2010: Chinese Inward Investment Potential
Chinese worldwide investment expansion from 2009 attracted many entrepreneurs who wished to grasp any business opportunities which might arise. To facilitate this Sir Richard Branson formed the “E2Exchange” a network of talented budding and established business people.
This in turn spawned the “88Initiative” a company which specifically targeted young Chinese students for business skills development (founders, Sir Richard Heygate and Sir Paul Judge.)
The initiative led to the formation of the Chinese “Sinofortune Group”. It was this company that intended introducing up to £10billion of inward investment to Scotland. Details below:
2011: E2Exchange Network – President Richard Branson
Founded in 2011, E2Exchange has developed into an exciting, thriving and powerhouse network of ambition, investors, and innovation; exchanging ideas and opportunities within a trusted community driven by a motivation to help entrepreneurial businesses prosper.
They are a hub for 10,000 scale-up and established entrepreneurs, sophisticated investors, world-class corporate service providers and experienced non-executive directors driving economic growth in the UK, with ambitions to expand this globally.
“I am delighted to be the Honorary President of E2E. Supporting entrepreneurs who do not have access to networks and other resources to grow their businesses is critical to helping build a prosperous, equitable world for all.” Richard Branson
28 Nov 2013: The 88 Initiative: Putting guanxi into Great Britain
Two of the City’s most prominent ‘knights’ have joined forces with an entrepreneurial network to create greater ties between UK businesses and Chinese investors. Millionaire and City veteran Sir Paul Judge is having a party round at his on 20 December and it promises to be a Christmas party with a mission.
High up in east London’s ‘The Panoramic’ building, Chinese entrepreneurs, high net worth individuals, representatives from Chinese family businesses, Chinese students, local entrepreneurs and private equity professionals will all be chatting over a few glasses of eggnog, as they look out over the Thames. It’s the second event by the 88 Initiative and building ties between UK and Chinese businesses is the aim of the game.
The 88 Initiative, a venture designed to improve relations between Chinese businesses and investors and their UK peers, is not the brainchild of Judge though; his long-time friend Sir Richard Heygate (former partner at McKinsey and inventor of the online ATM, no-less) came up with the idea. Sir Richard has joined forces with E2Exchange, an organisation for entrepreneurs, for which another Sir Richard (Branson of course) is the honorary president – in order to launch the 88 Initiative.
With its inaugural event in September in the bag and the second one speeding towards it, the 88 Initiative is close to clinching investment deals for a number of UK-based companies.
Why now?‘ There are many ultra-high-net worth Chinese investors who want to invest into British businesses but don’t have the relationships in the UK to do this,’ explains Shalini Khemka, chief executive of E2Exchange.
Central to Chinese business culture is trust, so we are helping Chinese investors build relationships in the UK to gain that trust to facilitate investment flows into SMEs and help accelerate their growth.’
After leaving McKinsey, Sir Richard worked on a number of start-ups and soon realised there was no institutional funding for UK entrepreneurs,’ he said. ‘I came across fantastic British inventions which had simply run out of money and died off or been sold for a fraction of their value. ‘I was talking with a friend, one of the biggest immigration lawyers in the UK, and he pointed out China has the largest pool of venture capital in the world. And while the UK is keen to attract Chinese wealth, China needs UK innovation.’ Sir Richard, like many a British businessperson and politician before him, realised China could hold the answer to many of our investment problems.
But the classic problem when it comes to doing business with the Chinese is their emphasis on trust and building strong relationships before signing any deals. It’s not as easy as rocking up and swinging your start-ups around. ‘The generation in power in China is not easy to deal with,’ explains Sir Richard. ‘Mostly, they don’t speak English and rely on something called guanxi – business trust.
There’s no point in heading over to China, organising meetings and going to cocktail parties unless you have a high level of guanxi.’ While lecturing at the Said Business School, Sir Richard came up with what he thought might be a solution.
He was lecturing at the college and met a swathe of Chinese students – he was vastly impressed with their entrepreneurialism and saw this generation as holding the key to doing business with the older generation. ‘I was so impressed with what an inspiring bunch the Chinese students were,’ he says. ‘Many have three or four degrees each, they’re very hard working and open minded.
