Chinese companies look to invest in UK

Bank branches set up

In the financial services sector, both Shanghai Pudong Development Bank and Agricultural Bank of China have set up branches in London, despite Brexit concerns having seen Western banks move employees elsewhere in the European Union.

"SPD Bank sees the establishment of a branch in the UK as a key stepping stone into the global market. We don't feel there is a major implication to SPD from Brexit," a spokesman for the bank said.

Overseas investment by Chinese companies has witnessed several significant cycles. Early outbound investment in the 1990s focused on developing markets across Asia and Africa, where the business environment is slightly similar to China's, and where Chinese companies are more likely to find a competitive cost advantage.

Since the 2000s, Chinese companies have gradually ventured into more mature markets such as the US and Europe, seeking know-how to aid China's manufacturing and technology development.

An example is computer maker Lenovo Group Ltd's acquisition of IBM's personal computer business in 2005. This accelerated Lenovo's growth to becoming an internationally competitive computer maker.

The fact that China was less affected by the 2008 financial crisis than many Western markets meant that Chinese outbound deals over the past decade increased.

Investment in the UK grew rapidly, and in particular, a sharp drop in the value of the pound since the 2016 Brexit referendum has attracted some high-profile deals.

One example is the $14 billion purchase of the warehouse company Logicor in London by the sovereign wealth fund China Investment Corp in 2017. In the property sector, LKK Health Products Group bought the landmark "Walkie Talkie" building in London, officially known as 20 Fenchurch Street, for 1.3 billion pounds, and CC Land bought the "Cheesegrater" building in London at 122 Leadenhall Street for 1.15 billion pounds.

Most analysts believe that the rush of deals in 2017 on the back of a weak pound will not be repeated, but strong complementarities between the Chinese and UK economies will sustain steady deal volumes.

Zhu Yinan, a partner and chief legal officer with advisory company DealGlobe, said, "I do not expect the volume to increase in 2019, but certainly expect to see higher-quality and more strategic acquisitions."