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Grant Thornton 投英 Tou Ying 25 tracker 2014 reveals soaring Chinese investment in the UK

Chinese companies are growing in the UK at an unprecedented rate, adding a significant contribution to the UK economy through growth and employment, according to the Grant Thornton 投英Tou Ying 25 tracker.

This year’s tracker, in collaboration with China Daily, analyses UK businesses with Chinese parent companies to identify the 25 fastest-growing companies by turnover, based on the latest published accounts. These companies are making a heavyweight contribution to the UK economy – employing more than 4,000 people (up from 2,600 in 2012) and generating revenues of over £25 billion in 2013, up from £17 billion in 2012.

The impressive growth of the Tou Ying Top 25 companies illustrates soaring Chinese investment in the UK as a key destination of choice for Chinese businesses setting up overseas. It also highlights the changing nature of Chinese investment in the UK. Overall growth of the top 25 companies in 2013 was a stunning 38% versus 27% in the previous year. Even the lowest growth rate was an impressive 8% – ahead of most global economic indicators.

Andy Ka, Deputy Head of the China-Britain Services Group at Grant Thornton UK LLP, commented, "We expect several key themes from this year’s tracker to continue into 2015 as Chinese companies place less emphasis on brand acquisition in the UK and focus on internationalising their own brands. A greater focus on infrastructure and business support demonstrates a keen appetite for investing for the long term. This coincides with the growing maturity of UK-based Chinese businesses, which are increasingly aligning their business practices with their European peers to compete on the global stage."

“The landscape for Chinese companies in the UK today is now more diverse and vibrant, thanks to Chinese companies’ ambition to establish themselves globally and the UK’s 'open for business' mentality," says Ji Tao, Europe Editor of China Daily.

As a Chinese media in the UK,  his team has seen clear growth of Chinese companies’ expansions into the UK in recent years. Tao adds, "We believe Chinese investments in the UK will continue to grow as China achieves an economic shift to a knowledge economy and its complementarity with the UK economy increases.”

Ka concludes, "A more recent trend has seen China-based businesses establishing smaller-scale ‘reconnaissance’ operations to build their understanding of the UK and European markets. This has proved a successful formula for companies such as TP Link, which set up its consumer electronics brand from scratch in the UK, recognising the difficulties in generating brand recognition in the market without a physical presence.

“However, the Grant Thornton 投英 Tou Ying 25 tracker highlights the emergence of some interesting new strategies both by State-owned and private Chinese companies. It appears that China may be changing tack."

New players
Thirteen new entrants were added to the tracker this year, many of which are relatively new arrivals to the UK. This year’s Top 25 also contains a number of well-established companies in the UK such as Sinochem Europe, Bank of China, China Telecom, China Unicom and Huawei Technologies. 

As per previous years, manufacturing and financial services sectors dominate the list, closely followed by tech, media and telecoms.

Regional patterns
Last year less than half of the 25 had chosen to set up in London, demonstrating the success of other UK regions in establishing themselves as alternative centres of expertise to attract inward investment. However, the 2014 tracker shows a shift back to a greater concentration on London and the South.

A more strategic approach
China has opportunity to invest £105 billion in UK infrastructure by 2025 with energy, property and transport being the biggest recipients, according to the Financial Times.

The Chinese Government is also providing significant support for companies to expand and invest overseas through the State Asset Supervision Committee, responsible for all state-owned Chinese enterprises.

London is now also seen as Europe’s leading trading hub for the Chinese renminbi, following the Industrial and Commercial Bank of China’s decision to issue an offshore bond in the UK for the first time last year.

Springboard for global growth
The Grant Thornton 投英 Tou Ying 25 demonstrates the emergence of more mature, genuinely global privately-owned Chinese businesses that are increasingly upping their game and competing on the international stage.

Huawei is one such example, having developed a significant footprint in the UK where its mobile phones compete successfully alongside established Western consumer brands. Similarly, TP-Link’s success in establishing its products with the UK’s major retailers has seen it capture a major slice of the domestic and home office wireless products market, fuelling rapid growth.

There has also been a greater focus on service-based businesses. Global social media marketing agency, We Are Social, is a notable addition to this year’s Tou Ying Top 25 and perhaps indicative of growing Chinese interest in UK creative industry prowess.

Acquisition of established EU brands
The attraction of established brands has also had an enduring appeal for Chinese investors. The recent sale of Pizza Express to Beijing-based Hony Capital highlights another trend - the rise of Chinese private equity buyers looking to acquire assets across Europe. This is part of a new generation of home grown investment firms on the lookout for overseas companies they believe they can help expand in their domestic market – emulating the traditional approach of the state-owned companies.

As the power and resources of Chinese-based online brands such as Alibaba continues to grow, we may see more audacious acquisitions of Western media groups.

Will the UK remain attractive to Chinese business?
The UK boasts an attractive tax regime for overseas investors, with a corporation tax rate currently at 21% and dropping to 20% from April 2015. It is an increasingly popular holding company destination for Chinese companies wanting to set up and expand globally. 

The UK Government has also taken steps to position the UK as a hub for innovation through R&D tax credits and its patent box regime. The UK is also seeing a revival in its M&A market and the Latest Grant Thornton International Business Report on M&A shows 31% of businesses worldwide plan to expand through M&A over the next three years, so it is not surprising to see the number of companies in the Grant Thornton 投英 Tou Ying 25 representing growth through M&A doubling to ten compared to last year.

There is no doubt that the UK has positioned itself as well and truly ‘open for business’ to foreign direct investment and, as a result, has become a favoured destination for Chinese business.