Wednesday - September 10, 2008

Secret investments reveal China’s stealthy advance into UK.  Should Brits be worried?

Secret investments reveal China’s stealthy advance into UK Plc

The Chinese central bank, one of the most secretive in the world, is amassing shares in many of Britain’s blue-chip companies.
Malcolm Moore in Shanghai and Mark Kleinman in London report

It was a bitterly cold January day in Beijing, and events at home meant Gordon Brown was entitled to believe the chill would endure. The crisis engulfing Northern Rock, the mortgage lender which months earlier had been forced to seek emergency funding from the Bank of England, would soon need to be resolved; and as far as the media was concerned, Brown was being poorly served by the fact that Sir Richard Branson, one of a clutch of private-sector bidders for the bank, was spending the trip to the Chinese capital in close proximity to him.
# Revealed: Chinese bank’s £9bn raid on British shares

But for the beleaguered Prime Minister, it was not all bad news. As he toured Beijing, taking in the still unfinished Bird’s Nest stadium, Brown was anxious to emphasize what little upside he had to grasp: Britain’s burgeoning trade links with the Middle Kingdom.

“The greatest benefit to China is that we, Britain, will continue to oppose protectionist forces and will remain the foremost advocates of the openness in the world economy, essential not only to China’s prosperity but to the world’s,” he said.

“The biggest benefit to Britain is that we strengthen our place as the destination of choice for Chinese business and Chinese investment. I hope to see Britain benefiting from a large share of investment from China’s £1bn sovereign wealth fund.”

Brown may have been confused about the numbers (the fund in question was capitalised with about $200bn of the country’s vast foreign exchange reserves when it launched last year), but the sentiment was clear: Britain was wide open to Chinese investment.

Little did Brown know how right he was. Since his January visit, when the FTSE100 opened 2008 at 6456.9, Britain’s blue-chip index has fallen nearly 19 per cent to close last Friday at 5,240.7. And while many investors, spooked by the deepening economic gloom in Britain and abroad, have taken fright from equities, Beijing has been piling in.

In total, investment entities either controlled by or affiliated to the Chinese government now own stakes in at least half of the FTSE100, and probably considerably more. 

(FTSE-100, Brit stock market)

An analysis by The Sunday Telegraph reveals today that the People’s Bank of China, the country’s central bank, owns shares in many of Britain’s household corporate names, including Cadbury, HSBC, the London Stock Exchange, Marks & Spencer and Tesco.

These previously secret investments are in addition to known stakes in BG Group and Drax Group, the energy companies, and Legal & General, Old Mutual and Prudential, the insurers.

In total, the stakes held by the People’s Bank are valued at about £9bn, according to the share prices of the companies concerned last week.

Many of the shareholdings are held through nominee accounts registered in locations including Hong Kong and are technically held by State Administration of Foreign Exchange (SAFE), the body which sits within the central bank and has the responsibility of managing the forex reserves accumulated from China’s decades-long exports boom.

A number of other FTSE100 companies say privately they believe the People’s Bank of China to be an investor but have not established the paper trail which leads to the shares’ ultimate owners. Smiths Group, the FTSE100 engineering firm, was this weekend trying to establish with the assistance of JP Morgan, the investment bank, the provenance of a small shareholding believed to be owned by the Chinese government.

Even allowing for the investments which can be established, however, China’s central bank is now a common name among the ranks of ‘institutional’ investors, like the giant pension funds, fund managers and hedge funds, which litter the FTSE.

At £9bn, SAFE is now thought to rank among the top 25 investors in the London stock market, underlining China’s status as a global economic powerhouse

Such ownership of British stocks is nothing new, even among the investment bodies of Middle Eastern and Asian economies which in recent times have become known as sovereign wealth funds.

The Kuwait Investment Authority, for example, has been an investor in BP since the 1980s, while the two principal investment funds of the Singaporean government have become major shareholders in companies including British Land and Standard Chartered.

I have added below just a few of the comments posted by readers of The Telegraph. 

I’ll gladly welcome the Chinese, after all, their food tastes better
Posted by Aaron Powell on September 10, 2008 10:34 AM

In my professional opinion, it’s about time that an eastern country began to call the shots, especially one as industrious as China.

The dominance of the west is fading and politicians and economists alike are beginning to realize the overcasting shadow of China’s rise to power.

Clearly, it’s time for the baton to be handed to China, their country boasts a rich heritage and sooner or later, the nationalists in their government will be ruthless in elevating China to a level superseding what any previous superpower would have dreamed of.
Posted by Anthony Liu on September 10, 2008 10:25 AM

Prudent farm workers saving their cash while the Land owner gets lazy and complacent ? What a lot of nonsense. The Chinese are rich for the same reason that Britain became rich in the halcyon days: through the use of SLAVE labor. You can never compete with that.
Still, if a little pilates at lunch time keeps them all content, who am I to comment.
Posted by Matt on September 10, 2008 10:21 AM

The British, of all countries, shouldn’t fear foreign investment, as the British are the 2nd largest foreign investors in the world. Indeed, many a mining company making billions off the Chinese economic boom is British owned.

Being such an integral part of the globilised economy is what has given the UK its much famed 60 quarters of growth. Long may that continue!
Posted by Cuthbert on September 10, 2008 5:30 AM

you don’t get it people, I’m of Asian descent and have traveled extensively in Asia and know first hand how vengeful and vindictive the Chinese are. they are still looking for payback for Britain controlling china all those colonial years ago. if you don’t stop them now they will eventually enslave your little island. this is dead serious and no joke.
Posted by Rex on September 10, 2008 4:00 AM

This article’s headline and main gist smacks of either ignorance or prejudice. The list just simply indicates a very diverse portfolio, with small percentage holdings in each. Why should you ALWAYS perceive China’s investments as suspect? Just because it’s officially ‘communist’ and thus a potential ‘enemy’ with ‘evil intentions’? Shame on the Daily Telegraph for persisting in such ideological crusades.
If anything, the very fact that China’s private and public sectors are embracing money and capitalism should be great news to all. Once they have a stack in the Capitalist world, they will be further from their self-proclaimed ‘communism/socialism’, and be more integrated into the international framework.
Perhaps, the reason why China’s central bank is dabbling in such investments is that unlike other more skilful and experienced international players, they are still new to the CLEVER idea of forming a separate investment company, which other countries’ governments have done?
Posted by Edwin Heng on September 7, 2008 7:18 AM

http://tinyurl.com/6ndc53

Posted by Drew458     on 09/10/2008 at 04:58 AM   
Filed Under: • Economics • International • UK •  
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