In UK the investment doors are open

By Wang Chao | China Daily Europe | Updated: 2014-11-16 12:18

But Chinese companies going there will not necessarily make a grand entrance

Knocking on doors used to be an exercise in embarrassment for Yin Luntao.

The doors in question were those of British hospitals, and the Chinese businessman's shame stemmed from the fact that no-one he met ever seemed to have heard of the electronic medical devices company he works for. Their reaction when they heard it was Chinese only added to their dismissive tone.

Yin is vice-president of Shenzhen Mindray Bio-medical Electronics, the largest medical equipment manufacturer in China, which is only just beginning to make a name for itself in Britain.

"The biggest problem is brand image," Yin says. Clothes and shoes made in China seem to have stereotyped everything we make as cheap and of only fair quality. With medical equipment we have no image at all. People don't know we are capable of making this stuff."

Yin started the business in Britain several years ago after the company bought a US company with operations in the United Kingdom.

"The competition here is ferocious because buyers have so many choices," he says. "You really do have to grab their attention with quality, good service and great marketing."

And because the buyers of many medical products are governments, the low prices that Chinese sellers can offer are not necessarily so tempting. "Quality is by far the most important thing."

It is difficult for any Chinese company, no matter how experienced or smart, to break into the British market, but many hundreds of Chinese investors are buying properties or companies or building research and development centers there.

"As Chinese companies go global, they chase after technology, brands, innovation and high-end consulting services, a basket of assets that only developed markets can offer," says Zhang Jianping of the National Development and Reform Commission. Zhang is director of the department of international economic cooperation in the Institute for International Economic Research, part of the commission.

"Asset prices in Britain are becoming far more reasonable after the debt crisis, and sharp Chinese investors have noticed this," he says.

If you look at the Chinese mainland's history of investment as a journey, you find Hong Kong was the first stop, then Latin America and Africa, and now developed countries, he says.

When Premier Li Keqiang visited Britain in June, Chinese and British companies signed 29 agreements with a total value of $32.5 billion.

Tong Daochi, China's assistant minister of commerce, says that between 2010 and 2013 trade between the two countries soared from $50 billion to $70 billion and China's direct investment in Britain has grown 14-fold to $12 billion.

The British government says there are 500 Chinese businesses that have invested in the country, and more than 10 have gone public on the London Stock Exchange with a total market value of 30 billion yuan ($44.9 billion, 3.9 billion euros).

Chinese investors are active in areas such as energy, high-end manufacturing, real estate, retail, and sectors that may be considered sensitive in other developed countries, such as nuclear energy.

"While others saw risks, we saw opportunities in these so-called sensitive areas," says Sebastian Wood, Britain's ambassador to China. "These areas can significantly boost our employment and the economy."

China's Ministry of Commerce says Chinese entities have created about 5,400 jobs in Britain.

Tong says initially Chinese investors congregated in London, but are now going to other cities, including Manchester and Liverpool. The fields of investment are becoming more diverse, farming and vineyards being among the new areas that Chinese companies have entered.

Infrastructure investment is a major area, with total value of more than $5 billion.

"The investment in this area not only helps the recovery of the UK economy but has also saved some local companies that were nearly bankrupt," Tong says.

The potential for more investment remains huge. China's economy is more than three times the size of Britain's, but outbound direct investment is less than a third of Britain's.

Yang Yihang, deputy director of the investment promotion agency, part of the Ministry of Commerce, says the government is doing its best to encourage potential investors.

"Overseas investment applications under a certain amount no longer need to be approved by the central government, just registered. At the same time the central government has given local governments more room to approve investment."

The British government is also promoting investment from China. This year the National Development and Reform Commission and the British Embassy in Beijing jointly issued a pamphlet offering advice on how to invest in the UK.

UK immigration authorities have recently simplified the visa process for Chinese companies investing in the country, and anyone invited to the country by the China-Britain Business Council and other business organizations just needs to submit an application form and an employment certificate to support their visa application.

Last year Britain received more than 373,000 visa applications from China, 31 percent more than the previous year, with a rising proportion from potential investors, the UK visa and immigration bureau says.

The most prevalent form of investment is company acquisitions, and UK high-tech companies are particularly attractive, China's Ministry of Commerce says.

By last year there had been more than 50 investments in the form of acquisitions, the Bank of China says. Since 2012 the value of acquisitions has reached $18 billion, more than the total in the past 30 years combined.

In 2008, China South Locomotive Stock Corp, which is in the process of merging with China North Locomotive Stock Corp, bought a company in Lincolnshire that makes IGBT, an important component of the circuit system on high-speed trains, which engineers call "the brain of the train".

