Recovering UK economy offers a safe destination and many choices for Chinese companies

One of the most exciting facets of the UK-China trade and investment relationship at the moment is the surge of Chinese investment in the United Kingdom. The UK now receives more Chinese investment than any other EU country and is also the fourth most popular destination for Chinese investment worldwide. That is, of course, for good reason. The UK is one of the world's most open economies and welcomes foreign investment with open arms.

What I find particularly exciting is that new investments are being made in a wide range of sectors and in different regions of the UK. I believe this trend will continue. The ensuing deeper, broader and more sophisticated trade and investment relationship will benefit both countries.

A number of factors are spurring this investment.

First, the UK is seen as a safe and welcoming investment destination with one of the better performing advanced economies. Second, such investment is supported by strong political will from both governments. Third, Chinese companies are looking to internationalize rapidly and move up the value curve. This can be achieved in a number of ways, including by competing on the world stage and/or by investing in technologies, research and development and know-how. Fourth, many Chinese companies have the financial capability or access to financial support to make such investments. And, finally, Chinese companies increasingly want to diversify their portfolios.

As a result, in the past year or so there has been significant growth in Chinese companies' investment in a wide range of UK sectors including financial services, real estate, technology, advanced engineering and infrastructure. It is also notable that this investment is coming from an ever diverse range of investors: China's sovereign wealth funds, state-owned enterprises, privately owned businesses and high net worth individuals. It is also worth noting that for high net worth individuals we see a very strong correlation between UK education, property investment and corporate investment, which demonstrates how interconnected the trade and investment agenda has become more so than for most other countries.

Looking to the future I see very significant opportunities in four broad areas: infrastructure; property/real estate/regeneration; financial and professional services; and mergers and acquisitions. As the UK economy continues to rebound and expand, there is a growing range of world-class infrastructure opportunities such as in high-speed rail, nuclear, roads and utilities.

A number of Chinese companies have already invested in or expressed willingness to take part in such UK infrastructure projects. Many Chinese companies have a wealth of expertise and experience accumulated from working on similar projects in China and elsewhere. And their good relationships with Chinese financial institutions could be a powerful combination, by attracting more funds to help to finance UK infrastructure projects.

Take the planned rail link in England called High Speed Two, for example. Leading Chinese construction and rail companies have developed a lot of skill and experience in building railway networks and providing modern, world-class equipment. They are also familiar with many other players in the supply chain of this industry. The challenge will be to understand the UK's environment and bidding processes. It will therefore be important for them to choose the right partners to work with to choose companies with a solid reputation and the knowledge to navigate the UK business environment.

I also believe that we will continue to see more Chinese investment in real estate, whether it be in existing buildings, new building or regeneration projects that need capital and expertise to make derelict land and space useful and productive. We will also see more and more Chinese investors looking at opportunities outside London. After all, there is more to the UK than London, just as there is more to China than Beijing.

Good examples of these investments are Dalian Wanda's development of the residential block One Nine Elms and Asian Business Park's business complex project in Royal Albert Docks.

One further area where I expect to see yet more growth is from the Chinese financial and professional services sectors, which will be responding to meet the needs of its existing customer base not only in China, but around the world and specifically in the UK. Chinese banks are building their UK operations driven by the rise of London as a center for renminbi trade. In the legal field, we have seen the merger of SJ Berwin and King & Woods Mallesons, now operating as King & Wood Mallesons. So I expect to see more developments soon.

In terms of M&A, at the China-Britain Business Council we see growing appetite for investments in technology/innovation/R&D-driven businesses, for instance in advanced engineering and information and communications technologies, as well as in branded goods. I believe this will continue for some time. What is particularly interesting with this type of investment is the new opportunities it can open up for the UK investee company to enter the fast-growing Chinese marketplace by leveraging the Chinese investors networks and expertise.

It is crystal clear that the opportunity is huge.

To seize fully the opportunity, and as more and more Chinese companies venture to the UK, it is important that they do their homework and understand the business environment here. Working with the right partners and professional advisers is critical; the risks of not doing so are significant.

This includes anticipating the unexpected and being ready to handle problems in a different and perhaps unfamiliar environment. Working with professional public relations firms might be one of the wisest investments that can be made.

The author is chief executive of the China-Britain Business Council.

(China Daily European Weekly 12/12/2014 page11)