A great future for UK China business relationship

Updated: 2015-02-04 04:58

By Cecily Liu(chinadaily.com.cn)

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A great future for UK China business relationship

Zhou Xiaoming, former minister counselor with the economic and commercial office at the Chinese embassy in London. Cecily Liu / China Daily

China and the UK's trade and investment ties are becoming increasingly close, thanks to the two economies' high level of complementarity, says Zhou Xiaoming, former minister counselor with the economic and commercial office at the Chinese embassy in London.

Zhou, who is now minister counselor at China's permanent mission to the United Nations, says that Chinese investment in the UK is becoming more and more diversified over time in terms of sectors.

Whereas traditionally much Chinese investment in the UK was concentrated in the property area, there are now more investment in advanced engineering, financial services, energy and infrastructure, amongst other sectors.

In the advanced engineering sector, many Chinese companies place great values on research and development, and many of them have opened R&D centers in the UK, Zhou says.

One example is SAIC, which has R&D capability in Birmingham, created as a result of acquiring the British automotive brand MG Motor. Chang'an, another Chinese automotive company, has opened a R&D center at the University of Nottingham.

Zhou says there are also many cases of acquisitions in the technology sector, where Chinese companies inject capital into high technology firms, help them to develop better technology and at the same time boost sales in the Chinese market.

One example is the purchase by the Chinese company Zhuzhou CSR Times Electric of a majority share of British company Dynex Semiconductor Ltd, of Lincolnshire, which specializes in a particular type of semiconductor technology, Zhou says.

In 2008, Zhuzhou CSR Times Electric bought a 75 percent share in Dynex and retained Dynex's management board. With financial support from Zhuzhou CSR Times Electric, Dynex built a 12 million pound ($18 million, 15.9 million euro) research and development center to focus on developing its semiconductor technology.

Another good example of Chinese acquisition creating a win-win situation is Chongqing Machinery and Electric Co's 2010 acquisition of Precision Technologies Group, a manufacturing company headquartered in Manchester, for 20 million pounds.

Since the acquisition, the PTG team has helped its parent company with their manufacturing processes, and has been able to expand sales in China with help from its parent company.

Another common type of Chinese acquisitions in the UK is focused on buying brands, and examples include Bright Food's purchase of the British cereal brand Weetabix in 2012 and also Dalian Wanda's purchase of the British yacht company Sunseeker in 2013.

"Many M&As executed by Chinese investors are done with a long term vision. We spend a lot of time and effort to make the acquired targets better in their home markets and in China," Zhou says.

He says this mindset means Chinese companies invest heavily into the target companies after the acquisition, which is very different from private equity firms that look for shorter term returns, he says.

"These acquisitions create a win-win situation, because they create many employment opportunities in the UK, and help them to access China's large market," Zhou says.

Another significant area of Chinese investment in the UK is that of the energy sector, Zhou says, and this in particular relates to Chinese companies' increasing trading of energy like oil and gas on London's commodities markets.

"As a financial capital, London has very advanced and developed commodities markets, and many Chinese firms are now buying important resources here to use in China," he says.

Furthermore, Chinese banks are now greatly expanding in London's financial center, to assist Chinese companies that invest in Europe through lending and financing activities, Zhou says.

Of particular significance is the recent awarding of branch license to two Chinese banks, Industrial and Commercial Bank of China, and China Construction Bank, allowing these banks to massively expand their activities in London, he says.

Previously, foreign banks in London can only open subsidiaries, which have lending and financing abilities proportional to their UK balance sheet. But lobbying activities led by Chinese banks have subsequently led to regulatory changes allowing foreign banks to open branches, which have lending capacity proportional to their parent companies.

Chinese investment abroad is also now increasingly focused on the infrastructure sector, using its expertise and technology accumulated in the domestic market to take on complex infrastructure products overseas.

Two Chinese nuclear power companies have recently reached an agreement to invest in two planned reactors in the UK at Hinkley Point C in Somerset. Led by France's EDF Group, the pair of reactors will cost 14 billion pounds. China General Nuclear Power Group and China National Nuclear Corp are expected to have a combined 30 to 40 percent stake in the consortium, with France's Areva taking another 10 percent.

Another high profile project is the HS2, the UK's high-speed rail network plan that has attracted Chinese interest, although the bidding process for the project has yet to begin. The first phase of construction should last from 2017 to 2026. The first train services will run between London and Birmingham starting in 2026.

"China has great technical expertise in the nuclear and high-speed rail sectors, because we are constantly building such infrastructure in our home market. Doing such projects in the UK market is helpful for our companies to establish a global footprint in the longer term," Zhou says.

He says Chinese companies have great potential to make these infrastructure projects financially viable for themselves, as they have the experience in keeping construction costs and operation costs low, while ensuring quality and keeping projects to the agreed time schedule.

Zhou adds that the use of Chinese technology in the UK is also helpful in helping the UK diversify its technology, in sectors like nuclear energy, where no supplying country or company have monopoly over such a strategically important sector of the UK economy.

Looking into the future, Zhou says that the increasingly close China-UK relations will act as a catalyst to the growth and development of China-EU relations.

Increasing Chinese investment in the UK will help many Chinese companies to become more and more competitive on an international stage, preparing for their further expansion in Europe, Zhou says.

As well, the success of crucial Chinese investment in the UK's infrastructure sector will allow Chinese technology to gain trust, and in the future be accepted and used in more European countries, he says.