Previously, this component was 100 percent imported by China. But soon CSR set up a manufacturing center in Zhuzhou, Hunan province, making the same component and opened a research and development center in Lincolnshire. The British company became a training center for CSR employees in other overseas markets such as Southeast Asia.

Qiao Jun, chief engineer of the Changan Automobile UK company, says Britain is a good place for motor vehicle research and development.

Qiao joined Changan's UK development center last year, taking charge of the engine system. His 29-year career in the UK was spent at Ford, Jaguar-Land Rover, and the UK energy study institute.

"Many people think the car industry in Britain is in decline, but that's untrue," Qiao says. "Although many UK-born brands such as Jaguar, Land Rover and Rolls-Royce are no longer British, the engine technology remains strong."

Qiao concedes the British brands are not good at mass production, but they know how to innovate and build high-end vehicles, he says.

"Chinese cars look good, but at their heart - the engine and gear box systems - they are weak, and British research and development can make up for this."

Brand value is another invisible asset that Chinese companies are paying for. Almost at the same time as China's Geely Group was negotiating to buy Sweden's Volvo, it bought stakes from The London Taxi Company and eventually acquired it for 11 million pounds (17.3 million, 13.9 million euros) last year.

"Brand value is priceless," says Lin Xiaohu, general manager of Geely's London Taxi product line.

The company has 350 employees in China and 200 in Britain, with the British operations focusing on marketing and China on manufacturing. Geely plans to invest another 2 billion yuan to build two factories, one in Britain and the other in China.

Geely has taken the car model back to China as taxis in several cities.

"London taxis have a good reputation for their ease of access for the disabled, and that can be used in Chinese cities," Lin says, adding that the Beijing government plans to add 3,000 taxis for the disabled by 2020, an opportunity for Geely.

By the end of last year, private companies accounted for 44.8 percent of non-financial overseas direct investment in Britain, 4.6 percent more than in the previous year, the Bank of China says.

The bank, the oldest Chinese bank in Britain, has financed investments by CNPC, Shuangshui, Bright Food and Hongyi Capital in Britain in the past 10 years.

Wang Huabin, assistant general manager of Bank of China London, says Britain was also the first Western country to issue yuan-denominated bonds, and is now seen as the most important offshore center for renminbi business after Hong Kong.

"The internationalization of the renminbi will accelerate the globalization of Chinese companies," Wang says. "Investing in renminbi can greatly reduce risks. If you use foreign currency to invest, when you take the repatriated profits you expose yourself to currency fluctuations, and if it's a big amount you can lose a lot."

Mindray officials say their decision to invest in Britain had to do with much more than just the country's potential investment returns.

"Of course Britain is a market for us, but what is also highly attractive is the country's influence beyond its borders, into the British Commonwealth," Yin says.

Wang Sanqiang, principal of Mckinsey & Company, a management consulting firm in New York, talks of similar geopolitical influences when he has worked with Chinese companies in Southeast Asia. "For historical reasons British brands have a very good reputation in this region, and Chinese companies wanting to expand quickly are well advised to team up with British companies in this area."

But for all the exotic attractions of investing in the UK, there is one distinct drawback for Chinese investors wanting to buy a piece of the action in Britain. Any Chinese entity wanting to invest over a certain amount overseas needs approval from the government, and obtaining that approval can take months. Rather than hanging around for an approval that may never come, many UK companies with assets for sale opt to sell them to Japanese or other Western buyers, even at a lower price.

This year Sanpower Group Corporation, a Jiangsu-based company operating department stores and selling home appliances, was willing to put a nonrefundable 10 million yuan on the table to ensure it did not lose the opportunity.

The deal entailed it buying 89 percent of the British department store House of Fraser, the biggest overseas transaction in the retail sector.

Yi Chuilin, vice-president of Sanpower, says Chinese companies have to assure the seller the deal is definite, leaving aside the question of government approval.

So Sanpower paid the 10 million yuan as a deposit, was eventually given government approval for the investment and finally closed the deal.

"That was a big risk for us, but we had to do it," Yi says. "In China, department stores don't own brands; the only money we earn is the rent, so we don't have products to do e-commerce. The House of Fraser is 160 years old and owns more than half the brands it sells."

During this process, obtaining expert advice is very important, he says.

"Fraser has a lot of employees, so we needed to handle the pension issue very carefully. Initially, we hired a non-British firm that was not very familiar with local laws. The UK government questioned the pension settlement and we had to revise it later using other teams."

wangchao@chinadaily.com.cn

In UK the investment doors are open