Banking on British investments

By Cecily Liu | China Daily Africa | Updated: 2015-04-10 07:57

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China-led projects will help London's global competitive edge, says adviser to mayor of London

Gerard Lyons says the three words that dominated the last decade were "Made in China" and the three words that will characterize this decade are "Bought by China".

Lyons, chief economic adviser to the Mayor of London, Boris Johnson, says he hopes Chinese investment can play a key role in sustaining London's global competitive position and become the high tech and livable city it constantly strives to be.

"The UK-China relationship is positive. In the summer of 2013 I visited China with Boris Johnson," Lyons says. "The chancellor and the prime minister also visited China that year. Since then we have seen a deepening of the bilateral relationship."

Lyons left his position as chief economist at Standard Chartered to join the mayor's team at the end of 2012. He spent 27 years in senior positions with international banks, attaining a reputation as a thinker and excellent forecaster.

During his banking career, Lyons visited China many times, his first trip being in 1994, when bicycles still dominated the roads of Beijing. He wrote his first book last year, The Consolations of Economics, about the outlook for the world economy, and China figured prominently in it. He recalls speaking at the EU-China Summit in the Great Hall of the People, as well as at the Party School in Beijing.

Lyons says that over the past few years financial industry cooperation between the UK and China has been particularly strong.

One recent area of cooperation has been the UK helping China develop policies relating to the Shanghai Free Trade Zone, led by the UK government and TheCityUK, a financial services association.

The initiative was established in 2013 with the creation of an International Experts Consultation Group, led by the chairman of TheCityUK, Sir Gerry Grimstone, to help Chinese policymakers develop free trade zones.

Since then, about a dozen discussion papers have been published, advising the Chinese government in areas such as maritime insurance, bonded warehousing, negative lists, visa regulations and intellectual property rights. Lyons has contributed to a number of these.

Another major event drawing the two countries' financial cooperation together was the issuance of a renminbi bond by the UK government, which made it the first non-Chinese sovereign renminbi bond.

"As the world's leading financial center, London wants to be at the forefront of the internationalization of the renminbi, and the sovereign renminbi bond is a great demonstration of this commitment," Lyons says.

A third important milestone is the UK government's announcement in last month that it would take a stake in the Asian Infrastructure Investment Bank, becoming the first Western country to do so.

"The UK government is ensuring it is well positioned in some of the new policy-making organizations, as the world shifts from G8-led to G20-led growth, and hopes to help ensure the AIIB is a success," Lyons says.

The bank was proposed by the government of China in October with the purpose of providing finance to infrastructure projects in Asia.

Many Chinese real estate companies have invested heavily in the UK, with notable projects including the developer Advanced Business Park's 1.51 billion pounds ($2.25 billion; 1.16 billion euros) project to transform 14 hectares of the historic Royal Albert Dock into an office complex, and Greenland Holding Group Co's 1.2 billion pounds investment to redevelop the Ram Brewery site in Wandsworth in southwest London.

Lyons says the dramatic change being seen in London, where the population is growing fast and has reached a record of 8.6 million, "reinforces the need for London to invest in its housing and transport infrastructure".

"In addition, London is witnessing recent growth in areas such as tech, digital and life sciences, adding to its existing strengths in the arts and culture, education, law, business, professional services and the financial sector."

Lyons says Chinese investment in London real estate fits well into the city's plans to increase the supply of residential and commercial properties, developing new sites, increasing the density of the city and ensuring effective use of space.

The future of many London property development projects is supported by the mayor's desire to boost investment in new transport links, he says.

This is the case for Advanced Business Park's investment in East London, where local government is developing additional transport links, including Crossrail, which will connect the site with Central London in 2018.

In addition, the mayor is keen to expand the number of river crossings in East London. Two existing tunnels are insufficient to cater for today's traffic flow, Lyons says, the Rotherhithe Tunnel having opened in 1908 and the Blackwall Tunnel in 1897, before being expanded in 1967.

"The further crossings across the Thames will have a positive impact on both sides of the river, and on businesses linked to that. There will be a positive impact on the Royal Albert Docks," he says, which will benefit from the opening of a new tunnel in 2021.

Another sector of the UK economy receiving considerable Chinese investment is infrastructure. A report issued in October by UK law firm Pinsent Masons and the Centre for Economics and Business Research said Chinese companies have the potential to invest 105 billion pounds in the energy, property and transport sectors by 2025.

China is already investing in the UK's nuclear power sector, which Lyons thinks is a remarkable sign of how far China's economy has been transformed.

Lyons says that Chinese investment in the UK's infrastructure sector reflects Chinese expertise gained at home, and their desire to gain added knowledge in overseas markets and to take what they learn back to China.

As financing is a big part of many big infrastructure projects, Chinese firms have an advantage because Chinese financial services firms tend to work with them when providing funding to overseas projects.

"Chinese banks can be a good provider of capital, and they are a growing investor group overseas. This reflects the increasing scale of the Chinese economy and Chinese banks becoming more global in their outlook."

In this context, it is important to ensure the UK takes advantage of the increasing global trade and investment flows resulting from China's growth.

Many Chinese overseas acquisitions have happened in the UK, with Chinese firms now owning famous British brands including MG Motor, Weetabix and the London Taxi Company.

Lyons says the UK's historic attitude of being open to business has meant that it welcomes Chinese acquisitions, recognizing that the additional investment and job creation benefits the UK, even though the brands are no longer owned by their British founders.

He says in the UK this is commonly known as the "Wimbledon effect", taking its name from the famous tennis tournament, where most winners are not British, but the country nevertheless benefits from being the host.

"It doesn't matter as long as international players all come to London. It is important that we remain competitive for international investment, as the jobs will be created here," he says.

He also hopes the UK develops its own new firms and exports far more to China.

Over the years, Lyons has observed China grow and transform through his frequent visits to the country, and he still remembers his first trip in 1994.

He writes in his book that as the plane landed and was taxiing, there was a sudden screech of brakes.

"To my amazement, as I looked out of the window, I saw a cyclist on the tarmac, riding along as if the runway were a normal road. It was the first in a series of things that would be in complete contrast to anything you would experience there today.

"Beijing Airport back then was only one small terminal building, and the road into the city was a dual carriageway, empty apart from the occasional car or farmer's cart.

"Then, on the Monday, as I awoke there was no noise of cars or trucks, no morning rush hour. Looking from the hotel room window, all I could see were thousands of cyclists. The air was clear, the visibility good. It was all so different from now."