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By Oren Laurent
President, Banc De Binary
Money is a powerful tool, and China is willing to use it. The country has been repeatedly judged by the West for its human rights’ record but we are still choosing to reap the benefit of Chinese trade; it seems that China now realizes that the recession in Europe offers it ample opportunities to further exert global influence via its spending power. Let’s take the UK as a particularly strong example of this.
At the end of October, the All Party Parliamentary China Group in the UK, and separately the Chancellor, George Osborne, visited China to better understand the warming investment and business climate between the two countries. Osborne returned with a clear message in an ITV interview. For him, the partnership amounts to a simple reality. He told ITV that “China is changing economically – if Britain is not connected to an economy like that, we’re going to lose out.”
According to the Heritage Foundation, China has invested a total of $17.8 billion in Britain since 2005. Today, China’s Investment Corporation has a 10% stake in Heathrow Airport and owns 8.68% of Thames Water, while the luxury British retailer Harvey Nichols has been owned by Hong Kong businessman since 1991, and the China Development bank has a 3.1% holding in Barclays, worth $3 billion. Significantly too, trade between the countries is on the rise and is expected to reach a bilateral goal of $100 billion by 2015.
Both sides have plentiful incentives for creating a strong economic bond. The UK’s increased role in trading Renminbi gives the Chinese access to the international currency markets and reinforces London’s position as the international stage for booming economies. Plus, the Chinese have long demonstrated their ambition to be a global power and diversify their exposure. Undoubtedly, they will also be hoping in private that increased business with the West will give them a degree of political protectia. At the same time, China’s huge population offers great export opportunities for British brands and services, and the cash injections from the world’s second largest economy can provide much needed infrastructures in the UK.
The next two major projects that Osborne has confirmed are the backing for Manchester’s Airport City, and the Chinese investment in Britain's nuclear power industry, both of which will substantially boost the UK economy. Airport City will be one of the country’s largest regeneration schemes since the Olympics, and will see the creation of new offices, hotels, and warehouses. It is expected to result in an additional 16,000 jobs for the country’s North West and offer a great boost to the construction sector. Secondly, Britain will get its first new nuclear power station in almost 20 years thanks to a partnership between the French EDF Energy Company and Chinese investors, which will aim to cut energy bills long-term and prevent any ‘lights-out’ scenarios.
Giving China control over the UK’s future energy and allowing one relatively unknown player to dominate the country’s infrastructures may be politically risky. Certainly some will be questioning Osborne’s judgement on this account. Yet, his thinking is economically sound and sensible. And I look forward to seeing how far China spreads its wings and deep pockets into Europe. Maybe it can provide us some relief as we battle out of recession.
