“The world is not waiting for China to resolve its Covid challenge… [foreign companies] move on, and China runs the risk of falling behind and losing the competitive advantage [it] had.” So says Joerg Wuttke, President of the European Chamber of Commerce in China, who is just one of at least a dozen prominent businesspeople in China to have expressed concern at the country’s about-face to foreign investors in the name of Covid. Indeed, while publicly adamant that they are ‘in China, for China,’ as so many executives in the market like to say, behind the scenes, multinational companies are beginning to get a bit tetchy. 

Questions abound. Did MNCs get the wrong end of the stick? Is China finished with foreign investors, and have the tens of thousands of business people who’ve been coming to China determined to cultivate the country’s 1.4 billion consumers been reading the room wrong? For example, was the announcement of the ‘Dual Circulation Strategy’ in fact Beijing giving foreign investors notice that it planned to become self-sufficient rather than another opportunity for foreign firms to ‘contribute to China’s rise?’ Some 30 years after opening its doors to the international business community, China now appears to be reconsidering the relationship. 

This Policy Update aims to shed light on the numerous calculations that currently might be taking place in Zhongnanhai concerning the international business community and explain why it will not be business as usual once China does decide to reopen to the world.

Background 

First, it is important to define how China views its place in the global economy and how, as a result, it engages with foreign firms. 

Despite what some commentators have suggested, China is not about to become a larger, more tech-savvy North Korea. But the country is also not about to become a free-trade loving, rules obeying, Westward-leaning trade partner, either. Instead, China will most likely up the ante in competing for economic dominance, underpinned by greater financialisation and promotion of Chinese law. It wants to be able to play by its own rules — and that will bring with it seismic changes to the global economy. Foreign firms may become far more dispensable, for a start. 

What is more, China has been laying the foundations for such a shift for years, meaning that one should view more recent factors, such as Covid-19 and the war in Ukraine, as catalysts rather than causes in terms of the country’s new coolness in the face of trade partners and foreign firms.

So, is China finished with foreign investors? 

The short answer is: no. But has China come to see foreign investors differently, particularly post-Covid and Ukraine? Yes, by making international travel nigh on impossible for foreign business people, shuttering factories in city after city, and being generally apathetic to the fact that its current economic malaise could put the global economy into a recession, all in the name of zero Covid, it is clear that the Chinese government now looks at the world through red-tinted glasses. 

Foreign firms have been pushed to the periphery of the Chinese government’s worldview. And the once irreproachable annual GDP target is no longer the lynchpin of Chinese policymaking that it was before. In this ‘new era’, it’s zero Covid and ‘adherence to the Party and President XI Jinping at its core’ that drive policy. 

But are foreign investors finished with China? 

Not quite, which is good because China will need to attract lots more to continue its zero Covid strategy. Local governments are reportedly beginning to grumble over who’s going to foot the bill for the mass testing, and with tax hikes or handouts and commercial subsidies all unpopular or ineffective options – China has one of the highest saving rates in the world, meaning consumers would likely elect to save the money rather than re-inject it into the economy – the government has suggested foreign investors could pay. 

Multinational companies within China have made it clear to the Chinese government that if the country does not become more welcoming, they could become less inclined to be ‘in China, for China’ and start moving their non-China facing business out of the country. While MNCs have refrained from announcing plans to exit the market entirely, India and several markets in Southeast Asia have seen a surge in FDI from Chinese and foreign firms alike who are gradually adopting a ‘China Plus One’ strategy. 

China’s trade data also suggests that foreign businesses and investors are growing weary of the country’s economic struggles. As it became apparent that the government was determined to pursue its zero Covid strategy as Shanghai went into lockdown in February, and continued over the course of March, foreign investors pulled out of RMB 193 billion (£23.3 billion) worth of Chinese bonds – the greatest outflows since the beginning of China’s bond market – while early-stage investment by venture capitalists declined by 90% year-on-year.

Such a state of affairs is tricky for Beijing, as foreign firms could be key to affording the country’s short-term political endeavours, including maintaining a costly zero Covid strategy. What is more, China does not want to lose investors to the United States, where rising yields spurred by Federal Reserve monetary policy are turning heads. Ergo, somewhat paradoxically, Beijing is now trying to win foreign investors back. On 27 May, the People’s Bank of China announced it would open up the last 10% of its onshore bond market to try and reignite global interest in RMB-denominated debt. However, analysts do not anticipate the move will improve China’s fortunes much, considering that the foreign investors are already in China, they have their doubts, and having access to more does not necessitate investing more. 

Which foreign investors does China want? 

Those that are ‘in China, for China’ – but not in the way Western businesses often profess to be. While demand for foreign technologies and know-how that can assist China with its development remains, a new type of investor is beginning to find itself more welcome in China: those from the BRICS nations or developing states. Such economies are more likely to take Beijing’s side in questions of global governance as well as in advancing Chinese law and capital on the world stage. 

