Financial | Ting's Blog | Restricting Chinese investment in UK technology will damage the sector and further sour relations between the countries

I was recently invited to be a witness at a Foreign Affairs Committee hearing, which was looking into the risks arising from foreign investments in UK tech businesses, the viability of screening investments on national security grounds and the wider implications of tighter Foreign Direct Investment (FDI) controls on this flourishing sector. The committee was seeking to understand to what extent the UK is under threat from attempts by hostile actors to asset-strip key technologies and industries.  

I was attending in my dual capacity as founder and CEO of crayfish.io (itself a technology-driven startup) and as co-vice chair of the UK-China Tech Forum. I was asked, as an opener, if I had any knowledge of issues with intellectual property (IP), tech transfer and hostile takeovers arriving out of foreign investment within the UK. I don’t and never have.

Companies do have problems with intellectual property in foreign countries (including China) – but that’s not because of having a foreign investor. Often, in that marketplace, it’s down to problems with distributors, customers or suppliers. But it’s definitely not caused by foreign investment, and I do not believe there should be a blanket prohibition.

IP risks are always there for tech companies doing business overseas – but the risks are easily avoided with good corporate governance to ensure that foreign investors do not have access to trade secrets other than what has been agreed as part of the investment. And in the cases I have seen, technology transfer has happened as part of the contract those parties were happy to accept. These are not causing national security issues. And there is no evidence whatsoever to show that foreign investment, including that from China, is linked to any increased IP theft.

It’s true that, in recent years, China has adopted a “market in exchange for technology” strategy to help bridge the shortfall of home-grown tech entrepreneurs and creative talent in China. However, this hasn’t proved successful. As a result, Chinese companies remain the top-paying customers for UK IPs. Additionally, having spent the last 20 years developing and protecting their own IPs, Chinese companies are now among the world’s largest patent applicants.

In fact, having a foreign investor is actually more likely to help protect IP. No investor wants to put their money into an asset and destroy it. On the contrary, some of the Chinese investors I know are careful to make introductions only to trusted partners in China and are the first to warn against potential infringing parties, in order to secure and protect their UK assets.

I should also point out that, while US investors typically require development facilities to be set up in the US, Chinese investors are invariably more flexible and do not require this. They see it as a safer option to keep the facilities in the UK (to help protect against IP risks). And, in general, and from my own extensive experience, Chinese investors and owners have always abided by the investment agreement in terms of keeping UK employment, corporate governance structure and continued investment into research and development (R&D).  

Of course, when there is no investment forthcoming from the UK, foreign investment is invaluable to UK businesses – and any reduction in this would be damaging, in particular to the tech industry. In the majority of cases, tech companies don’t just need capital once. They need a continuous injection of capital in order to grow the tech, commercialise it and scale up. But often there simply isn’t the capital from the UK to help them.

One leading UK bio-engineering company I have worked with – which is using innovative lab technologies to transform drug discovery – has received their only investment from China and Hong Kong. When they started three years ago, there was no interest from within the UK. They ended up having seed investment from a Hong Kong family office after being introduced by a UK professor. A year later, when they needed more financing, the money once again came from Chinese capital on the recommendation of the original Hong Kong investor.

Even though they already had US contractors in the pipeline, US collaboration and a pending Food and Drug Administration (FDA) application, there was simply not enough risk appetite for that kind of technology. They didn’t have a choice of investors. Without the Chinese capital, they would not have been able to develop any of their applications, and the UK would not now be benefiting from any of these new technologies.

Most countries welcome FDI, as is evident from all the schemes in place to facilitate this. Some 20 years ago, there was barely any Chinese inward investment into the UK – but this has now grown phenomenally to over £2bn, around 0.2 per cent of the global total.

The recent opening of the London-Shanghai Stock Connect in June 2019 has further extended opportunities for Chinese companies to list and raise capital in London, with over 260 companies listed in Shanghai eligible to take part. However, if they cannot buy or invest here easily, these potential investors will take their money out of the UK and invest somewhere else. 

