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OPPORTUNITY TO INVEST IN CHINESE FINANCIAL SECTOR TO REACH £143.2 BILLION BY 2020

Foreign Direct Investment (FDI) into China’s financial services sector will increase by 417% over the next six years to £143.2 billion (¥1.418 trillion), thanks predominantly to China’s commitment to financial market reform and the internationalisation of the renminbi. This news is revealed by a new report from global law firm, King & Wood Mallesons.

Overall FDI into China is predicted to rise from £667 billion (¥6.6 trillion) in 2014 to £1.3 trillion (¥13 trillion) in 2020. FDI as a share of China’s overall GDP will also rise by 2.8% over the next six years – more than the US or EU.

King & Wood Mallesons report, Branching Out: Investment Opportunities in China in 2020, explores the key opportunities and challenges associated with investing in China, revealing how UK and European investors can capitalise on the emerging channels for investment in one of the world’s most significant economies.

This report is an independently researched macroeconomic analysis supported by key sector data (covering Life Sciences, Energy and Media & Entertainment in addition to Financial Services).

Stephen Kon, Senior Partner, Europe & Middle East, & Global Co-Deputy Chairman at King & Wood Mallesons, said:  “These very significant findings reveal the vast opportunity available to foreign investors in China. As growth in Europe stagnates, the booming Chinese domestic market is driving demand for FDI to the tune of £1.3 trillion.

“With new free trade zones recently established following the Shanghai Free Trade Zone and a clear regulatory framework for inward investment created, it is an exciting time to invest in China for those with the right knowledge. A solid understanding of the regulation and cultural practices is vital to taking advantage of the overall expansion of foreign investment on offer.”

The Global Race

King & Wood Mallesons’ research reveals that Hong Kong has been the lynchpin of investment into China, contributing 68% of overall FDI in 2014.

However, over the coming years the UK and Europe will command an increasingly important share of direct investment into China partly as a result of greater liberalisation of the market and partly as a result of improved clarity and transparency in regulation and policy relating to inward investment.

Germany will continue to lead the way as the dominant European investor into China, increasing its percentage of overall FDI from 1.75% to 2.71%. The UK’s share will almost double from 1% to 1.97% – a faster rate than the euro-area average.

Top 10 Investor Countries in 2014 and 2020

Country% of Overall FDI in 2014Projected % of Overall FDI in 2020% +/ –
Hong Kong6863.37-4.63
Singapore65.65-0.35
Japan5.755.36-0.39
Taiwan4.754.65-0.1
USA2.903.830.93
South Korea3.003.000
Germany1.752.710.96
The Netherlands1.001.280.28
UK1.001.970.97
France0.650.790.14

Stuart Fuller, Global Managing Partner at King & Wood Mallesons said: “Over recent years, the Chinese authorities have taken steps to make investment into China easier and to change investor perceptions of the Chinese market and its opportunities.

“The government has identified a range of areas that need foreign investment so that China can meet domestic demand and successfully rebalance its economy towards quality growth. This blueprint for investment will play a key role in identifying and unlocking the potential in and across the many markets that comprise China. In this respect, fortune will favour the brave and fortune will require planning, persistence and perseverance.”

Wang Ling, Managing Partner of King & Wood Mallesons in China, said: “With stable development, China has become the fastest growing country attracting the most investment in the world not merely because of the size of the market, but also due to our improving legal environment and increasingly healthy society.

“The report provides a useful guide to our clients in relation to future market and legal trends in China and I believe will be valuable reference for domestic and international investors.”

Other Accessible Industries

King & Wood Mallesons’ report shows that enterprising investors can gain entry into some of China’s other key sectors by 2020, as the Catalogue for the Guidance of Foreign Investment Industries and current Five Year Plan create a clear pathway.

The Life Sciences sector will also offer significant opportunities to investors, with FDI expected to climb by 177% (from £46.3 billion (¥458.4 billion) to £128.2 billion (¥1.269 trillion) in 2020).

The Energy industry is also set to welcome £19.3 billion (¥191 billion) by 2020 (up from £9.8 billion (¥97 billion) in 2014) as the government focuses its attention on ‘green growth’.

Even in the highly regulated Media & Entertainment sector there are opportunities for investors. With rising incomes, rapid urbanisation and a growing middle class driving demand, inward FDI is set to increase from £3.2 billion (¥31.9 billion) in 2014 to £6.3 billion (¥62.6 billion) in 2020.