The CBBC View 

There’s a chance Wuttke got it wrong: China is indifferent to whether the world is waiting for it. The country has designs to be far more assertive in the international political economy, whilst domestic politics give cause to further insulate the economy at home. That said, China is not ready or interested in dispensing with foreign investors entirely. The country’s zero Covid strategy, for a start, could come to depend on them. But Beijing does appear to be more bullish with regard to how its trade partners engage with it economically and who those trade partners are in the first place. As a result, foreign investors can expect their interactions with China to increasingly happen on its terms, most tangibly through increased pressure to accept Chinese law (both domestically and in third markets) and participate in RMB financing overseas.

If you are a British company in China concerned about how the country’s latest policies affect you, call +44 (0)20 7802 2000 or email enquiries@cbbc.org to find out how CBBC can help.

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Here’s a summary:

• In the bill, the scope of ‘potential harm’ will be expanded to include assets – such as land and movable property – as well as intellectual property.
• The Bill will replace the 2002 Enterprise Act (EA), which remains effective until the NSI Bill has been signed into law.
• The EA limits government intervention to mergers involving target enterprises with an annual turnover of £70 million or a combined share of supply of at least 25%.
• The new Bill has no minimum threshold for turnover or market share but excludes certain transactions which lead only to minor changes in shareholdings.
• According to the bill’s official summary, foreign investors who wish to acquire or buy shares in a company in the listed sectors will have to inform the government of their planned transaction.

The Financial Times reports that officials expect around a thousand transactions to be covered by the NSI Bill, although only a few will face actual restrictions. By way of comparison, there have been only 12 public interest interventions by the government on national security grounds under the previous law.

The Bill will be ‘actor-agnostic,’ not focusing on any particular country, and the clearance process will be ‘clear targeted, and proportionate’, according to the statement by the Department for Business, Energy & Industrial Strategy.

Key Sectors

According to the initial summary, the following sectors will be subject to the screening process:

1. Civil Nuclear
2. Communications
3. Data Infrastructure
4. Defence
5. Energy
6. Transport
7. Artificial Intelligence
8. Autonomous Robotics
9. Computing Hardware
10. Cryptographic Authentication
11. Advanced Materials
12. Quantum Technologies
13. Engineering Biology
14. Critical Suppliers to Government
15. Critical Suppliers to the Emergency Services
16. Military or Dual-Use Technologies
17. Satellite and Space Technologies

There are, however, ongoing consultations with industry experts as to which parts of the sectors will require mandatory notification. A more detailed definition of the type of transactions covered will be published by the government in due course.

The Bill will include a clause granting the government a five-year retrospective power to review any transaction in the wider economy which was not notified but may pose a danger to national security. Nonetheless, this will only apply to transactions which take place after the NSI Bill’s introduction in Parliament. This means that any notifiable investment which takes place after 12th November, but before the official entry into force of the Bill, can become the subject of a review for up to five years.

Restrictions and sanctions

While the exact tool box for restricting investment is yet to be defined, the summary mentions the three following measures:

• a limit on the amount of shares an investor is allowed to acquire
• restricted access to commercial information
• limited access to certain operational sites or works

Investors who fail to comply will be subject to fines of up to 5% of worldwide turnover or £10 million – whichever is greater – and imprisonment of up to five years. Any transaction subject to notification but lacking clearance will be legally void.

CBBC view

The introduction of the National Security and Investment Bill is mostly in line with current international legislation and follows the EU investment screening framework and related laws in EU member states. The government has also made clear that the Bill’s powers will be used exclusively on national security grounds and will not interfere in any business transactions for purely economic reasons.

We welcome the assurances made by Business Secretary Alok Sharma that the bill will not hurt the UK’s standing as one of the world’s foremost destinations for foreign investment, which according to official statistics, has created over 39,000 jobs in the UK in the last two years.

The government’s commitment to support and attract foreign investors has been further emphasised by Prime Minister Boris Johnson’s recent decision to establish an Office for Investment (OFI) which will be tasked with attracting foreign investment in infrastructure, clean technologies and research and development.

Matthew Rous, Chief Executive of CBBC, giving testimony to the Foreign Affairs Committee in October, noted that “it is important to have a default position that is open, because this country has benefited hugely from the inflow of foreign capital over many centuries.”

To guarantee the UK’s openness, it will be crucial to ensure that the planned new investment unit will be staffed by people familiar with UK business conditions and politically neutral experts. As Matthew Rous highlighted, UK businesses need certainty and reliable rules that are based on “objective criteria and standards that can be applied fairly to investors from all countries”.

Rous went on to note that this also requires transparent processes “and a cross-Whitehall system that provides collaboration between experts who know what they are talking about and provides a clear docking point for companies.”