Last year, research conducted by Grant Thornton demonstrated the increasingly significant contribution that Chinese companies are making to the UK economy. The Tou Ying Tracker 2019 analysed data from around 800 Chinese companies in the UK and found that, between them, they employed over 71,000 people (up from 62,000 the previous year) and had a combined turnover of £91bn (up from £68bn the previous year). These 800 companies represent only a fraction of the Chinese companies doing business in the UK. In total, they identified over 13,000 companies that were part of a China-owned corporate group or are majority-held by a Chinese national.

The advantage of inward investment works both ways, aiding export to foreign markets, too. Having Chinese investors on board to make warm introductions overseas and advise on the unfamiliar Chinese regulatory environment definitely helps with accessing and expanding into the large and lucrative Chinese market.  

According to a House of Commons briefing paper published in July this year, UK exports to China were worth £30.7bn, more than 16 times the value in 1999 (£1.9bn); and China accounted for 4.4 per cent of UK exports and 6.8 per cent of all UK imports.

The UK already has tools to scrutinise foreign investment and acquisitions that raise national security concerns. It is normal to block any deals on those grounds. Is closer scrutiny really needed? I don’t believe it is. Because, to date, I have not seen one national security issue relating to Chinese investments which the UK has not been able to address or manage under existing regulations.

Of course, even closer scrutiny would mean additional regulatory processes for the foreign investor which would, in turn, slow the process considerably and be counter-productive for export. It will likely put off investors who have other options, and they may not bother with the UK at all. On top of that, there will inevitably be additional compliance costs for businesses to understand the process and more reporting liabilities which they can well do without.

At best, such restrictions need to be focused solely on those sectors where there are real and immediate national security concerns, such as infrastructure, defence and surveillance, otherwise it may not be serving its purpose. If the “closer scrutiny” is then targeting China, amongst a small number of countries, then it will send a very negative message to China, add to the increasingly strained relationship between the UK and China, and further dampen interest from Chinese investors.

There needs to be a balanced approach which, while protecting national security, ensures that the UK remains an open and free economy, as well as an attractive and predictable legal environment for foreign investment.

 

Chinese Translation:

近日,我受到英国议会外交事务委员会的邀请参加了主题为“如何阻止境外资本在英国的资产剥离”的听证会,探讨了一系列外商在英投资的相关话题:境外资本是否对英国科技产业带来了风险;是否需要根据国家安全的原则,对投资进行审查筛选;外商直接投资政策调整及监管收紧之后,会产生哪些重要影响。

我作为Crayfish.io(Crayfish.io本身就是一家由科技赋能的公司)的创始人、CEO,以及英中科技论坛副主席参与了听证会。听证会一开场,我就被问及是否接触过科技公司因为接受境外投资从而引发了知识产权方面问题的案例。其实,我从未见过这种案例。
 

01

境外投资愿意为知识产权买单

 

 

我接触过一些英国公司,在境外(包括在中国)的知识产权保护方面遇到了一些问题,但那并非是境外投资导致的。有时候,是市场的其他方面出现了问题,譬如经销网络、消费者或供应商。所以不可以将知识产权风险简单归咎为境外投资者,也不应一刀切地禁止境外投资。

对于拓展境外业务的科技公司来说,知识产权方面的风险是不可避免的。但我相信规范的企业管理可以建立强有力的商业及科技壁垒,避免境外投资者的过度参与。在我接触过的案例中,技术转让时有发生,但都是双方自愿接受的合同的一部分,而且没有上升到国家安全层面。同时,境外投资(包括来自中国的投资)也并没有导致更多的知识产权风险的发生。

在最近几年,中国秉持着“用市场交换科技”的策略来试图为该领域的企业家和人才弥补技术上的短板。除此之外,中国公司迄今为止仍然是为英国知识产权买单最多的客户之一。中国用了20多年发展及保护本土的知识产权,现在中国公司也是全世界最多的专利申请者之一。

事实上,就我观察,拥有境外投资者有助于保护知识产权,没有谁希望自己投资的资产遭到剽窃和破坏。据我所知,有些中国投资者对保护他们的英国知识产权资产相当谨慎。他们只介绍信任的合作伙伴给英国公司,并且总是第一个告诫公司需要提防试图侵权的第三方。

 

02

境外投资有利于推动英国科创企业发展

 

 


