Op-Ed Commentary: Chris Devonshire-Ellis

Aug. 5 – The proposed purchase of England’s Liverpool Football club by the Chinese businessman Kenny Huang has raised many eyebrows, especially as the bid appears to be backed by a Mainland China investment fund, meaning it is being both politically and financially supported by the central government.

The fund, the China Investment Corporation (CIC), is a sovereign wealth fund responsible for managing part of China’s foreign exchange reserves. It was established in 2007 with approximately US$200 billion of assets under management, making it one of the largest sovereign wealth funds in the world. By the end of 2009, the CIC’s assets had grown to US$332 billion. While the acquisition of a high profile soccer club does appear to be a bit bling for the normally conservative Chinese, there is sound rationale behind the China backed proposal to purchase the club.

If successful in making the acquisition, China will have effectively purchased credibility and goodwill – Liverpool have one of the sporting worlds largest international fan base, with supporters in every country. A successful Liverpool side would help promote, indirectly, the largess of China as a nation. It would also assist with the evolution of China’s own understandings of issues of compliance, integrity, and transparency. The Premier League,  the governing body for the likes of soccer clubs such as Liverpool, has just announced substantial improvements in the governing and monitoring of member club’s owners. It creates the delicious concept of the English Premier League indirectly monitoring the transparency of the Chinese government.

There are benefits for Chinese soccer too. The national side, and much of the national soccer league, has drifted towards obscurity and under-performance. An association with Liverpool FC will provide the Chinese with the intellectual access to understanding of how a globally successful club is run. That is bound to have an impact on the development of the sport in China, and ultimately to the creation of a successful national side. The Chinese government also needs the latter situation in place as it helps create national pride and patriotism. That can be politically useful to deflect the nations attention away from more negative issues.

The city of Shanghai is also highly likely to benefit. Liverpool is twinned with Shanghai and is the only U.K. city to be exhibiting at this year’s expo. A tie-in with Liverpool FC, a global brand with potential for advertising Shanghai either as a business or tourist destination, therefore also makes sense. Shanghai Shenhua are a popular regional club in China, regularly attracting gates of more than 30,000. For Liverpool to potentially have them as a feeder club for the best of Chinese talent is good for both, while advertising revenue potential for Liverpool, and thus for CIC, from merchandising and TV rights would be highly useful. Liverpool as a city itself has very strong traditional ties with China. It was a major port for exports from the Britain to Shanghai 100 years ago, and subsequently became home for generations of Chinese coolies who settled in the city and have subsequently integrated and prospered.

The Chinese government has been striving to diversify its investments and has been calling for innovation and confidence in doing so. It’s also a not so subtle dig at capitalist America: China buys yet another global asset from distressed U.S. businessmen. Knowing that they also need to appeal to the younger generation of Chinese who are soccer fans – hundreds of millions watched the World Cup soccer finals in China – CIC have effectively brokered a deal to give them a present. And they don’t get that much bigger in global sports than Liverpool football club.

Chris Devonshire-Ellis is the principal of Dezan Shira & Associates and the publisher of China Briefing. These businesses provide investment advice and assistance to international corporations investing in China, and have been doing so for the past 18 years. He can contacted at info@dezshira.com.

Editor’s Note
Chris’s interview with Radio Australia on the background too and on-going developments on this story can be heard from August 6, 8 p.m. China time on Radio Australia’s web site.

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