CBBC will monitor the legislative process and work together with other stakeholders and business associations going forward.

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The Leeds City Region, which includes, amongst others, the surrounding areas of Harrogate, Bradford, Barnsley, Huddersfield, Wakefield and York has also been very active in attracting Chinese investment. The area has a strong manufacturing history and has become a major northern media hub with Channel Four choosing Leeds to become the home for its new headquarters.

A delegation from the region visited Qingdao, Hangzhou and Hong Kong at the end of last year in a bid to reinforce bilateral investment flows and identify further import and export opportunities whilst also showcasing the area’s products and services.

“Our country’s success is built on northern industry and innovation,” says Roger Marsh OBE, Chair of the Leeds City Region Enterprise Partnership (LEP) and the Northern Powerhouse 11 (NP11). “Our aim through the NP11 is to unite business and civic leaders to ensure our Northern Powerhouse competes globally. As a region, we are constantly developing our strong relationship with China and its fast-growing markets. Our long-standing links with China through our universities, the appeal of our world-class tourist destinations and our connections with Chinese business means we have very strong foundations to build on.”

The Northern Powerhouse campaign has certainly helped raise awareness of the region among Chinese investors, demonstrating that there is more to the UK than just London and Manchester. Promoting a larger region rather than just a series of comparatively small cities is an easier concept to sell, and resonates well with China.

One major investor in the region is Chinese company Hisense, who opened their Leeds office in 2012 and saw £1.5 million turnover in their first year. Since then, the Qingdao-based electronics and consumer goods company has grown; it now has over 40 staff and annual revenues of £100 million with expectations that this will double in the next 18 months. Hisense UK has won numerous awards in recent years for being among the fastest-growing companies in Yorkshire.

Chinese tech and video surveillance giant Dahua Technology also opened an office in Leeds in September last year to complement their UK base in Maidenhead. The new office will see a team of up to ten staff work to establish a permanent presence to support its local distributors, integrators and installers, as well as offering training locally and providing a local base for partner events and client demonstrations.

Chinese manufacturing and engineering firm Powerlink has been located in Selby since 2010 and is home to their only manufacturing facility outside China, and Chinese companies have also been investing in local companies too. Chinese conglomerate Fosun, which also owns Wolverhampton Wanderers, acquired a significant stake in Silver Cross in 2015.

Founded in Leeds in 1877, Yorkshire-based Silver Cross is the UK’s most iconic nursery brand, famous for supplying prams to the royal family. It’s recognised internationally for its award-winning travel systems, strollers, nursery furniture and car seats, which have helped the brand become a trusted household name. In addition, it has a heritage collection still hand-crafted in Yorkshire  – the only prams still manufactured in the UK.

A spokesperson for Silver Cross said the Fosun partnership helped accelerate the company’s international growth. “The global need for high quality, reliable and desirable nursery products is continuing to grow among parents, which creates a considerable opportunity for an iconic premium brand like Silver Cross.”

“It is already the brand of choice for parents who are attracted to the quality of its products and service. Fosun brings Silver Cross its undoubted expertise, resources and competitive advantage in the Chinese market and the partnership gives Silver Cross the platform to further accelerate the company’s international expansion.”

Elsewhere, Skyworth Digital, whose headquarters are in Shenzhen, has acquired Leeds-based Caldero who develop and deliver set-top box technology, online video platforms and other services to send video into and around the home. And Pelican Engineering Group in Wakefield is the sole UK importer and distributor of Yutong buses and coaches – the largest bus and coach manufacturer in the world.

Another recent Chinese investor in the region is Chinese gaming company OPE Sports who took on sponsorship of the Huddersfield Town football team. When Huddersfield became the 49^th club to join England’s football Premier League in May 2017 the team was thrust upon the global footballing stage, and suddenly drawn to the attention of four billion football fans around the world.

“This starts to attract people who want to be associated with you,” explains Sean Jarvis, Commercial Director at the club. And it seems Ope Sports were certainly interested in reaching this huge viewing audience as the Chinese company are thought to have spent £1.5 million on shirt sponsorship. Huddersfield has also attracted the attention of Chinese media company Lei Su who has also invested in the club and become their official Asian media partner.

“The Premier League was a catalyst but having met individuals they have warmed and loved what Huddersfield stand for. They have a keen interest in the club, the town and the area,” says Jarvis.

Jarvis has been pleasantly surprised in his relationship with his Chinese sponsors, especially he says, their desire for corporate social responsibility and integrating into local communities. “The Importance they place on that is very refreshing as some commercial organisations that sponsor clubs can be mercenary but these both have a desire to give something back to the community.”

