Author: Pu Jiangchun, Chief Expert of Hualuet Free Trade Zone Port**: Shanghai Hualuett (ID: Hualuett).
As China's share in the global economy continues to increase, Chinese high-tech enterprises are also increasing their overseas investment, especially in the fields of digital economy and new energy. However, a fact that cannot be ignored is that in recent years, the risks of censorship, intellectual property rights, privacy protection, and labor disputes encountered by China's high-tech enterprises overseas have increased significantly. How to prevent and respond to related risks and challenges will be a prominent issue that Chinese high-tech enterprises must take seriously in the future. The full text is 3480 words, about 9 minutes to read
In recent years, overseas investment by Chinese enterprises has grown steadily1. The flow of foreign investment has grown steadily, and the stock ranks among the top in the worldIn recent years, China's outward FDI flows have been on the rise, from US$87.8 billion to US$1,788.8 billion from 2012 to 2021$200 million, reaching a maximum of 1961$500 million, with an average annual growth rate of more than 8%. Since 2016, China's outward FDI flows have accounted for more than 10% of the world's total, ranking in the top three in the world. To look at OFDI, we should look not only at the flow but also at the stock. From 2012 to 2021, China's outbound investment stock increased from 0$53 trillion grew to 28 trillion US dollars, the global ranking has risen from 13th to 3rd, and has remained in the top three in the world since 2017. There is no doubt that China has become the world's leading foreign investment power. 2. Foreign investment cooperation in the digital and green fields has shown new highlightsForeign investment in the digital economy is growing rapidly. China and the United States are the world's leading digital economy powers. In recent years, China's digital economy enterprises have actively deployed overseas markets, and have continuously increased their expansion efforts in the fields of big data, 5G, artificial intelligence, and blockchain. In 2021, China's outward FDI stock in information transmission, software and information technology services reached 1,602US$300 million, an 18-fold increase over 2010. Green development has become a new bright spot for foreign investment. Photovoltaics, wind power, new energy batteries and other fields have become new highlights of Chinese enterprises' overseas investment. In 2022, renewable energy accounted for more than 50% of the number of outbound investment projects in China's power sector, an increase of more than 50% from 2020. Chinese enterprises' new energy investment, mainly photovoltaic and wind power, has covered Southeast Asia, Europe, Oceania and Latin America. Taking the new energy vehicle industry as an example, in recent years, China's local new energy vehicle companies have accelerated the pace of overseas layout. For example, in July 2023, BYD announced the establishment of a large-scale new energy vehicle production base consisting of three factories in Brazil, with a total investment equivalent to 4.5 billion yuan. Previously, BYD had 5 overseas production bases and 13 overseas offices and service centers. SAIC Motor has three R&D centers in London, Silicon Valley and Tel Aviv, four vehicle manufacturing bases in Thailand, Indonesia, Pakistan and India, and more than 100 parts production and R&D bases. 
3. Greenland new construction far exceeds mergers and acquisitionsAlthough cross-border mergers and acquisitions have always been the mainstream mode of overseas investment of multinational enterprises, according to the statistics of China's Ministry of Commerce and the BVD-Zephyr databaseIn the case of overseas investment by Chinese enterprises, greenfield construction accounts for more than 70%.The number far exceeds that of cross-border mergers and acquisitions. This may be due to the fact that a significant number of labor-intensive investments are located in emerging markets and developing countries, where there is a lack of suitable M&A targets, and to the high regulatory risks faced by state-owned enterprises (SOEs) in M&A with local enterprises in developed countries. For example, in 2022, China's industry-wide foreign direct investment was US$146.5 billion, but the total amount of overseas mergers and acquisitions announced by Chinese-funded enterprises was only 28.7 billion$400 million, a record low, and a significant reduction in large transactions. 
At present, the risks faced by Chinese high-tech enterprises in overseas investment have increased significantlyOverseas investment risks include political instability in the host country, censorship, intellectual property rights, anti-corruption, labor disputes, cultural customs risks, etc. The following focuses on four types of risks associated with high-tech businesses:1. Review risks for foreign investorsIn 2018, Trump signed the Foreign Investment Risk Review Modernization Act, which gives the Committee on Foreign Investment Investment in the United States (CFIUS) greater authority to strengthen the scrutiny of foreign investment in the United States and overseas transactions involving cutting-edge U.S. technology. As a result, China's investment in the United States plummeted by nearly ninety percent in 2018. Biden followed this line of thought after taking office. In April 2021, the U.S. Senate passed the American Innovation and Competition Act, which requires Biden to confront China's "predatory international economic behavior" and strengthen scrutiny of Chinese companies' economic behavior in the United States. China has always been the focus of U.S. censorship. From 2013 to 2015, CFIUS reviewed a total of 74 investment transactions of Chinese enterprises, accounting for 19 of themFrom 2019 to 2021, a total of 105 investment transactions of Chinese enterprises were reviewed, accounting for 15 of the total, continuing to rank first in the list. Judging from the actual cases of rejection, they are mainly concentrated in the communications, semiconductor and electronics industries. In Europe, Chinese high-tech companies are also facing increasing risks of foreign security screening. In March 2019, the Council of the European Union approved the Regulation on the Establishment of a Framework for the Review of Foreign Direct Investment in the EU, which focuses on high-tech industries, including 5, artificial intelligence, semiconductors, robotics, etc., emphasizing the control relationship between enterprises and the direction to China. 