The UK government’s seizure of British Steel from Chinese owner Jingye has sparked a heated debate, drawing attention to the intricate web of Chinese investments woven into the British economy. Unravelling this complex tapestry, with threads stretching back over two decades, presents a formidable challenge. According to the Rhodium Group, Chinese investment in the UK has surpassed $100bn since 2000, with a significant portion funnelled into strategic sectors such as energy, technology, and transport.
The energy sector alone has absorbed almost a fifth of all major Chinese investments since 2005, highlighting a diverse portfolio that includes wind farms off the Scottish coast and gas networks in Wales and Northern Ireland. Derek Scissors, a senior fellow at the American Enterprise Institute, points out that while state-owned enterprises (SOEs) bring size and expertise to large-scale projects, their presence raises concerns about the Chinese state’s influence over critical national infrastructure.
Leading state investors include China Investment Corporation, which holds stakes in Thames Water and Heathrow Airport, and China General Nuclear (CGN), a minority stakeholder in the Hinkley Point C nuclear plant. CGN’s proposed involvement in a new nuclear power station in Bradwell, Essex, now hangs in the balance, as the government faces mounting pressure to curtail Beijing’s influence.
Meanwhile, private Chinese investors have gravitated towards real estate and strategic manufacturing sectors, including semiconductors, steel, and transport. Geely, owner of Volvo Cars, has acquired iconic British brands such as the black taxi-maker LEVC and sports car brand Lotus, both with UK factories.
However, both state-owned and private companies have drastically reduced their funding in recent years. Last year, Chinese foreign direct investment (FDI) into major UK projects plummeted to just 3% of its 2017 peak. Scissors attributes this decline to a “less welcoming” attitude from the UK, tightening capital controls by Beijing, and the poor performance of property assets that had initially drawn private investors.
This trend is not unique to the UK. AEI data reveals a stark decline in Chinese funding across the globe, with investment in major projects plunging 97% in the US and 87% in Europe between the mid-2010s peak and 2023. Armand Meyer, a senior research analyst at the Rhodium Group, notes that heightened scrutiny from British regulators has contributed to this downturn.
The UK’s historical openness to foreign ownership in strategic sectors has made it a top destination for Chinese funding, with SOEs accounting for a significant share. However, this legacy presents a daunting task for regulators as they grapple with acquisitions completed before investment screening regimes were tightened.
This news may reshape development in the sector in several ways. Firstly, it could catalyse a more stringent review process for foreign investments, particularly from state-backed entities. The UK’s National Security and Investment Act, implemented last year, is a step in this direction, but further measures may be required to address legacy investments.
Secondly, it could accelerate the diversification of the UK’s energy and infrastructure partners. The government has already indicated its intention to explore alternative nuclear power station projects, reducing reliance on Chinese technology and investment.
Lastly, it could spark a broader debate about the balance between attracting foreign investment and safeguarding national security and economic sovereignty. As the UK seeks to define its role in a post-Brexit world, this discussion will be crucial in shaping its approach to global trade and investment.
The seismic shift in Chinese investment flows will undoubtedly send ripples through the market. As the UK grapples with its past openness and future caution, one thing is clear: the rules of engagement are changing, and so too must the players. The coming years will be a test of the UK’s ability to adapt, balancing the need for investment with the imperative of security.
