Dr Kerstin Braun, President of Stenn Group, shares her views on current Chinese foreign investment trends in the UK
Recent figures have shown that Chinese investment in the UK has significantly increased in the last year. Chinese businesses have invested $8.3 billion into the UK between January & August 2019, compared to $6.1 billion for the whole of 2018.
These figures are down from a peak of $20.8 billion in 2017 but are an indicator that Chinese investors’ appetite to invest in the UK remains strong, especially considering that since 2017 overall, China has pulled back from its foreign investment activity.
This can be attributed to capital controls being put into place at home, as well as the general downturn in the Chinese economy which has caused foreign investments to dial back.1 Interestingly, it doesn’t appear that Brexit has been a huge deterrent to investment decisions from China. The increased investment in 2019 is partly due to currency fluctuations brought on by the UK’s pending exit from the European Union (EU).
What about the weaker pound?
A weaker pound has made UK assets more attractive, shown by the fact that Chinese investment has picked up in the UK but dropped in other parts of Europe, such as Germany. China invests in everything from financial services to consumer goods and services. In 2018, the largest gains were seen in manufacturing and financial services, while real estate dropped. A few notable investments this year have been the sale of money transfer company World First and Loch Lomond Distillers.
Chinese investors are known for looking to acquire great brands that can be internationalised. In terms of seeing an increase in Chinese entrepreneurs looking to invest in the UK, certainly currency weakness will make UK assets more attractive.2 Chinese investors might be turned off or turned away from the U.S., so UK investment opportunities could get a closer look.
What is the market relationship between Britain and China?
As an investment opportunity, Britain’s open, flexible and transparent capital markets will continue to appeal to Chinese investors.3 Simultaneously, compared to the peak of 2017, Chinese companies are now being more strategic about the types of foreign investments they make. Is it a brand or concept that can be internationalised? There’s a more prudent approach. Potentially, some challenges can be expected, such as scrutiny over investment from China into sensitive sectors of the UK economy, such as energy and telecoms.4
Additionally, in China, large parts of the economy are still closed to full foreign participation, while language barriers and the significant time difference can also pose a problem.
Barring any unforeseen circumstances, the overall trends indicate a positive rate of investments even in the face of currency devaluations triggered by the UK’s impending exit from the EU.5 In fact, in light of the above, for some investors, the UK appears to be a more attractive market when compared to some of the other European markets as exemplified by the increased investments recorded in 2019. Chinese investors deem Britain’s capital markets highly desirable for expanding their successful national brands.
References
1 https://journals.sagepub.com/doi/pdf/10.1177/1868102619858783
2 http://www.wavteq.com/brexit/
3 https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/Growth/deloitte-uk-power-up-uk-inward-investment.pdf
4 https://www.parliament.uk/documents/commons-committees/Exiting-the-European-Union/17-19/Sectoral%20Analyses/37-Telecommunications-Report.pdf
5 https://tradingeconomics.com/united-kingdom/foreign-directinvestment