When Huddersfield became the 49^th club to join England’s football Premier League in May 2017 the team was thrust upon the global footballing stage, and suddenly drawn to the attention of four billion football fans around the world

The benefits to Huddersfield are more than just financial. Jarvis explains that retail sales on items like replica shirts have increased, as well as their global following, which is tracked through social media. “We’ve grown our followers on Weibo very quickly when previously we had zero exposure in China.”

It’s certainly not a one-way street either. Over the last few years, Huddersfield has been sending coaches out to teach school children in Guangdong how to play football. The link came about via a relationship with a Huddersfield company, Fired Up, who have offices and factories in China. Their local support has enabled the football club to work at a grassroots level to build relationships and, of course, to attract a young generation of fans.

“Our credibility isn’t as strong as experienced Premier League teams like Chelsea and Manchester United, what we’re trying to do is start at the grass roots – it’s the right first step for us,” says Jarvis.

The Northern Powerhouse brand continues to grow, says Jarvis, “and that has only compounded what we are trying to do.” Continuing, he says that having Huddersfield in the Premier League has put the town on the map and people know where it is. “We need Yorkshire clubs to be in the Premier League because it helps. The Northern Powerhouse puts us on the map and being in the Premier Leagues helps promote the Northern Powerhouse,” he says.

Down the road, Bradford has also been creating another cultural and economic link between the two countries. Bradford became the first city to win the title of UNESCO City of Film back in 2009 due to the rich film heritage, the vast number of film locations used, and the impact that their film festivals have. Many films and TV shows have been filmed in Bradford, as well as other Yorkshire towns, in recent years and the region is actively promoting itself as a film location, meaning that the digital and creative sector continues to grow across the area.

With 25,808 people employed in the tech, media and telecommunications industries, Leeds has more people employed in this sector than any other city outside of London. Channel Four are moving their headquarters there this year and a number of other creative media businesses have also announced their decisions to locate in the region, including UKTV, Wise Owl Films and ‘Workerbee’.  This increased interest is also continuing to grow.

The wider Yorkshire region is at the forefront of film and TV production with the latest figures showing that between 2009 and 2015, Yorkshire and Humber’s film and TV industries generated an annual turnover of £424 million across 590 creative businesses; an increase of 247 percent against the UK average of 118 percent, with Gross Value Added (GVA) increasing 242 percent in comparison to a UK average of 120 percent.

The relationship between China and the region is an essential part of this growth. In 2017, Bradford actively supported Qingdao to successfully gain UNESCO City of Film Status and opened a film office in Qingdao, and now Qingdao has reciprocated by opening a film office in Bradford. This will work to develop various co-productions between British and Chinese filmmakers and open up a range of incentives to accelerate film development and Sino-British cultural exchange.

Read more about China’s investment into Manchester

Read more about China’s investment into the North West

Read more about China’s investment into the North East

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To date, there is an enduring sense that there is significant disparity in government expenditure between the north and south of England. Whilst some argue that there are similar levels of public spending between the two, a recent report from the Centre for Cities think tank shows that cuts to public spending have hit the north hardest. In terms of economic growth, there is little doubt that there is significant variation, however. As an example, between 2004 and 2015, for every 12 jobs created in southern cities, only one was created in other regions.

It is against this backdrop that the UK government launched its Northern Powerhouse scheme in 2016, which aims to correct this imbalance by improving infrastructure, education and business opportunities in the north of England. However, it was believed that a sea change of this scale could not be enacted through domestic investment alone. This is where the role of Chinese funding, courted through successive ministerial visits between the two countries, came into play.

The greatest success story of Chinese investment in the Northern Powerhouse is arguably Manchester. Since the creation of the Manchester China Forum in 2013 by then Chancellor of the Exchequer, George Osborne, the city has done its utmost to attract attention from Chinese investors and tourists, and its efforts have paid off.

Its most recent achievement was the creation of a direct flight route between Manchester and Beijing in June 2016, which has seen the volume of passengers travelling between the cities increase by 80 percent in just two years. In fact, of all the routes that have operated between the UK and China for a year or more, the Manchester-Beijing route has undergone the fastest growth, carrying around 175,000 passengers in its second year. The route has also enabled an increase in exports from the airport itself, with Manchester’s share of UK exports to China increasing from 5.7 percent to 11.5 percent since its inauguration.

An obvious beneficiary of such a development is Manchester’s tourist industry. For the past 12 months, although Chinese tourists have spent a total of £198 million in destinations across the world, their average spend per trip has been flat-lining. Yet against this backdrop, the North West has seen a 94 percent increase in spend per trip over the same period, revitalising parts of the local economy and bringing new customers to shops, restaurants and attractions across the region. Indeed, a total tourist spend of £260 million, a goal originally envisaged for 2026, has been reached in just two years. Manchester’s recent success can be attributed to its canny marketing: look no further than its dedicated guide to local attractions and eateries available for download from WeChat, a sure sign that Chinese visitors specifically play a key role in the city’s development strategy.

