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'Yes' in Scotland could mean 'maybe' for Chinese companies

Updated: 2014-09-18 08:34
By Cecily Liu in London (China Daily)

Uncertainty about the future could deter some investment, experts say

As Scotland votes on Thursday on the question of independence, the whole world is watching - and that includes China.

Independence could mean uncertainty for Chinese companies, so they might invest less in the United Kingdom generally in the short term, experts said.

Premier Li Keqiang was asked about the referendum during a visit in June. Li said he wanted a "strong, prosperous and united United Kingdom".

That message was echoed by Vice-Finance Minister Zhu Guangyao, who said stability was vital for foreign investors. Zhu commented after a UK-China investment meeting in London earlier this month.

According to advisory firm CrossBorder Capital, investors have pulled money out of the UK at the fastest pace since the financial crisis of 2008 amid fears that Scots will say "yes" to independence and trigger a broader political crisis.

Net flows out of the UK hit $27.3 billion in August, the highest since Lehman Brothers Holdings Inc collapsed.

The UK is the most popular European destination for Chinese investment, which has created or preserved more than 6,000 jobs in the UK, said a UK government report.

"The uncertainties around Scottish independence could cause Chinese companies in the UK to withhold further investment as they wait and see the outcome," said Christopher Bovis, a professor of international and European business law at Hull University Business School.

An independent Scotland could also see an outflow or reduction of Chinese investment, because a newly independent Scotland will have new laws and regulations, tax rules, a new currency and uncertain European Union membership, which all affect business decisions.

"It is therefore possible that Chinese businesses will reconsider their investments in Scotland until such certainty is provided," said Hinrich Voss, a lecturer in international business at the University of Leeds.

"If British companies with greater familiarity of the local business environment relocate away from Scotland, then this could be understood as a sign for Chinese investors to follow suit in order to contain their risk exposure," Voss said.

Lloyds Banking Group, which owns Bank of Scotland Plc, said earlier this month that it is likely to move its registered office from Scotland to London if "yes" wins.

Robert Lyddon, a banking expert and author of The Lyddon Report into the Fiscal Implications of Scottish Independence, said independence will reduce Chinese investment in Scotland.

Chinese companies that invest in Scotland do so because they see it as a springboard to access either the UK market or the European market, he said.

However, independence would change how Scotland is perceived in the eyes of Chinese investors.

Joseph Deng, director of the wind turbine manufacturer Shanghai Ghrepower Green Energy Co Ltd's UK subsidiary, said that Scottish independence would harm Chinese businesses in Scotland, such as his own, because they will no longer be able to receive subsidies from the UK government.

Several other businesses and associations that China Daily contacted declined to comment, including the Chinese telecommunications giant Huawei Technologies Co Ltd, which is believed to have expansion plans for Scotland.

Dylan Sutherland, a lecturer in management at Durham University, said that despite the short-term damage to Chinese investment in Scotland in the event of Scottish independence, in the long term Scotland may offer Chinese companies more business-friendly treatment.

A former British policy adviser, speaking on condition of anonymity, said: "They will suffer an initial hit, but I'm not sure that (foreign direct investment) will be hit much in the long term. As long as Scotland honors the portion of debts it owes as a former member of the UK, this should negate any fears of instability,"

Carolynn Look contributed to this story.

cecily.liu@chinadaily.com.cn

 

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