I realised maybe these people were the bridge and so I decided to work with the younger generation. I’ve become friendly with six or seven groups of young entrepreneurs, building guanxi, and through them gained access to high net worth individuals and venture capital firms in China.’
Together the E2Exchange and Sir Richard are hoping to use the 88 Initiative to do a number of things; identify, mentor and fund new ventures in both the UK and China; seek out suitable UK brands who can branch into the Chinese market and build long term partnerships with Chinese family businesses; encourage UK venture capitalists to open their portfolios to Chinese investment banks and corporations. Phew. That’s no mean feat.
The initiative is currently on the verge of three deals involving UK businesses; a wine brand, a healthcare company and a hotel deal and ‘there are lots more in the hopper’. It is formalising the 88 incubator for joint China/UK entrepreneurs, setting up two agencies in China (one west coast, one inland) and launching a new venture capital firm with Rob Wylie of Wheb Partners as chairman.
All stations are go. The timing of the 88 Initiative couldn’t be better. Thanks in no small part to some tussling on George Osborne’s part, London is due to become the designated trading outpost for the Chinese currency – the renminbi – at the end of 2014, early 2015. According to commentators, this will open the floodgates for Chinese investment in the UK.
The odd Lloyds building here, Manganese Bronze there, will pale in significance. Organisations such as the 88 Initiative will hopefully smooth this change of gear and help entrepreneurs as they try to do business with the Chinese. ‘For UK SMEs looking to expand overseas, China is a huge market and there are significant benefits for Chinese investors who want to invest into UK businesses,’ explains Khemka ‘Chinese investors are keen to invest in UK businesses if they can see that the companies have high quality brands, with real potential in their home market.’
Khemka’s experience of dealing with UK-based entrepreneurs has taught her that although the opportunities are out there – our home-grown start-ups and small businesses aren’t taking them.‘Many UK entrepreneurs still do not realise the huge potential that the Chinese market offers their businesses,’ says Khemka. ‘With those entrepreneurs who are aware, there is some inertia because of the language and cultural barriers and also the lack of understanding regarding how Chinese investment and business operates.
We can support companies by giving them more confidence, through introducing them to the right people and helping them build relationships with the most influential networks and investors.’ Eighty-eight is the luckiest number in Chinese culture but it looks like the success of the 88 Initiative will have little to do with luck and a lot to do with guanxi – something we bet we’ll all be hearing a lot more of… (management today, 88-initiative)
2016: Sinofortune Group – Linked to 88 Initiative and E2Exchange
Sir Richard Heygate, a member of the E2Exchange, founded the 88 Initiative in 2012 with Sir Paul Judge, a City of London boardroom veteran and former director general of the UK’s Conservative Party, and set out to bring to the UK some of the billions of private and public money that China was looking to invest across the globe.
Peter Zhang was a research associate at York University’s Management School – and was a founding committee member of the China Innovation and Development Association which received Chinese embassy-level support from 2009. It seems to be something of a hothouse conduit for the billions of investment that came after President Xi’s visit to Britain in 2015.
The Group is a Chinese company and has been taken as a model for China’s state-run capitalist strategy. It was incorporated in London in July 2015. The joint majority shareholders are managing director, Peter Zhang and the Liaoning Fortone International Investment Group, a subsidiary of Liaoning Fortone Group, an engineering- and construction-focused conglomerate based in the north-eastern Chinese city of Shenyang that lists its main business activities as “mega project investment.” The “Sino” part of the “SinoFortone” name comes from Sinolinks, a company formed by Peter Zhang in Hong Kong in 2012.
Professor Yu Xiong, the Chair of Technology and Operations Management at Northumbria University’s Newcastle Business School, knows Zhang from his university days and also has, he says, advised SinoFortone and the British and Chinese governments on joint cooperation business strategies (indeed, he is also a director of a SinoFortone business).
According to Yu, SinoFortone relies heavily on State funding but because of a slowdown on the release of funds – caused by a very real fear of corruption and tightened due diligence – the majority of this funding is not actually secured. “From my understanding they have signed some deals and secured some funding but Sinosure have not yet approved most it.”
