The London School Of Economics, one of the U.K.’s most prestigious universities, has rejected a multi-million dollar grant from a Beijing-based venture capitalist. The significance of the move cannot be overstated.
For wealthy Chinese investors who were pouring hundreds of billions of dollars into countries across Africa, the Indian Subcontinent and Europe amongst others, August of 2017 was a watershed moment.
In its «Guidance of Outbound Investment Regulation» the Chinese government forbade foreign direct investment (FDI) into sectors that were customary favorites – entertainment, real estate, and sports. The move coincided with an increasing skepticism amongst the recipients of China’s largesse that these investments were aimed at gathering influence more than they were assets.
Pushback Against Investments
As a result, economies that wanted Chinese money were forced to accept it in core industries like technology and infrastructure rather than in Hollywood studios and hospitality franchises. According to data published by the OECD, some $100 billion of Foreign Direct Investments (FDI) spilled out of China in 2018. The number is half of the $200 billion-plus in foreign investments two years ago.
The dip is in part because investment opportunities have withered in the face of geopolitical tensions but those same macro forces have also generated an unprecedented amount of pushback against investments that used to be welcomed. So when Shanghai-based businessman Eric Li proposed a donation to the hallowed British university, his many Ted talks in support of President Xi Jinping, were reason enough for it to be refused.
Football Clubs and Movies, But No More
«The influence Chinese investors have had [on sports and entertainment] has not gone unnoticed,» says one London-based asset manager who has been involved in fundraising for private deals in Hong Kong, Shanghai and Beijing.
«Whether it is advertisements at football games or Hollywood action movies, look carefully and you will see it,» he says. Indeed, the decision to drop Taiwanese and Japanese flags from Tom Cruise flight jacket in the upcoming Top Gun sequel sparked enough controversy to merit a «South China Morning Post» article on «China’s Heavy Hand in Hollywood».
Unofficial Blacklist
«There is a reluctance to see this influence extend to other sectors, especially ones that are seen as integral to the social or economic fabric or the security of a people,» he explains. «Technology, communication, infrastructure, and financial services are on the unofficial blacklist».
The view is not an uncommon one if public opinion surrounding Hong Kong Exchange’s recent bid for its London counterpart is anything to go by. «They must be completely tone-deaf to mount a bid now,» a source had said at the time the $36 billion offer was made public. «It was tainted by association from the get-go,» agrees the asset manager who insists no bid would have been high enough to push through a sale.
The Belt And Road Initiative
The scale and ambition of China’s Belt and Road Initiative (BRI) – a $1 trillion attempt to connect the Mainland to 71 countries that account for half the world’s population and a quarter of its GDP – has divided opinion. The most benign view of it is as the world’s most expensive marketing campaign, more sinister ones have accused China of «debt-trap diplomacy».
Where most commentators agree, is that a project like this would never be greenlighted by developed nations in Western Europe or North America. «Until the BRI, Chinese buyers were viewed with the same amusement as the wealthy Japanese in the nineties, with their penchant for trophy real estate assets and Louis Vuitton,» says the London-based asset manager, who calls the project a tipping point.
Have Money, Will Buy
Increased regulatory hurdles and public scrutiny may have thwarted the appetite for big-ticket deals but the flow of money out of China is nowhere close to a trickle. So where is it being routed?
Since sectoral restrictions are applicable to businesses but not assets, many ultra-high net worth individuals have gone back to doing what they know best – buying real assets. «Instead of buying the real estate developer or REIT, Chinese buyers are buying commercial and residential real estate directly,» confirms a Hong Kong-based tycoon.
Not Quite the World of High-Stakes Finance
Early-stage venture investments are also increasingly popular, as are alternative asset classes such as museum-standard art and antiquities and jewelry. Not quite the world of high-stakes finance that these investors have become used to, but one where their investment dollars are still welcomed wholeheartedly.
