EY’s Greater China Business Services team pursues one belt, one road opportunities
The firm’s team is enabling clients to navigate new markets, whether they are optimising their investments in Britain or looking to diversify and operate in China
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Trade flows between Britain and China have long been rich and robust – but President Xi Jinping’s continuing one belt, one road initiative is poised to expand this and open up unprecedented opportunities with China, the second-biggest economy, committing to broadened trade, extension of infrastructure and increasing cultural exchange between the two nations.
Investors from either side of the “road” are set to benefit immensely, with more than US$46 billion worth of trade agreements signed during Xi’s first state visit to Britain last year alone. Even more are projected to come as China eyes massive investments, particularly in the fields of nuclear power and liquefied natural gas.
The initiative is also dubbed the “21st Century Maritime Silk Route Economic Belt” in reference to the ancient trade routes that linked China – whose precious, lustrous fabric led the journeys through a cross-continental network spanning Europe, Asia, Africa, the Indian subcontinent, Persia and Arabia. It was also recognised as one of the trade routes that helped give rise to the British Empire. Today, one belt, one road is projected to exceed this historical success by boosting trade and investments across 65 countries.
Demonstrating China’s commitment to opening its borders, it will also potentially boost the presence of Chinese companies worldwide, particularly in Britain, which has been their No 1 European destination for outbound direct investments in recent years. Chinese giants, including Shenzhen-headquartered telecommunications company Huawei, have become increasingly prominent in industries ranging from Britain’s airports to telecommunication systems.
“However, there are material challenges as the changing economic and political landscapes push the unknowns to the fore,” says Suwin Lee, partner, Greater China Business Services (GCBS) at EY. “For Chinese companies, this means pursuing a global strategy to gain a strong foothold in the international market. For British businesses, it is about positioning themselves well such that they can capitalise on China’s continuing growth and development.”
With a dedicated multilingual GCBS team in Britain, EY enables clients to navigate new markets – whether they are optimising their investments in Britain or looking to diversify and operate in China – through its assurance, advisory, tax and transaction services teams. It leverages the reach of EY Global, which has more than 700 offices in 150 countries.
“Seizing the opportunities means navigating the challenges that go with them,” Lee says. “And this can only be done with an understanding of the complexities of the markets and the risks involved.”
GCBS reinforces commitment to China market
Covering Britain, Ireland and China, EY’s GCBS offers extensive cross-border investment advice and business solutions in nearly all sectors, ranging from asset management to media and entertainment, and oil and gas. As a partof the EY Global China Overseas Investment Network, GCBS engages 180 Putonghua-speaking professionals in Britain and Ireland, and other multilingual professionals based in 18 offices in China and other parts of Europe to serve local clients.
The GCBS team, in particular, helps support investors from China and other parts of Asia who require assistance in identifying opportunities in the market. Over the years, innovation, clean energy, infrastructure and real estate have grown among the most popular industries, which helps clients create a holistic structuring of their assets and investments across borders.
“We take pride in our industry knowledge and understanding,” Lee says. “It is incredibly important for us as a firm to have highly specialised people within the sectors, otherwise it is extremely difficult for a client to successfully invest in a sector and be able to create value in that segment without that kind of expertise. EY has such an extensive and established network that we are able to reach out to the right resources we need and to bring our team together where we need to – and quickly mobilise people, get the right expertise and the right resource.”
The firm also works with government intermediaries in identifying opportunities in the market and in hosting timely events that discuss issues and concerns that may impact investments in China. It likewise collaborates with local and national government units to provide support to businesses based in China, and serves a diverse clientele that ranges from state-owned enterprises to insurance companies, private companies and Chinese private equity funds.
Based on its experience of navigating the Chinese market, EY identifies three key drivers for a Britain-based business in considering an investment in China: structure and market entry, risk and people. For structure and market entry, EY works closely with the Britain-based GCBS team on mergers and acquisitions.
It also assists in target search and approach, and helps with growth strategy and exit readiness.
“Because we have a deep understanding of the Greater China market, we are able to advise clients on specific issues that may affect their business, such as the impact of the Shanghai free-trade zone,” Lee says.
To match resource to risk, ensure operational transparency and assess the overall risk environment, EY provides financial and tax due diligence support. Through its global risk tool, it also allows the client to review a particular risk profile and help them with information technology in minimising operational failure risks.
“We can also assist in navigating the complexity of the repatriation of surplus cash from China,” Lee says. “As for people, cultural alignment and integration are crucial.”
To safeguard a company’s talent management, EY offers advice on management relocation to China, and helps with local accounting, tax and regulatory advice. The firm likewise works closely with management to maximise growth and minimise costs.
Global presence, unified approach
With cross-border investments, ensuring the integrity of transactions with various third parties – from agents to suppliers, joint venture partners, subcontractors and even customers – becomes highly challenging, yet even more important for businesses.
Beyond performing due diligence for potential investors, EY strives to empower clients by addressing major challenges that are holding back some companies from achieving their full potential.
“One of the big challenges that Chinese investors have, for instance, is that they are not as well known in the market as their global competitors. They are competing not only among Chinese investors, but European and American funds that have been in this market for a very long time,” Lee says. “There is a challenge around perceived credibility in the market place and I think that is where a firm such as EY – with our credentials, our experience and our brand in the market – can truly help Chinese investors in navigating this dynamic.”
Trends, in terms of sectors, tie back to China’s current five-year plan. What investors are looking for, according to Lee, is either a form of technology, expertise or business model that they can learn from and bring back to China. The firm has observed a lot of interest in infrastructure, including high-speed rail, nuclear, oil and gas, health care, education and any type of innovation that often includes green technology, such as waste management.
“Timely, practical, measured and continuous, our advice is drawn from diverse cultural and business perspectives that help enable clients to cross borders not just successfully, but also seamlessly,” Lee says.
Knowing that Chinese businesses looking to invest overseas struggle through myriad difficulties, EY offers services that cover all stages – from planning to integration – of the overseas investment. These include market entry feasibility study, location study, environment investment analysis, government relations, risk assessments and real estate advisory.
“Real estate, for instance, is a good entry point because the market is aware, from previous transactions in the London property market, that Chinese investors can execute a deal in this sector. We are now seeing infrastructure, health care and life sciences becoming increasingly popular as alternative entry points for Chinese investors,” Lee says.
Having a global structure and unified approach means EY can react more quickly than its competitors. Through its 28 regions grouped under Europe, the Americas, the Middle East, India and Africa, Asia-Pacific and Japan, the firm leverages a shared industry-focused knowledge and experience. This enables accurate anticipation of market trends, identification of implications and in-depth insight on pertinent global issues.
“Ultimately, getting bespoke advice will make the difference in the way investors execute their cross-border strategies in any industry or geography – and we assure our clients that they can rely on EY wherever they are in the world,” Lee says.
“As the most globally integrated professional services organisation, we also take on the responsibility of making more than just profit; we must also drive social and environmental change.”
Ernst & Young