Sir Richard Heygate, former company director who resigned from the group in December 2016, said SinoFortone’s commitment had fallen apart when China’s state export credit agency, Sinosure, refused to provide finance.
In the Autumn of 2015 Chinese investment in the UK increased markedly. Scotland attracted new opportunities some of which were sourced through ” Asia Scotland Institute” a charitable company of repute based in Edinburgh. One such company was SinoFortone (UK).
After many months of quiet diplomacy (required behaviour when dealing with Chinese businessmen) in April 2016, Scotland’s First Minister signed a “Memorandum of Understanding” (MoU) with SinoFortune committing government to further discussions which it was anticipated would lead to significant inward investment to Scotland.
The understanding was concluded within the General Election “Purdah” period and this prevented any major announcement. But the anti -SNP Scottish press decided to “go for the Kill” and broadcast news of the venture widely each day adding a series of “spoilers” designed to discredit the Scottish government.
Opposition group leaders in Holyrood “climbed aboard the bandwagon” claiming ignorance of any discussions with Chinese companies, lodging a series of unfounded outrageous allegations of misrule by the Scottish government. The sequence of events is detailed below:
Oct 2015: Asia Scotland Institute Chairman’s Letter To the First Minister of Scotland – Infrastructure Funding Opportunity from China – Chinese Investment in Scotland
I was in touch with your office last week and you may recall had written to you prior to your visit to China earlier this year. Although currently in the United States, I return to Edinburgh by the end of this month and am writing as agreed with your office to resuscitate my original communication, particularly in view of the successful and recent Chinese visit to England.
Prior to your own visit to China Sir Richard Heygate wrote the following:- “I will say that there has not been a single private conversation I have had with senior Chinese figures that has not ended up discussing how the RMB will replace the Dollar as international currency.
I doubt if top politicians will admit this, but it has an overwhelming feeling in the business community. How this will play out in the international world, I cannot predict, but all trends show that China will be overtaking the US in GDP in the near future.”
Sir Richard added this piece of advice for yourself and remember he knows the Chinese well and has great relationships with some very significant Chinese individuals and companies. “Keep answers simple. The Chinese hate smart complexity as they feel one is trying to fool them. They also love “visions” and “dreams” in a way we have long forgotten. You should emphasis your dream for Scotland and stress how the Scots traded so heavily with China in the past and that you are committed to get people to do the same today”.
Focusing on moving matters forward, I have encouraged Sir Richard Heygate (copied on this email acting for the two Chinese potential funding companies, to allow you and your colleagues to address the question of what major infrastructure projects might be explored with the Chinese in the coming months.
The recent announcements of significant transactions in England during the Chinese State Visit have prepared the ground for similar large projects in Scotland. I look forward to hearing back from you and arranging a meeting in Scotland in early November to see how we can take the initiative forward. (Roddy Gow, Asia Scotland Institute)
8 Apr 2016: Letter from the Scottish Government to SinoFortone (UK)
The Memorandum of Understanding (MoU) does not commit the Scottish government to any specific projects and that full due diligence would of course be undertaken should the MoU ultimately result in any projects. It is also emphasised that the MOU is not a binding legal agreement and emphasised that this had been made clear in public statements.
Note: In the period 27 October 2015 – 9 April 2016 there was a copious exchange of correspondence between various parties, the bulk of which appeared to be directed to the need for clarification of matters arising from a proposed investment of Chinese capital into Scotland. Full details are to be found at: “http://www.gov.scot/Resource/0050/00500943.pdf”
14 May 2016: Holyrood questions lodged about China firms agreement
Dozens of questions about the Scottish government memorandum of understanding with Chinese firms were lodged during the first session at Holyrood. Wullie Rennie lodged a total of 28 questions, all on the topic of the China agreement and government memoranda of understanding.
He asked a series of questions about whether government officials were aware of the Norwegian blacklisting, their assessment of the firm’s human rights record, what advice was taken before signing the memorandum, and whether the government would suspend the memorandum until it had investigated concerns.
