Britain’s Commonwealth Experience the Key to Accessing Chinese Outbound Investment

May 20, 2014 Posted by China Briefing Reading Time: 5 minutes

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Op-Ed Commentary: Chris Devonshire-Ellis

Britain’s colonial past – and those enjoyed by other European nations – may be the key to finally leverage open the door to participation in China’s outbound investment programme. In a development that not even the United States can match, the heritage and connections that British businesses have long developed since and beyond the days of Empire may now be about to pay off.

While addressing an Asia House conference entitled “New Frontiers in China Trade & Investment” in London yesterday, which included a very high profile of speakers, it was apparent throughout the various presentations given that the belief in China going outbound was strong. The key to understanding it, however, lies within two words – infrastructure development.

With China committed to finding resources for what is already a huge and demanding domestic market, requiring everything from agriculture to minerals, China knows it needs to invest in infrastructure around the globe to extract these resources. China too, is prepared to share its own technology, designs – and crucially, finance – in building such infrastructure, ranging from roads and highways to ports and airports. China has transformed itself over the past twenty years. It now has the capability – and often in some difficult terrains – to do that elsewhere, and has been doing so for some time.

Examples include the new port at Colombo, Sri Lanka, which currently dwarfs anything India has yet managed to develop, through to rail lines being extended from Kashgar through Pakistan, and down to the China-developed Gwadar Port on the Indian Ocean.

Talk of the new China silk route again demonstrates China’s now proven capabilities to build sound infrastructure. It now wants to reach out, and especially to resource rich countries, to extract and develop those resources, both for Chinese consumption and under-developed local markets (such as the majority of the Silk Road nations). It also wants to develop rail connections through from Xinjiang to Europe and recent talk has been of the same cutting through North-Eastern Russia, and across to Alaska and Canada to connect with the American rail system.

Yet there is a problem, and especially in Africa and parts of the Asia-Pacific. China’s negotiations and strategic dialogue with many of its international partners to date have not always run smoothly. An inability to understand or appreciate local issues have left, on numerous occasions, the Chinese with a bloody nose when it comes to doing deals externally from their borders.

Fully understanding sensitive local political, religious and cultural demands are not and have not been the strength of many would-be Chinese MNCs. These problems range from political issues over thousands of Chinese workers displacing local jobs to fears of too much dependence upon a single powerful nation – a strong China negative, especially in Central and Southeast Asia. Such governments may want to take advantage of the Chinese infrastructure development and costs, while at the same time wishing to keep China politically out of the picture. China, despite the fact it can provide superb infrastructure and investment, is not always the most suitable nation to be seen placing such development with, and this provides something of a conundrum for the country.

This is where Britain’s history, and the institutions that go hand in hand with this, can offer a helping hand. Britain’s old Empire lives on, in a shadow format, in what is now known as the “Commonwealth of Nations” (the British part was dropped a few years ago). Today, the Commonwealth is a body of some 53 countries, all with mutually strong political and trade ties with the UK. Decades of experience, friendship and assistance has and continues to be transferred between these nations and Britain, with trust, mutual understanding and a set of guiding moral principles and laws to underpin this. Those standards are enshrined within a document known as the Commonwealth Charter, while the Queen remains the Commonwealth figurehead. No doubt the future Kings Charles, William and George will do after. The Commonwealth, then, has considerable sustainability that, to a large extent, transcends the politics of the day.

Commonwealth Countries by Region

Africa: Botswana, Cameroon, Ghana, Kenya, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Nigeria, Rwanda, Seychelles, Sierra Leone, South Africa, Swaziland, Uganda, Tanzania & Zambia.

Asia: Bangladesh, Brunei, India, Malaysia, Maldives, Pakistan, Singapore & Sri Lanka.

Caribbean and Americas: Antigua and Barbuda, Bahamas, Barbados, Belize, Canada, Dominica, Grenada, Guyana, Jamaica, Saint Lucia, St Kitts and Nevis, St Vincent and the Grenadines & Trinidad and Tobago.

Europe: Cyprus, Malta & the United Kingdom.

Pacific: Australia, Fiji, Kiribati, Nauru, New Zealand, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu & Vanuatu.

This mutual history, knowledge and connections are exactly what China, in its relative early days of international expansion and inexperience, needs in order to themselves understand, appreciate and operate in what, for many, are unfamiliar and even difficult territories, and especially so within Africa. The unique opportunity then that British businesses have, and especially those with experience in dealing with any of the Commonwealth nations, is to take that expertise, those connections and indeed the Commonwealth structure, and to partner with Chinese companies that are looking to explore in those very same regions.

This can be done in two ways – having an experienced UK company also familiar with China to act as an operational front, and perhaps providing management expertise. An example here could be India, where local workforces do not tend to take kindly to China’s more abrasive management styles. And let’s not forget that Britain has its own, long history with India, and that India itself is on the brink of a huge development in terms of its infrastructure needs. China, meanwhile, has offered to fund 30 percent of the US$1 trillion infrastructure bill that India needs to spend. There are immense opportunities for British business to sit as mediators in-between the two – they need each other but may well benefit from a British comprador.

Another example is to act as guide for Chinese companies as they embark into unfamiliar territory. The UK has extremely strong relations with many African nations, some of whom have started to become wary of dealing with the Chinese. Cultural, religious and etiquette sensibilities can be provided by British firms with experience of operating in Africa. The opportunities are there. The Commonwealth may need to think about adding a trade section internally that can sew China together with the various component countries. In the meantime, British companies alone have an almost unique opportunity to partner with Chinese businesses and help them in markets unfamiliar to China, but culturally well known to Britain.

Chris Devonshire-Ellis is the Founding Partner of Dezan Shira & Associates – a specialist foreign direct investment practice providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam, in addition to alliances in Indonesia, Malaysia, Philippines and Thailand, as well as liaison offices in Italy, Germany and the United States. For further information, please email china@dezshira.com or visit www.dezshira.com.

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