Regeneration was certainly the first wave of major Chinese investment into the region, however, as China seeks to move up the value chain, it is now in the innovation and high-tech space

“We take a holistic view of the relationship and engagement with Mainland China – not just the commercial relationship but the cultural, educational, social and, importantly, political elements too,” says Rhys Whalley, Executive Director, Manchester China Forum. “We’ve seen significant growth in the last few years of both interest levels and investment. To date that has largely manifested in regeneration and development, with over £7 billion of gross development value,” he says.

“Investment in Middlewood locks has a gross development value of a billion pounds, and they have also secured high-end residential projects in Wirral called Lexington,” says Whalley. “Landing in one part of Northern Powerhouse leads into growth and expansion into other areas,” he points out.

Since 2016, the Beijing Construction Engineering Group (BCEG) alone has poured £2.6 billion worth of projects into the region, including £1 billion for the proposed development of Airport City – a mixed-use space comprising offices, retail and leisure opportunities. A joint venture between BCGE, what was Carillion, and the Manchester pension fund separated it into accommodation clusters dubbed “Shenzhen Gardens” and “Wuhan Square”, a clear indicator of who the developers have in mind as potential backers for the project. BCGE, who recently won the Chinese Investor in the UK award at the British Business Awards, has also invested elsewhere in region and grown from two or three staff four years ago to over 90 people today.

Clare Bailey, Associate Director of Commercial Research at the global real estate services provider Savills, believes that the development of Airport City exemplifies the potential for joint ventures to attract Chinese companies to the region. Not only can China play a significant role in the development of Greater Manchester, she argues, but it is also central to the Northern Powerhouse initiative in general. “Since its launch in 2013, the Manchester China Forum has driven forward the city’s engagement with China, including a surge in inward investment, improved connectivity, and the visit of President Xi Jinping. Chinese investors are now involved in over £3 billion of development across the city.”

By all accounts, this is just the beginning for the city’s Chinese strategy. In 2017, the Manchester China Forum launched the third edition of its investment portfolio, which represents a concerted effort to attract Chinese funding to the region. According to the Forum, among the city’s attractions are its robust economy, which shows the ninth best performance in Europe, its £7.7 billion manufacturing industry, and its 40 percent lower cost for business administration when compared with London. What’s more, the council plans to build 220,000 new homes and create 100,000 jobs in the Greater Manchester region by 2040, and Chinese investment will be crucial to this bid for growth.

Regeneration was certainly the first wave of major Chinese investment in to the region, and one that will no doubt continue. However, a trend that is reflected nationally and internationally as China seeks to move up the value chain and secure more strategic and sophisticated investment is in the innovation and high-tech space.

“We are seeing that in mergers, acquisitions, partnerships and strategic investments into smaller start-ups and SMEs by some of the major Chinese players who are viewing Manchester and the Northern Powerhouse as a key next stage of growth outside of the capital,” says Whalley.

The Northern Powerhouse is a vision championed by former Prime Minister David Cameron and his Chancellor George Osbourne, and there has been reflection and questions asked as to whether there is still the same level of buy in and political good will for the progression of the Northern Powerhouse agenda. “Much of the noise around that probably reached a natural point of transition, where local government leaders could take ownership and translate beyond the branding exercise and into practical terms of what that looks like,” says Whalley.

He points out that at the heart of the Northern Powerhouse was the vision to get further much-need investment into infrastructure in the region. “If you compare per capita levels of investment in the north compared to the capital it is behind,” says Whalley. “It suffered from underinvestment for long periods; we need to up our game in terms of investment and it’s about how we bring these cities closer together,” says Whalley. “How to reap rewards in the same way Chinese cities have over the last ten years since the Chinese government has pushed investment in infrastructure.”

Although the pace of approvals and the different types of governmental policies between the two countries mean partnerships are essential, the Chinese expertise in urban infrastructure provides a great opportunity for Chinese partners to get involved in that vision.

Manchester – China Stats:

There are around 6,000 Chinese students in Manchester, with approximately 70,000 students in the Manchester Consulate district

There are over 30,000 Chinese people living in the city

Chinese investors involved in >£6bn of development across Greater Manchester

Export figures from Manchester Airport to China grown 41 percent to £1.29bn over last two years – bucking national trend where values fell by 30 percent

Manchester-Wuhan Sister City Agreement signed in 1986

PR Chinese Consulate established in Manchester in 1986

Manchester China Forum established in 2013

Presidential Xi Jinping visit to Manchester 2015

First direct flight to mainland China June 2016

Read more about China’s investment into the Leeds City Region

Read more about China’s investment into the North West

Read more about China’s investment into the North East

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On the other side of the country, TusPark Innovation Centre launched its first UK campus in Newcastle. TusPark – or Tsinghua University Science Park – originated as an innovation centre and high-tech incubator next to the famous Beijing-based university. There are now dozens of TusParks in China helping businesses grow and gain funding. In Newcastle, TusPark at Maybrook House, on Grainger Street, hosts companies including WifiPlug, Skriware, Beeline, Study Atlas, Equiwatt, and Plan Digital.

