Op­por­tu­ni­ties ga­lore for Sino-UK trade growth

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The United King­dom has ex­pe­ri­enced a surge of Chi­nese in­vest­ment in re­cent years, among which are some ex­traor­di­nar­ily fast- grow­ing com­pa­nies con­fi­dently es­tab­lish­ing their foot­print on Bri­tish soil through both or­ganic growth and ac­qui­si­tions. Nick Farr, part­ner and head of the China-Bri­tain Ser­vices Group at ac­count­ing and con­sult­ing firm Grant Thorn­ton UK, says Chi­nese in­vest­ment in the UK still has huge po­ten­tial.

Farr says that Bri­tish Prime Min­is­ter David Cameron’s visit to China, as well as sev­eral other re­cent high-pro­file trade mis­sions, have once again re­it­er­ated the im­por­tance of strong bi­lat­eral trade ties be­tween the two na­tions.

“As the num­ber of Chi­nese com­pa­nies go­ing global con­tin­ues to rise, the UK ap­pears to be well and truly open to Chi­nese in­vest­ment, ben­e­fit­ing hugely from the in­flow of funds,” Farr says.

Since 2009, China’s in­vest­ment in the UK, in­clud­ing di­rect in­vest­ment and merg­ers and ac­qui­si­tions, has main­tained strong mo­men­tum and has reached $ 12.4 bil­lion in to­tal, with project in­vest­ments be­ing the main ben­e­fi­ciary.

This year, Chi­nese com­pa­nies have in­vested or planned to in­vest in more than 10 big projects in Bri­tain worth nearly $5 bil­lion, ac­cord­ing to data from the Chi­nese em­bassy in the UK.

The fast growth of Chi­nese com­pa­nies in the UK also high­lights the huge po­ten­tial of the Sino-UK busi­ness re­la­tion­ship, says the Grant Thorn­ton Tou Ying 25 tracker 2013. In Chi­nese, tou ying means “in­vest­ing in the UK”.

The tracker, in col­lab­o­ra­tion with China Daily, mon­i­tors UK busi­nesses with Chi­nese par­ent com­pa­nies to iden­tify the fastest- grow­ing 25 com­pa­nies by year-on-year change in turnover. The 2013 tracker mon­i­tors rev­enue growth of the full year end­ing in De­cem­ber 2011 and 2012.

Th­ese 25 com­pa­nies, apart from their huge con­tri­bu­tions to the UK econ­omy, also em­ployed more than 2,600 peo­ple and gen­er­ated rev­enues of more than 17 bil­lion pounds ($ 27.8 bil­lion) in 2012, an in­crease of 27 per­cent from the pre­vi­ous year.

Even the slow­est- grow­ing com­pany grew by 9 per­cent.

Farr says the growth tracker is a good in­di­ca­tor of the diver­sity of Chi­nese in­vest­ment in the UK, be­cause it con­tains sec­tors such as bank­ing, en­ergy, man­u­fac­tur­ing, re­tail, tech­nol­ogy and telecoms.

Of the 25 com­pa­nies, 20 grew or­gan­i­cally and the rest through ac­qui­si­tions. Nearly half the com­pa­nies are based in Lon­don. The rest are spread across the UK. The se­lected com­pa­nies all have min­i­mum rev­enue of 5 mil­lion pounds, at least 51 per­cent Chi­nese own­er­ship and have been trad­ing at least since the be­gin­ning of 2011.

Stephen Phillips, chair­man of the China Bri­tain Busi­ness Coun­cil, says that the UK’s trans­parency level and its strong Euro­pean links are com­pelling at­trac­tions for Chi­nese in­vestors.

“Chi­nese com­pa­nies that come to the UK get ac­cess to some of the best fi­nan­cial and pro­fes­sional ser­vices that the world has to of­fer. This makes it eas­ier for them to grow and ex­pand their busi­nesses,” Phillips says.

Ac­cord­ing to Phillips, the real ben­e­fit comes from the abil­ity of Chi­nese busi­nesses to cre­ate and pro­tect jobs and to help Bri­tish busi­nesses be­come a part of the global sup­ply chain.

He adds that merg­ers and ac­qui­si­tions and joint ven­tures with Chi­nese com­pa­nies have also al­lowed Bri­tish com­pa­nies to tap into the huge Chi­nese do­mes­tic mar­ket.

While sev­eral Chi­nese com­pa­nies are plan­ning ven­tures in the UK, oth­ers are tak­ing steps to con­sol­i­date their pres­ence and even branch­ing out into other mar­kets.

Min­dray Med­i­cal In­ter­na­tional Ltd and China Tele­com Corp Ltd ( Europe) are two Chi­nese busi­nesses that have cho­sen to grow or­gan­i­cally in the UK, af­ter es­tab­lish­ing a ma­ture pres­ence in the Chi­nese do­mes­tic mar­ket.