相比较而言,美国的投资者通常都要求在美国本土建立科技的基础设施,而中国的投资者在这一点上显得非常灵活。他们认为,将科技设施保留在英国本土反而更为安全稳妥(能够避免知识产权风险)。另外,中方投资者和企业家对于投资协议的宽容度也更高。他们愿意继续聘请英国员工,遵循英国的企业管理体系,并持续在科研发展上进行投资。

大多数情况下,科技公司需要持续不断的资本注入。这有助于他们发展企业,实现商业化并规模化增长。但这些帮助他们的资本,往往并非来自英国。如果没有来自英国本土的投资,那么来自境外的投资对英国的科技发展就显得至关重要了——哪怕只是些微的减少,都会使英国的科技领域的发展蒙受损失。

例如,我们有一家客户是位于剑桥的技术领先的生物工程公司,他们利用创新的实验室技术改革药物的研发过程。三年前,当他们刚成立时没有任何英国当地的投资人对此感兴趣。其实这家公司在当时已经有了美国的潜在意向客户,相关申请也已提交食品药品监督局(FDA)审核。但他们的专利和技术,并没有引起英国本土投资人足够的兴趣,对投资者的选择也就无从谈起了。

后来是通过一位英国的教授引荐,获得了一家香港家族企业的投资。而在此后的一年,当他们需要更多投资时,香港企业又引荐了内地企业的投资。他们唯一的投资来自中国大陆和香港。如果没有中国的投资,他们可能都没有机会推进研发工作,并加以应用。而作为结果,英国也就无缘通过这些新兴科技而受益了。

事实上,大多数国家都欢迎外商直接投资,并制定了相应的策略进一步促进投资。20年前,来自中国的对英投资几乎为零,但在今天,这个数字已经超过20亿英镑,占全球对英总投资的0.2%。
 

03

中国资本助推英国企业进驻中国市场

 


2019年6月,上交所伦敦办事处正式成立。此举意味着中国公司有了更多的机会,在伦敦开展跨境业务,进行上市及筹募资金。超过260家上交所上市公司已经积极参与其中,但如果他们在伦敦开展投资和跨境业务面临壁垒,这些潜在投资者就会绕过英国,转而在其他国家市场进行投资。

致同(Grant Thornton)去年发布的《2019投英跟踪调查》显示,中国公司对英国的经济发展正起着越来越重要的作用。该报告分析了大约800家在英国的中国公司,发现他们的雇佣员工超过71,000人(2018年雇佣员工为62,000人),并贡献了910亿英镑的交易额(2018年交易额为680亿英镑)。这800家公司只是英中贸易的冰山一角。调查显示,在英国有超过13,000家公司涉及中国企业参股,或者主要为中国国有企业控股。

外商投资对于英国公司出口海外市场也有利好作用。中国的投资者可以提供这方面的经验,对于不熟悉中国监管环境的英国公司来说,这对于他们进入利润巨大的中国市场而言无疑有很大的帮助。
根据下议院今年七月发布的公开文件,英国对华出口贸易额为300亿英镑。这个数字相较于1999年的19亿英镑,翻了不止16倍。而中国目前占英国总出口额的4.4%、英国总进口额的6.8%以上。

对于引发国家安全顾虑的境外投资及并购,英国早已有对应的监管举措。既然通过现行举措去阻止交易是行之有效的,那么是否真的有必要进一步从严监管呢?我认为没有这个必要性,因为就我的观察,现有的监管举措已经能够很好地对涉及国家安全问题的中国投资进行审核及管理。

 

04

从严监管,还是平衡多元? 

 

 

更严格的监管制度也意味着更长的审核流程,这对于英国的出口贸易而言也许适得其反。因为境外投资者会产生顾虑,转而去其他国家市场投资。同时,企业也将不可避免地承担额外的合规费用及更为繁复的合规流程。

对国家安全具有迫切需求的行业还是比较小众的,比如基础设施、国防、监控设备等。如果为了这些行业就重新制定政策,也许会适得其反。而如果从严监管政策主要针对特定国家(比如中国)的话,那对于国际关系及贸易而言,都无疑是一个消极信号,也会导致境外的投资者产生更多的顾虑。因此,我们需要找到一个平衡的路径,既保护国家安全,确保英国仍然是一个开放、自由的经济体,同时对于境外投资来说,又拥有一个具有吸引力且可预测的法律环境。