CITIZENSHIP, SOCIETY

Brexit – Good or Bad for Chinese Investors?

05/03/2019

With uncertainty over Brexit, many commentators believed that the UK would lose its appeal for Chinese investors, but research carried out in the last two years suggests otherwise.

Trade between the UK and China more than doubled in 2017 to hit a record £22.3 billion according to analysis done by the law firm Baker Mckenzie. Trade and investment between the two countries is stronger in some areas of the economy than others, but overall a post-Brexit UK will offer more opportunities to Chinese investors than when Britain was in the EU.

Although the exact type of Brexit Britain will implement and its future relationship with the EU is still being thrashed out, “so-far Brexit has not suppressed Chinese investment into the UK – in fact the opposite as the weaker pound has attracted foreign money, ” Ed Ratcliffe, Head of Advisory at Asia House, the UK’s centre of expertise on Asia, told Truly Belong.

Property

London’s property market remains a key investment opportunity for the Chinese and in 2017 China became the biggest single investor by value in London property.  £3.69 billion was spent on the London property market by Chinese investors in 2017, according to Reuters.

Chinese investors have snapped up a number of famous London landmarks including the so-called ‘Cheesegrater’ building’ and the ‘Walkie Talkie’ building, both in the City of London.

But Chinese investment in UK property has not been restricted just to London. According to a recent report by the China Britain Business Council and the consultancy group TMF inquiries from Chinese investors in Liverpool, Manchester, Birmingham and Edinburgh have seen three-digit increases. A growing number of English football teams, including Aston Villa and Southampton, also now have Chinese owners. And there have been Chinese investments in some key UK infrastructure projects, such as a new business park near Manchester airport and new direct flights from Manchester to Beijing and Shanghai.

Energy and Technology

One of the most well-known and controversial Chinese investments in the UK is the new nuclear power station at Hinkley Point in Somerset. Hinkley Point C will be the first nuclear power plant to be built in the UK in over 20 years and will be constructed by a consortium comprised of French energy giant EDF and China’s CGN, which has a 33.5% stake in the project.

The opening up of the UK’s strategic infrastructure to the Chinese drew criticism and warnings from security experts that Britain’s energy infrastructure could be compromised if in the future there is a deterioration in Sino-British relations. China says the UK’s security concerns are groundless and has big ambitions to further develop nuclear energy in the UK. Beijing hopes to showcase its own nuclear reactor technology at Bradwell B, a new nuclear plant planned in the East of England, where France’s EDF will have a minority stake.

Huawei Technologies Corp, the Chinese telecommunications giant, is still planning up to £3 billion of investments in the UK, despite security concerns raised by MI6, and there are other less well-known Chinese investments in this sector.

Dynex in Lincolnshire was once the UK’s biggest manufacturer of high voltage semi-conductors but was rescued by the Chinese train maker CRRC Corp in 2008, after getting into difficulty during the global financial crisis.  Since its acquisition in 2008, CRRC has invested over £90 million in Dynex and aims to hire up to 300 new engineers in the next few years.

Services

The service industry is the lynchpin of the UK economy and if China-British trade is going to grow in the future then Beijing will have to give UK services more access to its domestic market.

But in order for this to happen UK politicians need to devise “a well thought out strategy of economic partnership delivered in a highly politically sensitive way, as well as working with sensible allies at the multilateral and regional levels,” said Ratcliffe.

The UK’s service industry uses Britain’s cultural image and brand to maximize business. The UK’s culture, reputation and image is, despite Brexit, a powerful magnet for Chinese investment.

“The UK’s global business cultural brand is one of stability, adherence to the rule of law, expertise and a straight forward business-like attitude,” said Ratcliffe. But he cautioned that among businesses and government stakeholders in Asia there is a worry that things are beginning to slip in Britain.

“I think having had a rational, stoic stereotype, the lack of clarity, political brinkmanship, discord and chaos that people see in Westminster is fairly shocking. Add to that the global perception that Brexit is an act of self-harm and we are looking at irreparable reputational damage,” added Ratcliffe.

A Future Free Trade Deal between Britain and China

Despite the warm words of British and Chinese politicians and increased Chinese investment into the UK in recent years, securing a Free Trade Agreement (FTA) between the two countries will not be easy. Other EU countries, such as Germany, have stronger trade relations with China than the UK and political constraints will also play their part.

China wants an FTA with the UK to improve domestic economic growth and as a way of endorsing the Communist Party of China’s economic policies. The Chinese Communist Party also believes that FTAs can combat protectionism. But for an FTA to work for the UK, China must lift restrictions on foreign service industries operating in its domestic market as services are the UK’s major strength.

Britain will also be under pressure from the EU and the US not to be too accommodating with China.  Presuming the UK does leave the EU Customs Unions as planned by the Theresa May’s government, a future EU-UK trade deal may be conditional that the UK complies with many EU norms and regulations in goods and services. This in turn may put constraints on a future UK-Chinese FTA.

The US will also put pressure on the UK and has already advised London not to support the Chinese Belt and Road Initiative. The so-called Belt and Road Initiative is an ambitious plan by Beijing to resurrect the Silk Road for the 21st Century made up of overland corridors called ‘belts’ and maritime shipping lanes called ‘roads’. But despite political considerations on both sides, it will be possible to negotiate a UK-China trade FTA that will be beneficial to both countries, as long as the EU allows the UK to negotiate its own trade deals in any future UK-EU agreement and provided London stands up for itself against pressure from Washington.