China’s Offensive in London

As China sets its sights on European markets, it has zeroed in on London, the continent’s top international financial center. In October 2015, during Chinese President Xi Jinping’s visit to the United Kingdom, the People’s Bank of China announced that it would begin issuing government debt in yuan there—making the City of London the first place outside of China to offer Chinese sovereign debt. In some ways, China’s turn to the United Kingdom is surprising. After a turbulent shared history, dating from the Opium Wars in the mid-1800s to the British colonization of Hong Kong, which lasted until 1997, the United Kingdom has now become the preferred destination for Chinese investors. Since 2012, China has invested (or signed promises to invest) more than ten billion pounds in the country—more than it invested in the previous 30 years combined.

In the United Kingdom, China has mainly invested in real estate and infrastructure, although it has also dabbled in finance, technology, and higher education. It has acquired brands such as Weetabix, Sunseeker, and PizzaExpress, invested in the airports of Heathrow and Manchester, and, alongside France, helped fund the future nuclear power station of Hinkley Point C in Somerset. The Chinese telecommunications giant Huawei has signed a two-year sponsoring contract with the famous Arsenal Football Club in Holloway. London has, in turn, signed an unprecedented agreement authorizing the largest private bank in China, the China Minsheng Bank, to establish its European headquarters in the city. It has also given the green light to the China Merchants Bank, the third-largest Chinese brokerage house, to establish its first trading platform in Europe.

Until recently, Germany had been China’s preferred investment destination. But the United Kingdom’s dominance in finance, real estate, and higher education has placed it just behind the United States in attractiveness to investors. The English language, the size and liquidity of the United Kingdom’s markets, the potential for high profits, and an easily comprehensible fiscal system all make the country a more attractive investment destination than Italy (which received 11.1 billion euros of Chinese foreign direct investment in 2015), France (which received 9.4 billion euros), Germany (which received 7.9 billion euros), and Portugal (which received 5.5 billion euros). China sees the United Kingdom as having a more open economy and being an advocate of free trade in Europe.

Since 2012, China has invested (or signed promises to invest) more than ten billion pounds in the United Kingdom—more than it invested in the previous 30 years combined.

China also appreciates the United Kingdom’s effort to normalize its relations with Beijing. In December 2013, British Prime Minister David Cameron visited China, accompanied by a plethora of ministers and business leaders. In China, Cameron declared that the United Kingdom was open to Chinese investments. “I am not embarrassed that China is investing in British nuclear power, or has shares in Heathrow airport, or Thames Water [the principal water treatment company in the United Kingdom]. . . . I think it’s a positive sign of economic strength that we are open and welcome to Chinese investment.” Six months later, Chinese Premier Li Keqiang visited London, where he was granted the honor of meeting the queen. And in October 2015, Xi landed in London for his grand state visit. Queen Elizabeth II hosted the Chinese president and his wife at Buckingham Palace, and Xi addressed both houses of the British Parliament. Xi’s visit coincided with China’s entry into several British infrastructure projects, including investments in Hinkley Point; a high-speed train between London and Manchester; and a range of real estate developments, including a 1.7 billion–pound deal to transform Royal Albert Dock into London’s next business district. The majority of Chinese investments in the United Kingdom remain property related, both office and residential. In fact, Chinese citizens who invest at least two million pounds in the United Kingdom win the promise of permanent residency in five years.  In addition, the United Kingdom has introduced new visa facilities for Chinese tourists, who contribute 500 million pounds a year to the British economy, according to the latest figures from VisitBritain. The British government pledged to match Washington’s latest ten-year multi-entry visa for Chinese tourists at no extra cost. 

The United Kingdom’s desire to attract Chinese investors is evident from the top down. In March 2015, George Osborne, the chancellor of the exchequer, decided, much to Washington’s chagrin, that the country would join the Asian Infrastructure Investment Bank, launched by Beijing. A few months later, the Scottish politician Danny Alexander became one of the AIIB’s five vice presidents. Last August, Osborne traveled to China and expressed his support for Beijing’s One Belt, One Road initiative by spending a day in the Uighur-dominated autonomous region of Xinjiang. In their visits to China, British politicians have made sure to publicly avoid controversial subjects, such as human rights, Tibet, or even the status of Hong Kong—a gesture that has not gone unnoticed. Back in the United Kingdom, many local British authorities have offices specifically dedicated to welcoming Chinese investors. Andrew Finney, the former deputy mayor of Basingstoke, for example, had assisted Huawei in its attempts to open headquarters in the town.

China appreciates the United Kingdom’s effort to normalize its relations with Beijing.

Still, the United Kingdom does have reservations about opening itself up fully to Chinese companies. After Huawei signed a contract to provide equipment for the British telecommunications network, for example, intelligence officials worried that the company could pose a security threat to British infrastructure. Intelligence experts in Australia and the United States have suggested that Huawei may be linked to the Chinese state and People’s Liberation Army, and in 2013, the British Parliament denounced the “facility with which the government of London has opened the door to a group whose technology apparently poses a security problem to the United Kingdom.” Meanwhile, the British government has maintained its support for Huawei.

For this reason and others, Beijing sees London as an ally in the West. Still, much remains uncertain. On June 23, the United Kingdom will have a referendum on its membership in the EU, with the risk of a possible “Brexit,” or British exit. During his state visit, Xi said, “China hopes to see a prosperous Europe and a united EU, and hopes Britain, as an important member of the EU, can play an even more positive and constructive role in the promoting the deepening development of China-EU ties.” Should the United Kingdom exit the EU, there is little doubt a number of Chinese companies would consider moving their European headquarters to other countries, undoing the impressive progress that each side has worked toward.