Lots of openings exist in the Middle Kingdom for British finance, high-tech and other firms

One of the most closely followed issues in the past decade has been the rise of Chinese overseas investment.

Starting from almost nothing, China is now one of the most prominent and fastest-expanding distributors of capital beyond its own shores, buying stakes in companies as diverse as cereal maker Weetabix in the United Kingdom and Volvo Car Corporation in Sweden, and a portion of the server business of US computer company IBM.

The UK in particular has been a success story, managing to continue attracting more Chinese inward investment than any of its European competitors. Chinese now have stakes in utility companies like Anglia Water, in Heathrow Airport, and there is even the possibility of Chinese and French partners working together on a nuclear energy plant planned in southwest Britain.

All of this has tended to overshadow the better-established story of the UK investing in China. British companies were some of the earliest to enter the People's Republic, with the Anglo-Dutch oil company Shell and HSBC bank maintaining a presence there through most of the past five decades.

Just after China entered the World Trade Organization in 2001, UK officials noted that the country had more than 6,000 joint ventures there, ranging from huge ones involving companies like Vodafone and BP to many smaller ones spread throughout China's provinces, even in interior provinces in western regions.

Since that time, while UK investment has grown, it has fallen behind that of Germany. It became lower profile. There were some missed opportunities. Retailers Tesco, B&Q and Marks & Spencer after grand entries either scaled down their presence or withdrew. Attention seemed to shift to attracting Chinese money rather than making investments in China.

With a visit expected this year by Chinese President Xi Jinping to the UK, it is likely that the focus on Chinese outward investment will remain strong. But opportunities for companies wanting to invest in the world's second largest and one of its fastest growing economies still need to be taken seriously.

Historically, British companies have been some of the most internationally oriented in the world. The UK is still a huge outward investor. The difference now is that it is not the European Union or the United States where most of the effort needs to go, but to a more distant and different economic environment - that of the People's Republic.

According to the British government, the total stock of outward investment from the UK into China, as of 2014, came to $18 billion. While still being runner up to Germany, this is a significant figure. There is no reason why this figure should not rise to $40 billion by 2020, according to a January report by global law firm King & Wood Mallesons.

The UK economy may have experienced sluggish growth in the past few years, but it is slowly emerging from that. But it does have some advantages, making many of its companies attractive not only as sources of capital for Chinese, but as partners in knowledge and expertise. Finance, creative and high-tech industries in particular are not only strengths for the UK, but also immensely important for China's future growth. So on the surface, at least, the optimism of the King & Wood Mallesons report may well prove accurate.

Financial services are crucial for the UK, and with the liberalization of this sector in China, British companies should be well placed to capitalize. There were strong expectations around 2001 that banks, insurance companies and other providers of financial services from the UK would find good opportunities in China. Banks like HSBC and Standard Chartered already had a good presence there. Others like Barclays and Lloyds were looking to expand their interests. Some bought stakes in Chinese banks, or set up provisional networks there. But up until now, the Chinese banking and insurance sector have proved tough nuts to crack.

With the commitment from the Chinese Communist Party's Third Plenum in 2013 to accelerate the development of the service sector and to build an indigenous finance sector, with Shanghai serving as the base, the time may have come for much more activity in this area.

As the Chinese economy moves more toward a service base, with consumption rising and the emergence of a middle class as ready-made customers for pension, insurance and investment products, British companies in this area have the brands and the reputation to be very competitive. In finance, the UK has few peers, unlike in manufacturing, where much of the foreign investment has gone in China up until now and where the UK is not always as well placed as Germany. It is likely, therefore, that a good proportion of the $40 billion of projected UK investment in China by 2020 will be in this area.

In creative and high-tech industries, growth has been happening over the past decade or so but needs to accelerate. The UK is also very strong in these areas. During the visit of British Prime Minister David Cameron to China in December 2013, companies like Pinewood Studies, the filmmakers, and the London software company TestPlant announced deals to work in China, in many cases with Chinese partners. It is likely that these sorts of strategic partnerships, where investment is a means to gain better entry to the emerging Chinese domestic market, will become more common.

British companies on the whole know a lot about current opportunities in China, and in such areas as finance, services, creative and high-tech, they have the added incentive that good opportunities for high growth returns are rare in many other places at the moment, especially not on the potential scale China offers. This doesn't mean that the traditional areas of energy and manufacturing are going to disappear for investors, just that the opportunities are going to become more diverse.

A more intriguing option is to see if Chinese investment in the UK, as it develops, might also offer UK companies bridges back into China. In terms of economic links, the relationship between the two counties looks set to rapidly deepen and diversify in the decade ahead.

The author, director of the China Studies Centre at Sydney University, and author of What's Wrong With Diplomacy, which is published by Penguin in March. The views do not necessarily reflect those of China Daily.

( China Daily European Weekly 01/30/2015 page9)