Brexit – building opportunities with China?

Jack Clipsham, Corporate Finance Partner, was accompanied by Tiffany Chiu, Corporate Finance Executive and Asia Representative, during the 4 day Annual Kreston China Conference.

The conference attracted 73 delegates, including 64 representatives from different cities across China and nine attendees from outside of China. The focus was on the challenges and opportunities of China’s Belt and Road Initiative, a development strategy adopted by the Chinese Government, the Chinese Government’s crack down on outbound investment and Brexit.

One of the most prominent messages received from the fellow Kreston members was the overall positive interest of UK inbound investment from China but the Government’s crackdown on China outbound investment.

Why would China want to invest in the UK?

There has been a 12% currency devaluation of the Great British Pound (GBP) against Renminbi (RMB) since Brexit was announced: making GBP significantly more attractive to Chinese investors.

What’s hindering it?

The Chinese Government’s crackdown on China’s outbound investment has centred on perceived poor investments being made and the value they added for China. Several examples of bad outbound examples were touted including a chain of cinemas and residential property in its own right.

Jack’s and Tiffany’s trip to Hong Kong and China confirmed this policy is actively in place BUT also established that for the right type of investment individuals and companies would still be supported by the government to invest overseas. For example, IP (intellectual property) that can be taken back to China and benefit the country or natural resources or improvements in processes and systems that can be adopted.

However, it’s understood that additional expected approvals will be needed and therefore there will be an extension to the timeline for getting deals completed.

China’s trillion dollar ‘Belt…’

Theresa May has been heralded in her focus to start a trade and investment review with China and following her China visit, in early 2018, which led to more than £10billion of joint UK and China trade deals both governments seem to have each other’s attention.

But why?

China’s trillion dollars immensely ambitious Belt and Road Initiative needs international buy-in and holds enormous opportunities for the UK and China. Some of the key reasons coming from the Kreston Conference were:

• The UK is the 2nd largest RMB trader outside of China and the RMB is currently the 7th most traded currency in the UK
• We have a strong and stable tax system with a transparent legal system
• The two countries already have a positive relationship. Currently c. 150k Chinese students study in the UK – bringing c. £ 5billion into the UK every year
• The UK has a highly educated and skilled workforce and the UK’s technology and services can support the Belt and Road Initiative development
• We have a robust food and product safety system
• Especially with Brexit over the horizon, the UK’s government supports foreign investment and relationships
• The UK encourages advanced technologies and innovative science
• We act as a potential entry point into other European countries

However as mentioned, the Chinese Government’s crackdown on outbound investment means any trade will have to be mutually beneficial to China.

China has already overtaken the US, in 2014, to become the largest economy in purchasing power parity and following Brexit and the Belt and Road Initiative it is looking good for UK inbound investment.

To learn more, please contact Jack Clipsham who has extensive experience in handling Asia and China investments, or Tiffany Chiu, China Desk Representative, and fluent in Mandarin and Cantonese.