Predictions For Post-Brexit China-UK Business

Share:  分享到:

By Philips Chair in Strategy and International Business and Co-Director of CEIBS Centre for Globalisation of Chinese Companies Klaus E. Meyer

First, it is important to stress that Chinese business leaders generally have a favourable view about doing business in the UK. The English language is easier to grasp, and the legal framework is generally somewhat easier to negotiate for foreign investors than that of many other countries. Chinese graduates from UK universities return to China with mostly positive impressions, and by now there is also a sizable Mandarin speaking diaspora in the UK – not to mention Cantonese speakers who once migrated via Hong Kong. All these factors make the UK attractive to the Chinese.

Will Brexit affect this generally positive potential for business ? To answer this question, we have to look at the motives of Chinese investors in Europe. The pattern of Chinese investors in the UK is quite different from other European countries. In particular, the share of manufacturing investment is small – which reflects the fact that the UK has only a small manufacturing sector. And, anyway, a large chunk of that is foreign owned (US, German, Japanese, India, etc).

Financial risk and return consideration are key to many investors in the UK. Here I am referencing Chinese real estate investors, in particular, as well as property developers who are much more active in the UK than elsewhere in Europe. Financial risk and return consideration are top of the list for those investors who acquire minority stake in European business without fully integrating an acquired company. These investors have all now lost heavily because the British pound dropped. Then there are those who buy an apartment in London as a way to keep their relocation options open in case they run into conflict with the Chinese authorities. With the cheaper pound, will these investors now buy even more real estate in the UK? That depends on their long-term market outlook. Investors believing in the rhetoric of the leave campaign may well put their money where their mouth is. Those following professional analysts will predict prolonged periods of uncertainty, which investors hate, and no quick recovery. Prediction: probably negative for this type of investor.

An operational hub and production site for Europe-wide markets is increasingly important for Chinese investors in Europe. Even assuming there will not be tariff barriers, there will be some barriers due to different standards or border bureaucracy. To serve all of Europe from one base requires frequent movement of goods and people (not to mention profits) across countries. Hence, the UK becomes less attractive for those seeking to grow sales across Europe. Prediction: clearly negative for this type of investor.

Technology and brands have long attracted Chinese investors to Europe. This type of investor is already less common in the UK because of the structure of UK industry. Yet the currency devaluation may make some assets look cheap, especially for investors who mainly wish to use these acquired assets in China. Prediction: possibility for increase.

Tourism has also recently become attractive in countries like France and Spain, especially for Chinese investors intending to serve Chinese tourists exploring the world. Chinese tourists already have a problem with the UK: since it is not in the Schengen area, they need an extra visa if they want to make a multi-country tour of Europe. This will not change. Perhaps the lower pound will lure a few more tourists. Prediction: little effect on investment.

Finally, big name Chinese banks like ICBC have been eying the London market. The city’s financial market is of course no longer what it was before the financial crisis – that’s where the bank runs started after all. The future of the financial market is hard to predict at this time because it depends on a lot of regulatory decisions, both in the UK and in the EU. Until then there is uncertainty. Prediction: negative in the short run.

Overall, I expect a small negative effect in the short run, due to the uncertainty and the reduced ease of access to Europe-wide markets. In the longer run, it depends on how open the “independent” UK is to international trade, investment and migration. Since the leave campaign included both the extreme protectionists and the extreme free-traders, I dare not venture a prediction on that.

This article was first published by FORBES.

Add new comment