Private firms push forward arboad

"Yes, yes. Chinese city in the middle of Ethiopia," he proudly points out.

This is no pipe dream development. He has already shown the plans to the Ethiopian Prime Minister Hailemariam Desalegn, who he says he has met on a number of occasions. Despite not being a developer in China, Lu, who formed his company in 1994, has already built one of the largest Chinese enterprise zones in Africa, the Eastern Industrial Zone, 30 km outside of Addis Ababa.

It is home to a number of Chinese companies employing African workers and Lu predicts there will soon be between 30,000 and 50,000 people working on the site.

"The China real estate market has been fully developed and this is a new kind of business for us," he says.

"My view of Ethiopia, however, is that you are not working with a company but a country and you are helping that country through its first stages of industrialization."

In Beijing, Xu Hongcai, director of the information department of China Center for International Economic Exchanges, a government research body, says China's private enterprises are now finding it easier to go overseas than state-owned enterprises.

"When state-owned enterprises go global, they often meet with political resistance, but in comparison, private companies are given more leeway and can avoid these political issues and risks," he says.

He also believes that Chinese companies now have greater strength to meet the challenges of going overseas.

"After many years of development, private companies now are stronger in terms of both the capital they have and the talent of their people. They are also much more international in their outlook and have wider horizons," he says.

Peter Nolan, professor of Chinese management at the University of Cambridge and author of Is China Buying The World? insists, however, that Chinese private companies have yet to make major inroads in overseas markets.

"China has not bought the world and shows little sign of doing so in the near future," he says.

"Their presence in high-income countries is negligible. This is a remarkable situation for a country that is the world's largest exporter and its second-largest economy and manufacturer. In other words 'we' are inside 'them' but 'they' are not inside 'us'".

Xu at Jiangsu Dongdu Textile Group admits there are still many challenges and insists that any overseas strategy needs to be thoroughly thought through.

"We need to think why we want to go global, how exactly we need to do that and what goals we want to achieve by it," he says.

He says this is particularly important when making decisions about overseas acquisitions, which have often gone wrong for Chinese companies.

"We actually have many opportunities for acquisition. You cannot acquire just because you want to acquire, however. Any successful acquisition requires that the merged entities are greater than the sum of their parts," he says.

The biggest destination for China's ODI remains Asia, making up 60.9 percent of the total in 2011, according to the Ministry of Commerce, compared with 54.8 percent in 2004.

Africa, however, remains a steady destination for ODI, accounting for 4.3 percent in 2011.

Lu at Jiangsu Qiyuan Group believes Africa will become an increasingly important ODI destination for Chinese private company, particularly in manufacturing, because labor costs are beginning to climb in Southeast Asia.

Apart from his investment in the Eastern Industrial Zone, he set up a cement factory in Addis Ababa in 2009 and is planning to open a steel company next month.

"Labor rates in Southeast Asia will soon be similar to those in China. We have to pay Africa workers around a tenth we would have to pay a Chinese worker," he says.

"The fact is that if we buy just one plane ticket for a Chinese worker to Africa and back, it would pay for about five local workers for the year."

Lu says the company has attempted to localize as much as possible to meet workers' needs.

Rui at CEIBS says the main impetus behind Chinese private company ODI over the next decade will not be about low cost manufacturing but about acquiring brands and research and development capability.

China's ODI to Europe has already significantly increased five-fold as a proportion from 2.9 percent in 2004 to 11.1 percent in 2011. That to North America, however, has lagged behind, increasing from 2.3 percent to just 3.3 percent over the same period.

"What we have seen so far in terms of Chinese companies moving to low cost centers in Southeast Asia and to Africa and elsewhere is just what happened in China 30 years ago," he says.

"The new and more important trend, however, will be Chinese firms making acquisitions in the European market to acquire the brands, the research capability and management expertise. They want the soft business skills from these markets that they now lack. This, I believe, is very important to the Chinese economy."

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