As the largest innovation ecosystem in China, TusPark UK helps to develop suitable joint ventures and find supply chain partners for scale-ups who wish to enter the Chinese market. Their strong relationship with national and local governments in China helps new companies get into the market and their advice helps find funding, either directly, through its own investment fund, or indirectly, through Chinese investors.

TusPark UK’s strong relationship with national and local governments in China helps new companies get into the market and their advice helps find funding

Last year TusPark partnered with Innovate UK to run FORGE, the first UK-China accelerator programme, investing, incubating and bringing nine Internet-of-Things start-ups to Beijing, Shanghai and Qingdao in China.

Barclays Eagle Labs accelerator has also signed an agreement with the TusPark Innovation Centre to help businesses scale up by offering access to mentors and advice in areas such as business planning, marketing, and product design. The Eagle Labs accelerator in TusPark Newcastle will be the 15th in the UK but the first in the north east.

“We are working very closely with TusPark to bring one of our Eagle Labs here to Newcastle, working to support scale up businesses here in the UK,” said Chris Forrest, Head of Barclays Business Bank UK. “Through the labs we are 100 percent committed to transforming the digital landscape of the UK. It is overdue to bring one of the labs to Newcastle.

“Tus could have gone to any other location to set up what they have here, but they didn’t, they came to Newcastle,” he said.

“Newcastle is a city which is no stranger to innovation,” said Nick Forbes, leader of Newcastle City Council, at the launch of the Barclays Eagle Labs. “We know that innovation runs through our DNA. This was the place the steam locomotive was invented, the electric lightbulb was invented, and there will be many of these inventions shown at the Great Exhibition of the North later this year. Newcastle is a city which is really going places. TusPark’s arrival here is a symbol of the journey Newcastle is on as a city.”

Read more about China’s investment into the Leeds City Region

Read more about China’s investment into the North West

Read more about China’s investment into the Manchester

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 Liverpool’s deep relationship with China goes back to the 1830s when ships bringing silks and cotton and tea from China docked in Liverpool’s famous port. Alfred Holt who founded the Blue Funnel Shipping Line, hired a large number of Chinese seamen in the 1860s as he traded between Hong Kong, Shanghai and Liverpool. Since then there has always been a strong Chinese presence in the city and the town’s Chinatown is the oldest in Europe, with the Chinese Arch that marks Chinatown’s entrance the tallest of any outside of China.

Last year, Liverpool saw the number of Chinese listed companies investing into the region reach an all-time high. According to Mi Tang, Head of China Affairs at Invest Liverpool: “High-tech is the preferred choice for Chinese investment with priority sectors ranging from life sciences, gaming, sports, artificial intelligence and advanced manufacturing,” says Mi. Chinese SMEs are also interested in the culture and education businesses in the region.

One of the most recent investment projects is Cogita Development Liverpool, co-funded by Dongke Chuangxing, a Chinese national innovation centre based in the heart of the Optics Valley of Wuhan, China. Cogita’s platform brings together Innovative Incubation, International Interaction, and an Angel Investment Fund, all under one roof. It focuses on information technology, life sciences, clean energy, new materials, artificial intelligence, big data, intelligent manufacturing and other technological innovations.

“We are establishing an incubator to invest in high-tech start-ups,” says Dr Yi Ye, the founder of Cogita Development Liverpool. “A strong talent pool, good research abilities, as well as an open culture and convenient transport links were all important factors when deciding upon Liverpool as our hub.”

Last year, Liverpool saw the number of Chinese listed companies investing into the region reach an all-time high

The company, that launched in December 2018 in Liverpool Science Park, says that the three universities and the large number of research institutes in the city, which attracts some of the world’s best researchers and scholars, was a major pull. The University of Liverpool has produced nine Nobel prize winners and the city is among the best in the UK for its work in the fields of chemistry, life-sciences and advanced manufacturing.

Furthermore, Liverpool is within a short distance of Manchester, Newcastle, Sheffield and Leeds and only two hours from London. The Northern Powerhouse programme is expected to further improve transport and logistics between the north and the south.

“Plus, the cost of operation of the company in Liverpool is cheaper than operating a business in Manchester or London,” says Ye. “Liverpool is the first city we operate our business from in the UK. The local operation team has been established. In the future, we hope to expand our business from Liverpool to the whole of the north of England.”

