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EU referendum vote must not distract government from focus on China

The new chancellor’s visit to China so soon after his appointment carries huge significance.

As the former foreign secretary, Philip Hammond is no stranger to engagement with China. This continuity will be welcome as he embarks on talks to emphasise that Britain is open for business post-Brexit.

The UK must reflect deeply on how Brexit will affect major trading partners such as China and ensure there is no damage to these important relationships.

Pinsent Masons does not foresee infrastructure and energy investment from China to the UK slowing down, given the strong fundamentals that remain in place. In fact, these UK sectors are expected to receive £100bn from China by 2025.

Bespoke opportunities

Furthermore, there may be additional opportunities for Chinese investors. For example, the referendum result may lead to changes to EU procurement rules, which currently cause packages of investment to be individualised rather than wrapped.

If the UK moves away from these rules, it may have greater flexibility to structure deals that will appeal even more to Chinese investors, who often like to combine construction, supply chain packages and co-financing, for instance.

“So far any negative impacts on major infrastructure projects with Chinese involvement have been nothing more than speculation”

There has been caution over the past few weeks and there are major projects to which Chinese investors are probably applying some additional due diligence following the Brexit vote.

But we are unlikely to see significant change in the medium to long term. So far any negative impacts on major infrastructure projects with Chinese involvement have been nothing more than speculation. Everything is still there to play for.

Hotspots ahead

Infrastructure and energy will continue to be major areas of activity, following the momentum generated by High Speed 2, Hinkley Point C and potentially Crossrail 2.

Real estate is also set to remain extremely attractive, though some of the more interesting options for Chinese investors will be outside of London, as we saw with the recent investments at Airport City in Manchester and in Sheffield.

China’s huge initiative is the Belt and Road: a strategy focused on increased connectivity and co-operation between the People’s Republic and surrounding countries.

Although this policy does not extend to the UK as such, it will provide a complementary backdrop to the Chinese and UK governments’ continuing dialogue.

The biggest opportunities for the UK are through collaboration on projects in third countries covered by the Belt and Road, especially where UK engineering and design prowess can enhance propositions for high-value, complex and long-term concessions with significant operation and maintenance needs.

The chancellor must work to turn such opportunities into concrete deals.

Vincent Connor is partner and the head of the Hong Kong office for Pinsent Masons

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