Going Nowhere

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China’s “Going Out” Strategy, a nationwide commitment to investing in overseas assets which gained momentum during the period of the 12th Five Year Plan (2011–2015) was a win-win on all sides. From China’s perspective, valuable lessons were learnt about investing overseas and doing business with foreigners and, whilst not all of these projects turned out as well as hoped, Chinese companies, investors and entrepreneurs benefited from increased diversification in overseas assets, currencies and markets and gained much needed experience in dealing with foreign businesses, regulators and Governments. For western “middle-sized” powers who are largely dependent on foreign capital (notably Canada, Australia, New Zealand and a ‘post Brexit’ UK) the injection of much needed cash from China created economic growth, jobs and prosperity for all.

For a combination of political, economic and other reasons, Chinese outbound investment to “western countries” has fallen to virtually zero, and the challenge for “middle powers” in the future is nicely summed up by Jim O’Neil, a former UK investment banker, economist and Commercial Secretary to the UK Treasury, in “Week in China“:

“When you are a low-savings, current account deficit country, you rely on capital coming in from overseas. The UK needs to get net foreign capital from the rest of the world. It has to be careful about taking too much of a dogmatic stance about the circumstances in which the capital comes – otherwise it won’t come. Because of the sheer size of Chinese current account surpluses over the past 20 years, China has a lot of net capital that can flow around the world. But there are plenty of other places it can go, it doesn’t have to come here.

However, I do think the UK has been lax in lacking any kind of system about what can and can’t be done by non-British entities in the UK in investment terms. We have such a generally liberalised, laissez-faire system that we haven’t been thoughtful enough about the role of foreign capital in improving our productivity and social goals.

The UK is a country with very weak productivity, particularly in regions like the Midlands and the North. Even though we have great universities, we struggle to develop research-based entities that stay in the UK and provide a huge number of jobs. So in that sense I welcome a policy that sets the terms and conditions of how foreign investors – particularly Governments – can invest in the UK”.

I don’t think that the UK is the only country that needs to establish a clear and well thought out policy on how to deal with much needed foreign investment in the future, particularly coming from China.

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