Shen­zhen- based Min­dray, a med­i­cal de­vices maker, is a Chi­nese com­pany that ex­pects to use its UK unit as the global hub for ex­pan­sion. “We are com­mit­ted to in­ter­na­tional ex­pan­sion, es­pe­cially in the US and Europe,” says David Yin, the com­pany’s man­ag­ing di­rec­tor for Europe.

The com­pany es­tab­lished its first in­ter­na­tional of­fice in the UK in 2005. Glob­ally, Min­dray has sub­sidiaries and rep­re­sen­ta­tive of­fices in more than 20 coun­tries, while its net rev­enue reached $1.06 bil­lion last year, of which $ 587 mil­lion came from in­ter­na­tional op­er­a­tions.

Yin says the UK is an im­por­tant mar­ket for Min­dray be­cause it is one of the des­ig­nated sup­pli­ers for the UK’s Na­tional Health Ser­vice. “By be­ing a part of the NHS sup­ply chain, which has high stan­dards, our rep­u­ta­tion has risen in Europe and other ma­jor global mar­kets,” Yin says.

“We were as­sessed as a busi­ness holis­ti­cally, in­clud­ing our prod­uct qual­ity, com­mer­cial qual­i­fi­ca­tions and af­ter-sales ser­vice. We passed all the tests and have been a part of the NHS pro­cure­ment sys­tem since 2008.”

The UK is also a ma­jor hub for the Chi­nese com­pany in Europe and houses the hu­man re­sources and fi­nance de­part­ments for the con­ti­nent, Yin says.

He says that al­though Min­dray’s prod­ucts are man­u­fac­tured in China, his team uses the “global de­sign, made in China” motto to mar­ket the prod­ucts in Europe.

Mean­while, Chi­nese com­pa­nies are also thriv­ing in sec­tors where the UK is tra­di­tion­ally con­sid­ered to have a strong ad­van­tage. In the telecom­mu­ni­ca­tions in­dus­try, China’s largest fixed- line op­er­a­tor, China Tele­com, is mak­ing siz­able in­roads af­ter set­ting up its Euro­pean head­quar­ters in Lon­don in 2006.

Cao Li, man­ag­ing di­rec­tor of China Tele­com (Europe) Ltd, says the com­pany has teamed up with sev­eral Euro­pean net­work op­er­a­tors and ser­vice providers such as BT Group Plc, Tele­com Italia SpA and Spain’s Tele­fon­ica SA.

He says it has ex­panded step-bystep to in­clude more than 10 points of pres­ence (an ac­cess point from one place to the rest of the In­ter­net) in lo­ca­tions in­clud­ing Lon­don, Frank­furt, Stock­holm, Moscow, Paris, Jo­han­nes­burg, Helsinki and Dubai in the United Arab Emi­rates.

“Our vi­sion is to con­struct an ‘ in­for­ma­tion silk road of the 21st cen­tury’. Al­though com­pe­ti­tion in the UK and Europe is se­vere, our ad­van­tages in­clude good so­lu­tions for clients, low- la­tency ter­res­trial ca­bles through Rus­sia to con­nect Europe with China, en­abling a fast and re­li­able trans­fer of in­for­ma­tion, timely re­pair ca­pa­bil­ity and good ser­vice,” Cao says.

Com­pared with the more com­monly ac­cepted tech­nol­ogy of sub­ma­rine ca­bles, which are found on the ocean’s floors, China Tele­com’s strength lies in its Euro-Asia net­work so­lu­tion, Cao says.

In­or­ganic ap­proach

China Tele­com (Europe) launched its mo­bile phone busi­ness in the UK last year with CTEx­cel­biz, a ser­vice that uses leased ca­pac­ity on the net­work of Ev­ery­thing Ev­ery­where, the joint ven­ture of France Tele­com SA and Deutsche Telekom AG.

CTEx­cel­biz has more than 10,000 clients in the UK and has since ex­tended its ser­vices to France, Cao says.

Chi­nese com­pa­nies that have taken the in­or­ganic route, mostly through ac­qui­si­tions of strug­gling Bri­tish com­pa­nies, are lever­ag­ing on their UK sub­sidiaries’ tech­nolo­gies and re­search ex­per­tise to de­velop new prod­ucts and mar­kets.

Zhou Xiaom­ing, min­is­ter coun­selor of the Chi­nese em­bassy in the UK, how­ever, says that Chi­nese com­pa­nies are now di­ver­si­fy­ing their in­vest­ments in the UK, mov­ing from tra­di­tional fi­nance, trade and telecom­mu­ni­ca­tions to ad­vanced man­u­fac­tur­ing, in­fra­struc­ture, brand­ing and re­search and de­vel­op­ment.

Zhou says this di­ver­si­fi­ca­tion of the Sino-UK busi­ness re­la­tion­ship has pro­moted the growth of Chi­nese com­pa­nies and helped them go global. It has also boosted growth and em­ploy­ment and helped aid Bri­tish eco­nomic re­cov­ery.

