Chinese capital could soon own much of high street, UK

All aboard the pizza express to China. Ben Sutherland, CC BY

In what might be termed “fusion finance”, a Chinese private equity company, Hony Capital, has purchased UK restaurant chain Pizza Express for £900m.

This isn’t the first time a Chinese firm has bought up a familiar high street brand, and it certainly won’t be the last. After years of selling goods to the rest of the world, the country’s private sector has accumulated significant wealth. This wealth has to go somewhere and much of it is flowing back overseas. It’s quite difficult to provide a dining experience for hungry Londoners from a factory in Tianjin; you can solve that problem by buying a pizza company in the UK.

The chart below shows the trend. After two decades of growth the inflow of foreign capital to China has remained relatively constant since 2010. During the same years investment abroad by Chinese companies, almost all of them privately owned, nearly doubled. The Economist even predicts that in 2015 Chinese investment in the rest of the world will surpass what the world invests in China.

Where does this outward capital flow go? Since the investment really started flowing nine years ago the two largest recipients, by a long shot, have been Australia and the US, driven by investments in mining and financial assets respectively. Rumour has it that Chinese capital has its eye on mega-properties in New York City and has become the largest foreign property speculator in Manhattan.

Weetabix: 95% wheat, 60% Chinese. Sean MacEntee, CC BY

After Canada and its shale oil comes the UK. The roll call of British companies with partial Chinese ownership includes several household names such as Barclay’s Bank (Chinese capital holds 3%), BP (if you consider it British, 1%) and Thames Water (9%). We find more serious ownership shares in Weetabix (60%), and three energy companies, Talisman (49%), Emerald (100%) and Petroineos (50%).

As a country’s economic power grows, its companies increasingly grow through purchasing pre-existing assets through “takeovers”. Chinese capital is no exception. Over the past six years, Chinese companies raked in a net US$130 billion in assets through mergers and acquisitions (M&A in the jargon), and the Pizza Express deal is just a tiny slice of this.

Chinese companies have been able to buy up these foreign assets due to the country’s massive export surplus. The popular explanation for how it sustains such a huge surplus year-in, year-out is “cheap labour” – Chinese workers earn far less than workers in North America, Japan and Europe. But if that theory is correct, why does Germany have an even larger trade surplus (about US$270 billion)?

There is another explanation that I discuss in my book Economics of the 1%, and it applies to both countries. The two governments consider maximising net exports as the key to their economic growth, and other considerations take a back seat. I have demonstrated in detail how this idea, known as mercantilism, is behind Germany’s economic policy (and I am not alone ).

The same issue applies in China, where the trade surplus remains deliberately huge. This will mean more cash for Chinese firms and, eventually, more of your local high street will be owned in Beijing.


This article was amended on July 24 to remove a reference to INEOS being 50% Chinese-owned. Refining business Petroineos is a joint venture between INEOS and PetroChina. INEOS itself has no Chinese shareholding.

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