Liverpool must work hard to get share of China investment, warns expert

Mar 17 2008

BUSINESSES hoping to secure a slice of China’s $200bn overseas investment fund should prepare for a “white-knuckle ride”, according to the author of a new book on the Asian giant.

But expert Dr Kerry Brown, who is chief operating officer of the Liverpool Shanghai Partnership, says the city is a prime site for Chinese investment.

The momentous growth of the Chinese economy over the past decades is chronicled in Dr Brown’s latest book – The Rise of the Dragon: Chinese Inward and Outward Investment in the Reform Era.

After years of inward investment, the book says the Chinese have accrued a mammoth $200bn fund to plough into business opportunities overseas.

Dr Brown said: “The westerners have been very good investors in China, but the Chinese have not learnt to take that outside.

“This is a historic moment for the Chinese – the money has to be put to some use, they can’t just let it sit in a bank.”

With that fund – which could double to $400bn – Chinese investors will be looking to consolidate their position in strong areas as well as break into new markets.

Dr Brown urged Liverpool to grasp the opportunities but warned it should brace itself as well.

“The Chinese have got to take the plunge and they have got to do it quicker and on a bigger scale than anyone’s ever done it before. It’s very unpredictable.

“We should be prepared to have a white-knuckle ride and the more prepared we are the better.”

In terms of Chinese investment in the UK, Liverpool has not performed as well as other cities.

Newcastle’s approach – driven in part by the regional development agency One North East – has secured “five or six really good” investments.

“One North East has been really canny. They’ve done a China launch pack and students can stay for extra years.

“They give them office space and infrastructure.”

Liverpool could learn from that approach and should think more carefully about how to capitalise on the city’s 2,000-3,000 Chinese students, Dr Brown added.

The city should shout about its human capital, sophisticated transport links and infrastructure, and its access to other markets.

“The UK is one of the most attractive places to invest and yet we have only £150m of investment.

“When you think there are trillions of pounds, we have to ask why is that.”

But winning Chinese business is not without risks.

Their inexperience in international business means a certain amount of “hand-holding” will be necessary.

There is also the language and cultural barriers to contend with.

Contracts, Dr Brown warns, can often be viewed as merely gestures of friendship rather than hard and fast agreements unless they are carefully worded.

The payoff, however, can be a long-term partner who is willing to invest big and learn how global business is done.

Dr Brown said: “Chinese entrepreneurs are not experienced, they are not internationalist.

“That’s the challenge for Liverpool: we have to say ‘we want these people to invest’.”

The country’s political climate also presents risks to watch out for and British companies should be mindful of Britain’s national interest, believes Dr Brown.

“If they wanted more than 10% of a British bank or it they wanted to buy BAE-Systems - ‘no, no no’.

“There are corporate governance issues and issues of transparency.

“How comfortable are we taking these investments from a one- party state, which doesn't have the same standards of openness and transparency that we need?”

And should Liverpool businesses be concerned about China’s human rights record?

Dr Brown concedes that Chinese courts are politically controlled but defends the Government for lifting more citizens out of poverty than any other country and for giving them more rights than they have ever had.

China now has a vocal and economically active middle class, though they still have to shy away from criticising the right of the Party to hold power.

“The economy is unrecognisable since 1978, but the politics is largely unchanged,” Dr Brown said.

“In every area of policy the Chinese have a very clear idea of their national interest and we should be clear - that’s important for the dialogue we are going to have.

“There’s more common ground than you might assume.

“China is the size of Europe so there’s big differences, but on the whole business people anywhere want the same thing - to make money.”

The Rise of the Dragon – Chinese Inward and Outward Investment in the Reform Era, is out now, published by Chandos.