Raising some red flags
RESPLENDENT in a pinstriped suit, Sun Lizhi talks of the opportunities for his waste-recycling company, Linyi Tianwei, in Britain. From Shandong province in eastern China, Mr Sun was in a large delegation of Chinese businessmen visiting Scotland this week. He is looking for business partners and hopes that British investors will be attracted by the 20 patents he has developed. Asked why he is in Britain rather than Germany, Italy or anywhere else, he answers with one word: “trust”. Mr Sun, like many Chinese investors, perceives Britain to be a fair and honest place to do business.
If he had been a government official, his answer may have been a little more cautious, following a summer of back-and-forth between the two governments over proposals to build a new nuclear plant at Hinkley Point in Somerset. Having suspended the controversial project shortly after succeeding David Cameron as prime minister, Theresa May on September 15th finally gave it the green light again, albeit with conditions attached. Électricité de France (EDF), a French state-owned firm, is building the reactor, and the Chinese have stumped up £6 billion ($7.8 billion)—about one third of the cost. Chinese officials accepted Mrs May’s right to review it, argues Paola Subacchi of Chatham House, a think tank, but they felt “betrayed” by the manner in which it was done. They were not consulted, so the episode has “undermined the trust that the Chinese have in this government,” says Ms Subacchi.
So far, however, the Hinkley hoo-ha does not seem to have dulled the Chinese appetite, especially among private companies, for British expertise and assets. Last year, Chinese inward investment in Britain reached $3.3 billion. Gordon Orr, formerly of McKinsey in China, hopes that the bust-up might yet turn out to be just a blip. But he says that the Chinese certainly noticed that, just as the Hinkley deal was delayed, SoftBank, a Japanese company, was allowed to snap up ARM, Britain’s most successful technology company, for £24 billion with hardly a murmur of official disapproval. To the Chinese, says Mr Orr, this was like the American government letting a foreigner buy Google. Chinese diplomats still talk of a possible golden era of co-operation between the two sides, but Xu Jin, a counsellor at the Chinese embassy in London, also talks of the need for “trust” in a trading partner. He now expects China to begin a feasibility study on building a nuclear reactor at Bradwell in Essex when Hinkley is finished.
It is private businessmen who are most worried about any official fallout from Hinkley, says Mr Orr. If the mood in Beijing sours towards Britain, they fear they might be discouraged from continuing their buying spree of British assets, which has been boosted by the post-referendum fall in the value of the pound. Chinese companies have been active recently in the renewable energy, oil and gas, and biomedical sectors. In May China’s Creat Group Corporation bought Bio Products Laboratory, a leading maker of blood plasma products, for £820m. As the Chinese economy grows more sophisticated, there is huge interest in buying or partnering with British technology companies to help in China.
And then there is the promise of the “northern powerhouse”—a scheme proposed by the former chancellor of the exchequer, George Osborne, to boost the north of England—and HS2, a high-speed rail link. Mr Osborne launched the £12 billion procurement process in Chengdu last year, wanting China to part-finance some of the projects. With his departure from government, the Chinese have lost their main cheerleader and, with doubts over whether such costly projects will continue, there could be more trouble ahead.
Increasingly, people wonder whether Mrs May is as committed to the projects or the co-operation with the Chinese that characterised the Cameron-Osborne era. But with all the money looking for opportunities abroad, it may take more than that to stop the flow of Chinese investment.