ZPMC, the largest heavy-duty equipment manufacturer in the world, has also recently launched their UK headquarters in Liverpool. The company makes machines and cranes for handing large port containers and for use in wind power, installing ship parts, seawater desalinisation and providing the steel structure for the latest of the Forth Bridges at the Queensferry Crossing in Scotland.

After Peel Group chose ZPMC as their exclusive crane supplier for Peel Port Liverpool Terminal 2, it gave the company the confidence to establish a UK based firm, says Daniel Zhong, Director of ZPMC UK. The company will provide technical services and spare parts for the crane equipment used in the ports but Zhong sees this as a first step into the UK market.

Since launching three years ago, ZPMC UK has seen its business expand year on year and has built strong relationships with local partners and suppliers, both technical and within regional government, which, says Zhong, has enabled further skills sharing and cooperation.

“Having a ZPMC team with technical know-how in the UK has certainly made communication and cooperation much easier than communicating with the overseas team,” says Zhong. “Not only are we providing legacy services but we’re offering extended business support such as smart parking solutions and terminal tractors. Our main target is to develop more legacy products and related services, and we expect to see substantial growth in the coming years. ZPMC UK will have a golden future and this bridge between United Kingdom and China will be as strong as the steel structure that ZPMC manufactured,” says Zhong.

Just north of Liverpool, Lancashire’s Fylde coast is also attracting Chinese interest. The Port of Fleetwood is currently undergoing regeneration with the waterfront land being of interest to a Chinese company active in the area. The promotors of the Wyre Dock Development have earmarked a site for a year-round botanic leisure attraction called Gardens of China, involving the Dutch specialist botanical architectural firm Smiemans Projecten. “This forms part of a hotel, residential and leisure attraction scheme that uses waterfront land near to the River Wyre estuary that accesses the Irish Sea,” says John Woodman of Wyre Dock Development.

“The transport infrastructure and upgrade investment will involve a new hydrogen cell powered bus fleet for area operator Blackpool Transport Services in a deal led by UK bus manufacturer Alexander-Dennis and a Chinese partner” says Woodman. A former rail line into Fleetwood is also being proposed for a demonstrator tram-train service using the latest designs from a Chinese rail equipment manufacturer who is entering the UK market.

Read more about China’s investment into the Leeds City Region

Read more about China’s investment into the North East

Read more about China’s investment into the Manchester

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In the first half of 2018, Chinese outbound foreign direct investment (OFDI) has dramatically veered towards Europe over North America. The value of completed Chinese investments was six times higher in Europe (£9.3 billion total with £1.25 billion in the UK) than in North America (£1.55 billion), according to    Baker McKenzie and Rhodium Group. This trend looks set to continue, with technology firms in particular considered the “crown jewel” of Britain for Chinese investors. According to Management Consultancy Firm Mckinsey, China’s outbound investment will resume its upward trajectory with a focus on “Made In China 2025” sectors and digital technology, areas such as Artificial Intelligence (AI) and the Internet of Things (IoT).

We find that UK SMEs are particularly attractive for Chinese institutional investors, due to the strength of “Brand Britain” and the UK’s status as a world leader in innovation

This upwards investment trend is partly due to China’s fluctuating stock market and lower real estate returns at home. China now has the second-highest number of billionaires globally and many of these are diversifying their investment portfolios to include UK assets, which are perceived to be more stable.

Investment firms, such as the newly established China Heritage, where I serve as Chief Marketing Officer, are responding to this need by helping private investors diversify their portfolio abroad. We find that UK SMEs are particularly attractive for Chinese institutional investors, due to the strength of “Brand Britain” and the UK’s status as a world leader in innovation. Due to the potential for a post-Brexit UK-China trade deal and the rocky China-US trade relationship, there has never been a more encouraging outlook for UK SMEs to raise Chinese funding.

“Along with capital, Chinese investors can provide important market knowledge and distribution capabilities, while the sheer size of the market enables companies to test and refine products with condensed timescales,” says Mark Hedley, technology lead at the China Britain Business Council.

Types of Investors and How to Reach Them

Angel Investors and High Net Worth Individual (HNWI)

Angel investors typically provide seed funding through a one-time investment or an ongoing injection of funds to industries which they understand and where they can offer value. The best way to find angel investors is by reaching out to your network and their peripheral relationships in the same industry or a complimentary line of business.

Family Offices

A single family office (SFO) is a private company that manages investments and trusts for a single family. Much of their wealth is in its first or second generation, so many families are still aggressively seeking greater returns instead of wealth preservation. SFOs are particularly common in China and many can be found through professional wealth management firms in Hong Kong and Singapore.

Government Grants and Funding

Both the UK and Chinese government routinely offer grants and funding to collaborative projects. In 2015, both governments collaborated on a £16 million fund for joint projects in energy, healthcare, urbanisation and agri-food. At Kaitlin Zhang Branding, we have helped UK clean tech firm Loowatt raise RMB 1 million (£110,000) joint funding from the Guangdong Provincial Department of Science and Technology. Keep an eye out on government websites for these opportunities.

