China/UK: Another 2 Billion
China/UK: Another £2 Billion
British Embassy Beijing
Two new billion-pound investments into the UK from China were announced in mid June. A growing and transitioning economy, enormous financial resources and strong political support suggest this trend will accelerate. What we are doing about it.
In mid June there were two events in Beijing to mark two large Chinese investments into the UK:
Advanced Business Park’s £1bn deal to redevelop London’s Royal Albert Docks (this had already been announced in London); and
Dalian Wanda Group’s acquisition of both Sunseeker Yachts (£300m) and One Nine Elms (£700m).
The UK’s popularity as a destination for Chinese investment has soared in the last couple of years. According to China’s Ministry of Commerce, investment into the UK increased by nearly 80 percent between 2011-2012, with the UK becoming the 5th most popular destination for Chinese OFDI in 2012 (up from 8th place in 2011, and 21st place in 2010).
Over the last 18 months we’ve seen huge deals from the three main categories of Chinese investor:
Sovereign Wealth Funds: CIC bought big stakes in Thames Water and Heathrow, and SAFE in UK property;
State-Owned Enterprises: CNOOC and Sinopec each have taken very substantial stakes in North Sea Oil fields, through their respective acquisitions of Canadian oil companies; and Shanghai Bright Foods acquired Weetabix;
Private companies and individuals: Huawei announced their intention to invest over £1 billion in their UK operation, and now we have the ABP and Wanda deals.
We are still in the early stages of what promises to be a seismic shift in global investment flows. Current levels of Chinese outward investment (OFDI) are small, relatively speaking. According to UN data, in 2011 both the UK and France (two economies about a third of the size of China’s) invested significantly more overseas than China. Last year, the Ministry of Commerce estimated China’s non financial OFDI at $80bn, which represents a small fraction of China’s total foreign exchange reserves.
But the rate of growth is rapid. According to China’s figures, the level of OFDI in 2012 increased 30 percent year-on-year, and it has grown by a further 20 percent year-on-year over the first five months of 2013. We should expect such growth rates to continue, given China’s:
need to acquire resources and technologies;
desire to diversify foreign exchange reserves; and
realisation that some of China’s domestic economic problems such as volatile house prices can only be solved by allowing China’s wealthy to diversify their investments.
The authorities are fully behind this ‘going-out strategy’. Premier Li has an ambitious plan to remove at least one-third of central government approvals (see here), which currently hamper large outward investments. The authorities have set-up a ‘co-financing office’ within the People’s Bank, which is designed to accelerate the diversification of China’s reserves (see here). On 19 June, Premier Li Keqiang called for more ‘innovative’ use of China’s vast foreign exchange reserves to support outward investment, and for pushing ahead with pilots to make it easier for wealthy Chinese individuals to directly invest overseas.
What We Are Doing
long-standing and consistent UK messaging, from the PM downwards, about our openness to Chinese investment, has been vital in creating the confidence on the Chinese side to make significant investments in the UK for the first time; and remains vital for sustaining that confidence;
consistent interaction with key top enterprise Chairmen and CEOs;
we have made a direct contribution on some projects;
we are working on our visa service, with the addition of new premium service offerings. Wanda Group gave our Home Office team a very nice tribute after they were the first customers of the new VIP Mobile Visa Service available in China;
we are bringing in business champions to develop stronger sectoral ties with China, in particular Sir Michael Bear, who leads our Infrastructure CEO Forum and brings senior business leaders to China to discuss opportunities to partner on projects in the UK, China and third markets;
we have put on ‘investor roadshows’ using visiting UK policy experts. This is vital for giving investors the confidence to address highly regulated areas of our market; and
we are developing with the Chinese outward investment "gatekeepers", the NDRC, a joint guide for Chinese enterprises on how to invest in the UK. The project team is visiting the UK in July, with the guidance scheduled for publication later this financial year.
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