Zhang Yansheng, Secretary-General of the Academic Committee of the NDRC, wrote the preface, noting that the "Guide to Chinese Enterprises Investing in the UK (2014)" (hereinafter referred to as the "Guide") is one of the policy outcomes of the 5th China-UK Economic and Financial Dialogue held in October 2013. It was compiled by the Institute of International Economic Research of the NDRC with the support of relevant Chinese government agencies, the British Embassy in China, and the UK Prosperity Fund.
Why the UK?
The "Guide" mentions 18 Chinese enterprises that have already established joint ventures in the UK and provides advice to investors, including checking free information provided by UK investment promotion agencies and hiring professional firms for legal or tax consulting services.
Wang Yiming, Executive Vice President of the Academy of Macroeconomic Research of the NDRC, stated that he hopes this guide will help promote the docking and cooperation of Chinese enterprises across various industries and sectors, particularly with the UK's leading companies, to jointly build global supply chains and production networks.
Huawei announced an additional investment of £1.3 billion in the UK; Dalian Wanda acquired Sunseeker International and prime real estate in London; ABP developed the Royal Albert Dock in London; CNOOC and Sinopec invested in North Sea oil fields; Shanghai Bright Food acquired Weetabix; and Beijing Construction Engineering Group invested in the development of Airport City Manchester...
These prominent names and substantial figures have converged into a wave of Chinese investment in the UK over the past few years. Wanda Chairman Wang Jianlin once remarked: "It is easier to do business in the US than in the EU, but the UK is the easiest of the three."
Why the UK? What is attracting the likes of Wang Jianlin? And what are they seeking in the UK?
In the view of the UK Minister of State for Trade and Investment, Lord Livingston, this is because the UK has always been an economy very open to foreign investment and welcomes Chinese companies to conduct business in the UK without reservation.
Since the 2008 global financial crisis, the UK's macroeconomic growth has been the best among European countries. At the same time, it has become the second-largest European destination for Chinese investment, after Germany.
According to data from UK Trade & Investment (UKTI), more than 500 Chinese enterprises have established operations in the UK. In 2012, Chinese investment in the UK reached $2.775 billion, a year-on-year increase of 95%. From 2003 to 2012, the average annual growth rate of Chinese investment in the UK was as high as 83%.
In the view of UK Cabinet Minister Oliver Letwin, the success of Chinese investment in the UK is reflected not only in volume and scale but, more importantly, in the broad complementarity between Chinese and British industries. In addition to traditional infrastructure, manufacturing, and energy projects, Chinese investment in the UK is becoming increasingly diversified, moving into emerging sectors such as technology, education, agriculture, and medicine.
Zhang Jianping, Director of the International Economic Cooperation Office at the Institute of International Economic Research of the NDRC, introduced that Chinese investment in the UK has shown characteristics of diversification in investment fields, strong mutual complementarity, a focus on leveraging financial advantages, "side-by-side" progress of state-owned and private enterprises, and industrial cluster investment.
Kong Yu, Executive Director of Public and Government Affairs at Huawei, said that the UK market is very open and competitive, and companies do not face issues using politics as an excuse.
Finance is the Vanguard
In terms of Chinese investment in the UK, the financial services industry is the vanguard.
In addition to the financial advantages of London as one of the world's three major financial centers, the establishment of an RMB offshore center and London's ambition to build an "European hub" for the RMB international market have all led Chinese financial enterprises to target London.
Currently, all major Chinese banks have established branches in the UK. The UK has become the only overseas region where all five major Chinese banks have established institutions at the subsidiary level or higher.
Zhang Jianping told our reporter that the entire greater European market is integrated; if a Chinese financial institution obtains a license in the UK, it is equivalent to obtaining permission to develop in the entire EU market.
Mark Hedley, Deputy Consul General at the British Embassy in China responsible for Chinese investment in the UK, stated that Chinese enterprises will increase their investment in trade futures, insurance, and asset management.
Mark Hedley shared a set of data: currently, 9 Chinese enterprises have invested in the UK financial services sector with amounts exceeding £5 million, but by comparison, the US has 450 companies in the UK financial sector.
David Pang, Lead Partner for WorldWay Development at Deloitte, said in an interview with our reporter that Chinese financial institutions like the Bank of China are investing and setting up branches in the UK primarily to serve the more than 500 Chinese enterprises that have invested in the UK; their clients have gone to the UK.
Focusing on Third-Party Markets
While deepening bilateral economic and trade investment, China and the UK are also focusing future growth points on third-party markets such as Africa and the Middle East, where both countries have a presence.
Mark Hedley told our reporter that the UK trade and investment department is working with the China International Contractors Association to promote cooperation between Chinese and British enterprises in infrastructure investment and construction in Africa.
Driven by the China-Africa strategic partnership, Chinese investment in Africa covers almost every country and sector. Zhang Jianping told our reporter that some African investment destination countries have poor business service environments and lack professional service providers such as financial consultants. Some African countries are former British colonies and share the same Anglo-American legal system, making them similar in terms of law and concepts; Chinese enterprises may find it more efficient to use British business services.
In addition, he believes that developing in the UK is also conducive to the listing and financing of mineral projects invested in Africa.
Mark Hedley said that London not only handles mergers and acquisitions for British companies but also for European, Middle Eastern, and African companies listed in London. If an African mining project is looking for a buyer, London bankers are likely to be responsible for assisting in the realization of the entire transaction.
The UK is the world's largest foreign exchange market, and London currently accounts for 40% of the global daily foreign exchange trading volume of over $5 trillion.
Zhang Yansheng pointed out in his preface to the "Guide" that the UK's advantages in the international financial field will help China promote the process of RMB internationalization and create new growth points for China-UK cooperation.
China's outward foreign direct investment (OFDI) flow is expected to exceed $100 billion in 2014, and the scale of outward investment will reach $500 billion in the next five years.
At the end of 2013, UK Chancellor of the Exchequer George Osborne and Prime Minister David Cameron visited China in quick succession, and China and the UK signed cooperation documents in fields such as investment, technological innovation, and finance. Among them, the UK side allowed Chinese-funded banks engaged in wholesale business to open branches in the UK, and the Chinese side supported the development of the London offshore RMB market based on market-driven principles.