Venture Capital (VC) Firms

While Chinese venture capital firms don’t often disclose financial information, there was a considerable uptick in financing activity during 2017, with total annual Asia funding activity increasing by 117 percent year on year, according to CNBC.

“A venture capitalist looks for a strong product or service that holds strong competitive advantage, a talented management team and a wide potential market,” according to Will Jiang, Partner at N5Capital, a Beijing VC firm and previous client of Kaitlin Zhang Branding.

Firms that are looking to establish their brand in China are particularly attractive to VCs because they like to lend their expertise to help their portfolio companies succeed through activities such as marketing and recruitment. The key to finding the right venture capital firm is by researching the firms that typically invest in your geographic location, funding series and industry. Websites such as Crunchbase and 36kr can help identify suitable firms.

Kaitlin Zhang is the CEO of Kaitlin Zhang Branding, a cross-border digital marketing agency specialising in technology and financial services. The company works with UK technology firms to establish their brands in China and support them with raising vital capital. The company also works with some of the top Chinese venture capital firms and private investors to build their brands outside of China, in addition to supporting fundraising efforts in excess of $200m USD.  

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Chinese public investors – central banks, sovereign funds and public pension funds – increased their assets by $145bn during 2017, according to the Official Monetary and Financial Institutions Forum’s (OMFIF) Global Public Investor (GPI) 2018 report. The report tracks the assets under management of 750 such institutions from 174 countries that collectively hold $36.2 trillion of assets, equivalent to 45 percent of global GDP.

China, while home to only three GPIs, hosts 12 percent of total global assets. Most are held by the People’s Bank of China (PBOC). With $3.2 trillion of reserves, it is the world’s largest GPI. China Investment Corporation (CIC) ranks 6^th in the global ranking, with $813 billion of assets, while the National Council for Social Security Fund ranks 28^th, with $299 billion. The PBoC played a key role, increasing its reserves by $134 billion and reversing the declining trend between 2014-16. As well as a weaker dollar, this appears to reflect the Chinese authorities’ efforts to curb capital outflows through tighter regulations on outbound investment by businesses and wealthy individuals. The increase was supported by China’s strong economic performance during 2017, with GDP growth reaching 6.9 percent and exceeding the leadership’s target. This, in combination with downward pressures on the dollar, helped restore confidence in the renminbi, which appreciated by around 10 percent against the US currency in 2017.

The renminbi was the most popular currency for GPIs looking to adjust their currency portfolio allocation. Around a fifth of investors surveyed by OMFIF said they plan to increase their allocation over the next 12-24 months, the highest response for all currencies. The renminbi’s popularity is growing from a low base – central banks, the largest holders of renminbi, hold the equivalent of just $123 billion, less than Australian or Canadian dollars. However, the pace of demand growth has been impressive, matching the renminbi’s growing role as a global trade and investment currency. This is reflected in the launch of the first renminbi-denominated oil futures contract in March 2018, the inclusion of Chinese A-shares in MSCI’s indices from June 2018, and the growing number of renminbi-funded infrastructure projects forming part of Beijing’s Belt and Road initiative. China’s qualified and renminbi-qualified foreign institutional investors programmes have further bolstered foreign interest in the renminbi.

“The renminbi was the most popular currency for GPIs looking to adjust their currency portfolio allocation”

China’s GPIs and state-owned enterprises have continued to diversify their foreign holdings, shifting assets away from debt securities and into equities. These foreign direct investment assets have grown steadily in the past years to now stand at a record $1.5 trillion. These assets act as important vehicles for deploying Chinese reserves. Infrastructure has been the most popular recipient sector, attracting $455 billion of investment between 2005-17, almost half of the total $1 trillion invested over that period. The US and the European Union, particularly Britain, have been among the top destinations for Chinese foreign investment from the CIC and other state-owned enterprises.

There are challenges ahead for Chinese Foreign Direct Investment, with recipient economies considering tightening their screening rules for Chinese investment into strategic infrastructure and technology assets. Last year Jean-Claude Juncker, the president of the European Commission, indicated the commission intended to launch a framework in 2018 to screen foreign investment into assets considered important for public order and security. On 29 May this year, the White House issued a statement announcing its intention to “implement specific investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology.” This is taking place in the context of a broader reassessment of economic and political relationships between Beijing, Washington and Brussels, making the outlook for Chinese investment fragile.

Danae Kyriakopoulou is Chief Economist and Head of Research at OMFIF. For more information download a free copy of Global Public Investor 2018.

 For further information on China’s Financial sector please contact avi.nagel@cbbc.org

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