In 2008, Zhuzhou CSR Times Elec­tric, a Chi­nese com­pany that makes train- borne elec­tri­cal sys­tems and elec­tri­cal com­po­nents, ac­quired Dynex Inc, a semi­con­duc­tor man­u­fac­turer based in Lin­coln, Eng­land.

Af­ter the ac­qui­si­tion, the Chi­nese com­pany de­cided to in­vest 12 mil­lion pounds on a new re­search and de­vel­op­ment center in the UK and in­creased the R&D team strength from 12 to 40.

Dynex, on the other hand, helped Zhuzhou CSR build a new fac­tory in China, which spe­cial­izes in low-volt­age IGBT semi­con­duc­tors, while high volt­age IGBT semi­con­duc­tors are made in Lin­coln.

“The strat­egy Zhuzhou CSR Times Elec­tric Co Ltd dis­cussed with us was to re­tain our op­er­a­tions in Lin­coln,” says Paul Tay­lor, who has been CEO of Dynex since 2004.

“They wanted us to grow. They want to in­vest in tech­nolo­gies and fa­cil­i­ties we have here, so we would be able to be­come a leader in tech­nol­ogy.”

Dynex’s team in Lin­coln has grown from fewer than 250 be­fore the ac­qui­si­tion to more than 330 now. The com­pany’s sales team in China has also grown af­ter Zhuzhou CSR be­came a dis­trib­u­tor of Dynex prod­ucts in the Chi­nese mar­ket, Tay­lor says.

Other suc­cess­ful ex­am­ples of Chi­nese M&A deals in the UK in­clude China’s Bright Food (Group) Co Ltd buy­ing a ma­jor­ity stake in Bri­tish ce­real maker Weetabix Ltd last year and Shan­dong Yong­tai Chem­i­cal Co ac­quir­ing ma­jor­ity own­er­ship of Bri­tish car parts maker Cov­press Ltd in July.

Zhou, from the Chi­nese em­bassy in the UK, says that the new mem­o­ran­dum of un­der­stand­ing on civil nu­clear power co­op­er­a­tion signed dur­ing the fifth China-UK Eco­nomic and Fi­nan­cial Di­a­logue in Oc­to­ber in Bei­jing has opened a new chap­ter in bi­lat­eral co­op­er­a­tion.

“China is ex­plor­ing op­por­tu­ni­ties for team­ing up with Elec­trcite de France SA to build two nu­clear re­ac­tors at the Hink­ley Point site in south­west Eng­land,” Zhou says.

Ac­cord­ing to Zhou, China and the UK are com­ple­men­tary economies. “Bri­tain has abun­dant ex­pe­ri­ence in the ser­vice and cre­ative in­dus­tries and tech­ni­cal in­no­va­tion, while China, as an emerg­ing mar­ket, of­fers cap­i­tal and a large po­ten­tial mar­ket,” he says.

Zhou’s views are echoed by Yao Shu­jie, head of the Univer­sity of Not­ting­ham’s School of Con­tem­po­rary Chi­nese Stud­ies, who adds that one area of com­ple­men­tary strength is the UK’s ex­per­tise in R&D and China’s need for bet­ter prod­ucts and tech­nol­ogy, par­tic­u­larly in the ad­vanced engineering and phar­ma­ceu­ti­cal sec­tors.

“What China has is a large mar­ket. For ex­am­ple, if a com­pany in­vests 100 mil­lion pounds in R&D, it would need to sell lots of prod­ucts to re­coup the costs. Since China is a large mar­ket, this can be eas­ily done,” he says.

Cur­rently many Chi­nese com­pa­nies have R&D fa­cil­i­ties in the UK. Com­pa­nies such as Chang’an Au­to­mo­bile Group and Avi­a­tion In­dus­try Corp of China have es­tab­lished R&D cen­ters at the Univer­sity of Not­ting­ham’s Sci­ence Park, to ben­e­fit from the univer­sity’s re­search ex­per­tise.

Yao says that cash-flush Chi­nese en­ter­prises have helped pro­vide suc­cor and cap­i­tal to sev­eral ail­ing UK firms.

He says good ex­am­ples in­clude the po­ten­tial Chi­nese in­vest­ment in the UK’s nu­clear en­ergy sec­tor, and the re­cently an­nounced Chi­nese in­vest­ment in the Manch­ester Air­port City project.

“Most of th­ese are high-cost and high-risk projects. Chi­nese com­pa­nies can in­vest with fi­nan­cial sup­port from the China De­vel­op­ment Bank, which gives them a great ad­van­tage,” Yao says.


David Yin, man­ag­ing di­rec­tor for Europe at Min­dray; Nick Farr, part­ner and head of the China-Bri­tain Ser­vices Group at Grant Thorn­ton UK; Zhou Xiaom­ing, min­is­ter coun­selor of the Chi­nese em­bassy in the UK.

Paul Tay­lor, CEO of the UK semi­con­duc­tor man­u­fac­turer Dynex.

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