Hardly a month goes by without news of some asset being gobbled up by an obscure Chinese company with a clunky name and an ugly logo. In the last few years they’ve invested among other things in airports (Heathrow, 10% - China Investment Corporation), water companies (Thames Water, 9% – the same), nuclear power plants (Hinkley Point, 33% - China General Nuclear Power Corporation), football clubs (Atletico Madrid, 20% – Dalian Wanda’s Wang Jianlang), circuses (Cirque du Soleil, 20% -Fosun) and gay dating apps (Grindr, 60% - Beijing Kunlun Tech).
Deals like these were worth well over $30bn (£20.7bn) in Europe alone last year, and Chinese foreign direct investment (FDI) in the UK now totals more than $100bn since the year 2000. Now ChemChina is set to buy Swiss pharma giant Syngenta for $43bn, adding that firm to a list of fully-owned companies that includes House of Fraser, Club Med and Segway.
Unsurprisingly, this has led to a lot of finger wagging. We’re selling our family silver to the Chinese. It’s unfair because they won’t let us buy their firms. Is it really a good idea to let them control strategic infrastructure?
It is true that the People's Republic's nationalist sabre-rattling in places like the South China Sea and habit of 'disappearing' its billionaires doesn't exactly seem to qualify it to be intimately involved with our nuclear infrastructure or water supply. But investment by Chinese private businesses in Britain or Europe doesn’t necessarily have to be a bad thing.
Investment is good... duh
The last time we checked, inward investment was good for the economy. The Chinese aren’t taking our assets – they’re buying them. The money invested here in those assets will then be released back into the economy, presumably to find its way into other equities, which should lead to a net increase to our capital stock and future income.
Yes, the profits from these firms will flow back to China, but that also means the risk is taken by China. Besides, surely it’s better if they buy our brands rather than just copying them, a la the Range Rover?
China’s best partner in the West?
One of the key justifications boards like Syngenta’s or Thomas Cook’s give when talking about deals with Chinese firms is that it will help their company access the ever more lucrative Chinese market. This may not be mere wishful thinking. It is likely to be one of the main reasons Chinese investors want the western firms in the first place – they believe they can market these products and brands at home.
Also, if they are successful, this means that Chinese ownership of European firms could actually improve the balance of trade between the two economies, despite the outward flow of profits.
Keep your friends close
The argument that trade prevents war may have been categorically disproved in 1914 (or indeed more recently in the Ukraine), but it doesn’t mean it can’t encourage harmony. The more Chinese businesses are invested in the West, the more closely aligned our economic interests become. This may not calm Chinese nationalism down, but the more the country deals with mature democratic countries, the more you'd hope something might rub off.
Besides, it is in our interests if China’s economy is more stable (if China goes down, we all go down), which is precisely what diversifying into Western companies and markets achieves.
A little perspective
Concerns that we’re selling ourselves to China are a little rich. For a start, the UK isn’t exactly new at acquiring foreign assets. Its outward FDI stock may have declined somewhat from its level in 2010 – when it was 10% of the world’s total – but it’s still huge.
Just as importantly, firms in China and Hong Kong owe about half a trillion dollars to British-based banks (here’s looking at you HSBC and Standard Chartered), but you don’t see anyone complaining about that being unfair.
Foreign investment in domestic equities always causes alarm when it happens suddenly and in large volumes. A recent perusal of the Management Today archive for our 50th anniversary (happy birthday to us) showed exactly the same concerns in the 60s, about deep-pocketed Americans. But by and large it’s a good thing to have such open trade across borders.
One exception is property. Investment by wealthy Chinese investors (among many others) has fuelled spiralling house prices in London especially. As MT’s recent feature on the housing market mess shows, this isn’t good for anybody.