UK Opportunities for Chinese Enterprises

According to Tencent Finance, due to the UK's open economy and light regulation, it is often considered to have the most ideal business environment among major European economies. Currently, the UK is the largest recipient of Chinese investment in Europe.

A key business benefit of investing in the UK is direct access to a leading global financial center. The UK accounts for 70% of global bond trading, more than half of global foreign equity trading takes place in the UK, and 32% of global daily foreign exchange trading is conducted in the UK. For Chinese enterprises, the strength and breadth of the UK's financial sector is a key advantage for obtaining different types of commercial financing. The fact that London is accelerating its pace to become an offshore RMB center will also bring greater convenience for Chinese enterprises' financing.

At the same time, the UK has the most competitive corporate and personal tax rates in Europe, and its overall tax burden is far below the EU average. Earlier, the UK's main corporate tax rate was 30%, already lower than other major European economies. According to Ms. Li Kailin, Head of China at UK Trade & Investment, this corporate tax rate may be reduced to 20% next year. The UK labor market is also more flexible for employers. The UK has fewer labor regulations than most other European countries, with an average workweek of 43.1 hours, compared to the EU average of 41.9 hours. Companies like Huawei and CIC have deeply felt the openness of the UK economy. Both companies, which faced investment obstacles in the US, have found success in the UK. Huawei's management once directly stated: 'The UK is our best choice because it is the world's most lightly regulated and most advanced telecom market.'

In addition to its mature and sound business environment, outstanding business opportunities are also attracting increasing commercial investment to the UK.

'Real estate and infrastructure are currently the two most prominent sectors for Chinese investment in the UK,' said Lu Yubiao, Partner and Head of Beijing Consulting Services at PwC China, to Tencent Finance. 'UK real estate has been relatively stable during the financial crisis without major fluctuations, giving investors confidence in the market and making it attractive to investors who prefer fixed investment returns. The infrastructure industry is similar to real estate, with stable returns, and the entire UK infrastructure industry is relatively mature.' The person believes that although there will be demand for investment in high-end consumer goods in the UK, there are relatively fewer investment opportunities compared to real estate and infrastructure.

According to data from Real Capital Analytics (RCA), an independent research firm focused on capital markets and commercial real estate, in the first 11 months of this year, total investment from China into the UK real estate market was $3.8 billion.

In a 2011 'UK Infrastructure White Paper', the UK government emphasized: 'Historically, the UK has been fragmented and passive in developing its infrastructure networks. Investment has not kept pace with population growth and the need to maximize infrastructure potential. More importantly, the UK has never had a clear long-term plan to maintain and improve infrastructure. To maintain global competitiveness, we must now address these issues.' Introducing new investors has become one of the primary response strategies proposed by the UK government in the white paper. This unprecedented UK infrastructure plan has opened wide the door for foreign investors like China and has been a major driving factor behind the investment boom in UK infrastructure projects over the past year or two.

According to previous estimates by the UK Treasury, by 2015, the UK's funding gap in energy, water, transport, telecommunications, and waste management will reach £200 billion.

According to other reports, in 2012, the UK became Europe's largest recipient of overseas investment in two industries: business services and software, with the UK accounting for 24% and 34% of their market shares, respectively. The UK is also the preferred investment destination for the financial intermediation industry, accounting for 23% of such transactions in Europe, despite the industry undergoing comprehensive contraction in Europe due to the ongoing credit crunch. In 2012, most Chinese investment in the UK was concentrated in services, energy, food and mining, as well as high-end manufacturing and infrastructure.

Because China has additional foreign exchange reserves, Chinese state-owned enterprises and major companies have recently been leveraging the UK's funding needs in utilities and infrastructure projects to acquire these attractive assets and obtain long-term stable returns. China's sovereign wealth fund, CIC, has invested $800 million to acquire a 10% stake in Heathrow Airport operator and purchased a 9% stake in Thames Water, the UK's largest water and sewage company. The fund has repeatedly stated its intention to make more investments in the UK in the future. Similarly, the State Administration of Foreign Exchange (SAFE) has recently spent more than $1.6 billion on at least four UK investment projects, including a water project and student accommodation and office projects in London and Manchester. The UK's broadband infrastructure has also received significant attention from Chinese telecom companies, especially Huawei. Huawei has made major contributions to high-speed telecom connections in the UK, and the telecom giant said last September that it would spend £1.3 billion by 2017 to support UK telecom upgrades. In addition, many Chinese enterprises have also invested in the infrastructure for the London Olympics.

For Chinese SMEs hoping to enhance their international strength or strengthen their competitive advantage in the domestic market, they are increasingly recognizing that although operating costs in the UK may be slightly higher, establishing R&D and design departments there is a good choice. The UK is leveraging its history in innovation and design to attract Chinese enterprises, and these efforts have aroused investor interest, especially from Chinese manufacturers. The UK government has just introduced a 'patent box' law aimed at promoting foreign investment in UK patents and R&D through incentives (including tax reductions). On the other hand, China's demand for intellectual property protection has been growing rapidly. In terms of the percentage of global intellectual property applications, applications from China rose from 15% in 2008 to about 25% in 2011. China has surpassed the US in four areas to become the country with the largest volume of global intellectual property applications: patents, utility models, trademarks, and industrial designs. In the coming years, China's desire for research and intellectual property protection combined with the UK's strong cultural background in supporting innovation and design should be a very interesting combination.