2. Restrictions due to the status of state-owned enterprisesTo a large extent, the focus of US and European foreign investment security reviews is on state-owned enterprises. For example, the rules for the implementation of the Foreign Investment Risk Review Modernization Act (FIRRRMA) require mandatory reporting by foreign investors who hold a certain percentage of voting rights, and require the Committee on Foreign Investment in the United States to submit a special report on China's investment in the United States to Congress every two years. In recent years, a number of mergers and acquisitions by Chinese state-owned enterprises in the United States have been subject to review by the Committee on Foreign Investment in the United States. After the EU promulgated the EU Framework Regulation on Foreign Investment Review in 2019, Austria, Spain, Portugal, Denmark, Finland and the Czech Republic have all enacted or promulgated supporting laws to set up industry restrictions or security review mechanisms for foreign investment access, and whether foreign investors are directly or indirectly held by foreign countries, state-owned institutions and the military are key factors in the review of foreign investment. Canada has stricter requirements for investment review of state-owned enterprises, setting the threshold for state-owned enterprises at 4$300 million, much less than the $1 billion for private companies. 3. Risks related to the protection of private data and personal informationThe European Union's General Data Protection Regulation (GDPR) is one of the strictest privacy regulations in the world. As of June 2023, 14 countries around the world have passed the EU "adequacy determination", which requires third country data protection standards to be comparable to EU standards, and only through this determination can personal data be transferred from the EU to third countries. In May 2023, the Irish Data Protection Commission announced a €1.2 billion fine on Meta Platforms Ireland for finding that the company violated EU GDPR rules by continuing to transfer large amounts of EU users' personal data to the United States without providing adequate safeguards, putting the rights and freedoms of EU users at risk. Prior to this, the European Union had imposed a penalty of 7€4.6 billion privacy fines. It is important to note that the GDPR applies not only to the processing of personal data by data controllers or processors within the EU, but also to the processing of personal data within the EU by data controllers or processors outside the EU. In other words, even if the data controller or processor is not established in the EU, the regulation still applies as long as the goods or services are provided to subjects within the EU. For example, if a Chinese company located in Chinese mainland processes customer data in the Netherlands, and the Chinese company acts as a data processor or controller in Chinese mainland, and the customer is in the EU, then the transfer of personal data from the EU to China is also subject to GDPR regulations, and it is necessary to be careful to guard against possible compliance risks. 4. Risk of intellectual property infringementIn recent years, Chinese companies have repeatedly encountered overseas intellectual property disputes. For example, Huawei and Xiaomi have started a patent war with the American Digital Interaction Corporation (IDC). In 2011, IDC took the lead in suing Huawei for patent infringement in the United States, and Huawei immediately sued Huawei in the Shenzhen Intermediate People's Court for abuse of its dominant market position, winning both the first and second instances. In 2013, IDC filed another lawsuit against Huawei in the United States over patent licensing fees, and Huawei chose to report the company's abuse of market dominance to the Chinese state, and finally the company proposed to reach a settlement with Huawei. In 2021, Textron Inc. of the United States filed a lawsuit in the United States on the grounds that DJI infringed two of its patents, claiming that some of DJI's drone technology with automatic hovering function infringed its patents, and demanded 3$6.7 billion in compensation. In April 2023, the U.S. District Court for the Western District of Texas ruled that DJI infringed Textron's patents and should pay 2$78.9 billion. DJI argues that the core patent that Textron uses to litigate was filed in 2011, but that DJI has used the technology in its products as early as 2009. And DJI is a drone manufacturer, while Textron has the technology for commercial manufacturing, and the market audience and technology application of the two are obviously different. As a result, the ruling of the lawsuit caused an uproar at home and abroad. 
Risk response measures for overseas investment by Chinese high-tech enterprisesHow to prevent the above risks and avoid the pitfalls and challenges in overseas investment?This paper proposes the following three levels:1. At the enterprise level: strengthen compliance awareness and control methodsChinese-funded "going global" enterprises should strengthen the study of the laws of the host country and strengthen the awareness of risk prevention. Before investing, an in-depth study of the relevant laws and policies of the host country should be conducted in advance, and the market environment should be fully investigatedAfter entering the market, it is necessary to ensure that the operation meets the regulatory requirements, especially in high-risk areas such as intellectual property rights, labor rights and interests, and anti-corruption, so as to effectively protect the rights and interests of enterprises. 2. Industry level: give full play to the role of professional institutions and industry associationsThe first is to strengthen the construction of professional service institutions. Give full play to the role of third-party institutions such as law firms, accounting firms, professional consulting institutions, insurance companies, credit rating agencies, and guarantee companies, vigorously cultivate excellent local service institutions, and provide high-level support for Chinese enterprises to invest overseas. The second is to give full play to the role of industry associations. In response to the needs of enterprises to "go global", we organize and carry out overseas investment compliance guidance, risk guidance, special training and exchange activities to help enterprises understand and respond to relevant risks in a timely manner. 3. Level: Build a public service platformThe first is to improve the overseas investment information platform. The information platform should cover investment in different countries, overseas cooperation projects, risk warnings and bidding information, etc., to provide enterprises with information services such as foreign market environment, laws and regulations, major projects, etc., and guide enterprises to fully understand market opportunities and avoid risks in advance. The second is to improve the foreign-related risk prevention and control system. Efficient and timely monitoring of information on overseas patent disputes, foreign-related trademark squatting, labor disputes and other information of Chinese-funded enterprises, strengthen risk early warning, and help enterprises improve their ability to respond to overseas risks.