chinese companies are likely to be forced into making concessions.

Chinese corporations often pay, or offer, higher premiums for acquisitions due to the administrative approval system. For example, China Development Bank CDB failed to acquire the Royal Bank of Scotland aircraft leasing business, even though CDB's offer was 3 percent, or $240 million, higher than that of the company that eventually bought it, Sumitomo Mitsui Financial Group. One thing that played a key role in the decision was fears by Royal Bank of Scotland that the CDB could not obtain the regulatory approvals in China for the transaction.

That suggests the Royal Bank of Scotland believes Chinese enterprises need to pay a premium higher than 3 percent due to the country's examination and approval system.

Those who do not take heed of local conditions and public opinions, and who fail to integrate local corporate culture into the way they operate, are unlikely to come out as winners, and may indeed pay a hefty price for their folly.

Technology transfer is just one case in point. Such transfers will only happen if foreign engineers, technicians and others feel comfortable with the way their Chinese counterparts work. So cultural integration - and that implies the need to improve communication - is a must, and something that can only be achieved through unrelenting effort.

Sometimes Chinese companies in overseas mergers and acquisitions are concerned only about the project's financial returns in the short term, overlooking more long-term corporate strategy development and business sustainability. This can have serious repercussions. Chinese buyers overseas need to identify the non-financial risks of what they are getting into, take into account all stakeholders and do all in their power to ensure the company they acquire is run smoothly.

In general, foreign acquisitions by Chinese enterprises face political hurdles, but there are at least three more: Competition in foreign markets is more intense, supervision is tougher and information disclosure requirements are more strict.

The Ministry of Commerce figures show how febrile Chinese enterprises have been in overseas investment activities. In January, Chinese firms had invested in 355 foreign enterprises in 87 countries and regions, with total direct investment of $4.38 billion, an increase of 59.9 percent, compared with a year earlier.

In the context of economic globalization, Western countries need to lower the barriers to Chinese investment, especially those that block Chinese enterprises investing in foreign entities. The Chinese government is doing its part to ease the way for the country's enterprises to make the most of investment opportunities. It is up to those enterprises to do the rest.

The author is a chartered financial risk manager and a professor at Chinese-German College, Tongji University, in Shanghai. The views expressed to not necessarily reflect those of China Daily.