Ms Sturgeon said no firm investment plans had been made and insisted that due diligence would be carried out. (BBC News)
31 May 2016: Scottish government China Deal Correspondence Released
In a chamber debate about the economy, Wullie Rennie said it was now clear that aides had tried to “Tippex” China Railway out of the deal after “devastating revelations” from Norway’s pension fund and Amnesty International, which he said had “condemned” the firm. He said “no due diligence” had been done on the company before the memorandum was signed, and said the Scottish government should be “embarrassed”.
Meanwhile, Scottish Conservative MSP Alex Johnstone said the SNP had “dodged and weaved for weeks” over the deal. He said: “Finally when forced to publish the facts, the SNP blames opposition parties for asking questions. It’s classic SNP: duck scrutiny and then go on the attack when challenged.”
And Scottish Labour said the SNP had “misled people” about Mr Souter’s involvement in the deal, with Jackie Baillie calling for a parliamentary statement from Mr Brown and an investigation by the Economy Committee.
Responding for the Scottish government, Mr Brown said the papers “show how misguided opposition politicians have been about the China investment memorandum, exposing their assertions as unfounded.
It is clear that while all potential investment has to be considered carefully, opposition parties should be wary about deterring potential investment. The full set of papers we are releasing shows the approach taken by the Scottish government to potential investment in Scotland was entirely appropriate throughout the process.
The papers confirm that the interest from Chinese investors with the potential of up to £10bn of investment in a range of private and local authority projects was serious and credible, but that discussions remain at an early stage, with no specific projects or any investment whatsoever agreed.” Full details: “http://www.gov.scot/Resource/0050/00500943.pdf”
Britain was expected to benefit from Chinese inward investment as a result of the visit to Britain by the Chinese President in the summer of 2015. It did but suffered a sharp reverse due to a number of unexpected events. These are detailed below:
May 2015: Asian Infrastructure Investment Bank Formed in China
In recent years the Chinese economy boomed due to a worldwide free trade agreement resulting in the accumulation of substantial cash reserves. The Chinese Central Bank authorised foreign inwards investment and also looked abroad, to other countries for opportunities to enter into joint business and infrastructure projects.
The UK government was not slow to respond to the Chinese initiatives and announced a new era of open trade. China then created a new funding structure the “Asian Infrastructure Investment Bank.”
George Osborne, Chancellor of the Exchequer, went off to Beijing to sign up to the new arrangement and during his visit announced that the UK would be a founding member of the new bank.
The US authorities were furious that he had placed the US/UK alliance at risk. Not to be put off George then advised his hosts of the new HS2 rail link between London and the North of England and the opportunity for joint China/UK major infrastructure investment.
Note: Following his defeat in the 2015 General Election Danny Alexander was repaid with a peerage for his loyalty to the UK Chancellor, George Osborne. He was further rewarded with the appointment to the post of vice president and corporate secretary of the Asian Infrastructure Investment Bank. In this position he would have been fully conversant with developments in Scotland.
Wee Wullie Rennie’s claim, in the Holyrood parliament that he had been kept in the dark about the initiative by the Scottish government beggars belief. The number of questions he raised in Holyrood betrayed the level of his knowledge of events. It is entirely possible leaks published in the Scottish press originated with the Lib/Dem Party
Jul 2015: Chinese President In First Visit To The UK For Over Ten Years
During the official four-day visit President Xi Jinping and his wife, Peng Liyuan stayed at Buckingham Palace as guests of the Queen and attended a state banquet. Mr Cameron and the President held two days of talks, including Chinese investment in UK infrastructure and business ventures for British companies in China.
Jun 2016: Britain Votes to leave the European Union
The unexpected referendum vote (on June 23) to leave the European Union caused much anxiety in Beijing who had expected to use the UK as a base to expand into Europe.
Jul 2016: UK Prime Minister Theresa May delayed approval of the nuclear power station at Hinckley Point
The shock decision (July 28) by the newly appointed UK Prime Minister, Theresa May, to defer approval of the nuclear power plant at Hinkley (part-funded by French/Chinese investment) caused consternation in France and Beijing. It appeared the US had voiced concerns about the project and others in the pipeline would be compromising the security of NATO.
China’s response was to highlight the huge inward investment of Chinese finance into the UK economy, the planned expansion of trade and that diplomatic and trade links had existed years between China and Britain for many hundreds of before the creation of the USA.
