On 24 June 2016, the British public voted in a referendum to leave the European Union. With the UK being China’s second most popular destination for Chinese investment in Europe, President Xi Jinping had made it clear that China would favour a vote to remain. Notwithstanding the outcome of the vote, this article explores some of the key advantages that have encouraged Chinese investors to continue investing in the UK following the shock outcome of Brexit.
I. Weakening of Sterling
In the initial period post-Brexit, Sterling fell 15% in value to a 30 year low against the dollar and 12% against the yuan renminbi. This resulted in a significant increase in foreign investment activity in certain sectors as investment in the UK market became more affordable.
These sectors include:
(a) Luxury Brands
China has always heavily invested in UK luxury brands. Last year, British luxury brands won the most Chinese luxury consumer awards. For example, Dunhill and Net-a-Porter won the “Accessory for Men Star Performer” and “Online Luxury Retailer Best New Arrival” awards, respectively.
Therefore, it is understandable that high net worth individuals such as Jack Ma Yun, founder of Alibaba, have chosen the UK as the location to establish their European headquarters. Their hope is that by establishing themselves in the UK, they will help European brands understand the type and quality of goods Chinese consumers demand and also that they will be better placed to make investments in luxury brand owners in the UK and the rest of Europe due to European business owners becoming increasingly receptive to Chinese investment.
(b) Real Estate
Homelink, one of China’s biggest real estate agencies, explained that the number of enquiries received by their Chinese clients has surged by almost 50% since Brexit. The British real estate market appeals to Chinese investors for a number of reasons including the transparent judicial and tax system, the top educational institutions (note that the UK has long been the main destination for Chinese students in the EU with over 50% of Chinese students studying in the EU being enrolled in UK institutions) and the high cultural diversity. Some of the most notable real estate projects that have taken place in the UK over recent years have been backed by Chinese investors. By way of example, One Nine Elms, a pair of luxury residential towers with their own five star hotel, are currently being built in London and were funded by Dalian Wanda, China’s largest developer.
来自中国最大房地产中介之一链家的消息，自从英国脱欧以来，其收到中国客户的询盘数量激增近50%。英国房地产市场吸引中国投资者的原因有很多，包括透明的司法和税收制度，顶级教育机构（注：英国一直是中国学生在欧洲的主要目的地，超过50%在欧洲学习的中国学生入读英国学校）以及高度的文化多样性。近年来在英国进行的一些最著名的房地产项目，得到中国投资者支持。举例来说，One Nine Elms，拥有自身五星级酒店的两幢豪华住宅楼，正由大连万达（中国最大的开发商）出资在伦敦兴建。
Foreign investors are keen to understand (and own) the technology behind the UK’s most successful businesses. Once they purchase the technology, they own the intellectual property rights and are then able to replicate and develop it for use within their own markets. As an example of the appetite for British technology, a UK based designer of microprocessors was recently acquired by a foreign investor for $32 billion.
Earlier this year, Chinese technology and investment group Cocoon Networks announced that it will be launching a $720 million London-based venture capital fund in the next three to five years aimed at investing in UK and European tech start-ups. Concerns were voiced that it could trigger authorisation requirements under the EU Alternative Investment Fund Managers Directive. However, Chinese investors are hopeful that this will now be avoided post-Brexit as the UK will no longer be subject to what some regard as overly restrictive EU regulation imposed on it by Brussels.
(d) Sports and Entertainment
Over the past year, Chinese investors have quietly started heavily investing in European football clubs in what is becoming known as “Chinese football.” Earlier this month, The Sino-Europe Investment Management Changxing group acquired AC Milan for approximately $815 million, wiping out the club’s debts and enabling it to compete with the elite clubs on the player transfer market. Three rival English football clubs were also sold to Chinese investors. Aston Villa was sold to Chinese businessman Dr Tony Xia for $98 million; Wolverhampton Wanderers was sold to Chinese conglomerate Fosun International for $58 million, and Yunyi Guokai Sports Development have confirmed a deal to purchase West Bromwich Albion for a reported $58 million.
Chinese investors understand the commercial benefits in investing in well-known European football clubs. Many have claimed that they are investing to “change the behaviour of viewers” towards pay-per-view sports in Asia. They also believe that, by investing heavily in foreign players for their own Chinese teams, their team’s chances of success will increase, thereby generating more income revenue from sponsorship deals and an increase in the domestic fan base.
Chinese investors have also continued to invest in the Western entertainment industry. US cinema chain AMC Theatres, which is owned by Chinese conglomerate Dalian Wanda, the world’s biggest Chinese operator, recently purchased Odeon & UCI Cinemas Group from private equity group Terra Firma for $1.2 billion. Adam Aron, AMC’s chief executive and president explained in a public statement that whilst there were general uncertainties created by Brexit, highly favourable currency exchange rates had encouraged AMC to make the purchase.
中国投资者也继续投资西方娱乐产业。由全球最大中国运营商、中国大连万达集团公司持有的美国院线AMC影院，近来以12亿美元从私募集团泰丰资本手中收购了Odeon & UCI Cinemas Group。Adam Aron，AMC首席执行官及总裁在公开声明中解释道，虽然英国脱欧产生了一般不确定性，但是非常有利的汇率促使AMC作出此项收购。
II. The Labour Market
Many British industries currently rely heavily on a migrant workforce and the current principle of free movement of labour across the EU has provided a deep pool of employees for such businesses. If immigration controls are imposed post Brexit, this pool will shrink and, in a market where labour is less readily available and therefore potentially more expensive, UK businesses may well look to China for cheaper resources and labour. On the flip side, this hasn’t deterred many Chinese companies from their UK expansion plans. For example, Huawei, a Chinese and global leading telecommunications equipment and ICT solutions provider, has promised the UK government that its £1.3 billion investment to incorporate UK suppliers into its network of clients will still go ahead.
III. Deregulation and cutting away of red tape
There is a strong possibility that a deregulation across a number of sectors will occur following Brexit negotiations. In particular, the UK will cease to be subject to the wide range of regulatory requirements currently imposed on it as a member of the EU. Post Brexit, the UK will be free to introduce its own regulations, subject to international treaties. This could be extremely attractive to Chinese investors as the UK is likely to provide a more accommodating environment for overseas investors as it repositions itself in the global market.
British assets and companies have always been and will continue to be both desirable and sound investments for foreign investors. The weakening of Sterling has made it easier for foreign investors who want to diversify from their domestic markets to invest in a country that they believe will bounce back and regain its standing as one of the world’s leading economies.