They also highlighted that the vote in the June referendum to leave the EU had been assisted by a vision of Britain outside the EU with closer links to new markets such as China.
Also that Inter government discussions had been held exploring new trade deals and it was imperative that open trade arrangements were put in place so as to ensure active participation in the “Made in China 2025”, initiative which addresses China’s declining competitive advantage in manufacturing by encouraging Chinese companies to make better-quality products. The scheme presents a golden chance for British firms to manufacture and supply high-tech equipment, design and consultancy.
Reference was also made to arrangements currently in place which include British employees working with many Chinese companies world wide on multi-billion pound projects forming part of the “One Belt, One Road” initiative which is designed to revive the ancient silk roads, connecting China with its neighbours and beyond, through investment.
And failure to sign off the nuclear power station agreement could also jeopardise the HS2 infrastructure development. She signed the agreement. But the damage had been done.
Aug 2016: Blow to UK Economy As China Clamps Down on Overseas Investment
Chinese overseas deals worth almost $75 billion were cancelled last year as a regulatory clampdown and restrictions on foreign exchange caused 30 acquisitions with European and US groups to fall through.
A quarter of the value of commercial property deals that were in the market on 23 June, the day of the EU referendum, have since fallen through as investors tread cautiously amid uncertainty around Brexit negotiations. (Himanshu Singh: Citywire)
There is early promise that 2017 will be a better year for Britain and Chinese relations. Red Rock Power Ltd has been established in Edinburgh and the Chinese Console wrote to a Scottish newspaper clarifying China’s commitment to inward investment worldwide. Details below:
15 Nov 2016: China-Scotland Inward Investment – Renewable Energy Development
On 15 November, Red Rock Power Limited, a subsidiary of Chinese “State Development and Investment Corporation” (SDIC), officially opened its office in Edinburgh.
Managing Director, Mr. Wang said that with the Chinese President Xi Jinping’s successful state visit to the UK, a “Golden Era” of the relationship has begun, providing a strong support for the offshore wind power cooperation between China and Scotland.
As Scotland has rich marine resources, excellent investment environment, comprehensive offshore operating experience and outstanding professionals, the Chinese side has full confidence in the investment and development of Scottish offshore wind power projects, and wishes to work together with its counterparts to make a role for business cooperation between China and Scotland.
SDIC looks forward to participating in Scottish economic development in more areas for mutual benefit.
First Minister Sturgeon expressed her warmest congratulations on the office opening of Red Rock Power Limited. She said China is an important partner to Scotland, and the both sides are strongly complementary with each other in economic cooperation. http://www.fmprc.gov.cn/ce/cgedb/eng/xwdt/t1416271.htm
17 Nov 2017: The Chinese Consul General in Scotland replied to an article entitled “Questions over China Deal Remain”, raising doubts about Chinese investment.
At the beginning of this millennium, Chinese investment is widespread throughout the world. For consecutive years, its outbound direct investment (ODI) has kept the third place in the world.
2015 saw China’s non-financial ODI reach a record $118.02 billion and over 30,000 Chinese enterprises operate in 188 developing and developed countries and regions. From January to September this year, its non financial ODI has already overtaken last year’s figure with an accumulative investment of $134.2 billion, up 53.7 percent year-on-year.
As the world’s second largest economy, China has become the second biggest trading partner of the UK outside EU, with the latter as a main destination for Chinese outbound investment.
For the past five years, Chinese investment in Britain has surpassed its combined investment in Germany, France and Italy. A recent example is the significant breakthrough in the Hinkley Point nuclear project with Chinese investment.
Meanwhile, Chinese investors aren’t sitting idle in Scotland with some large enterprises already setting their foot here in the fields of oil and gas as well as renewable energy. This year saw another major Chinese investment in offshore wind farms.
As a major player on the global stage of investment, Chinese enterprises work hand-in-hand with their counterparts in the spirit of mutual respect and trust, achieve wins for both sides and contribute to global economic and social development. In doing so, Chinese investment enjoys a good reputation and warm reception worldwide. (Scotsman 17 Nov 2016)