Will Britain's China Push Benefit Its Law Firms?
“There are some Western governments that have blocked Huawei from making investments, [but] not Britain,” he said.
It is probably the financial sector where the U.K. is hoping to see the biggest boost. Finance is Britain’s top industry, and the government wants to ensure that London benefits from China’s rise along with rival financial centers Hong Kong and New York. Toward that end, the City of London has launched an intiative to turn itself into a major offshore center for the trading of renminbi and renminbi-denominated products.
Those ambitions got a boost when the Chinese government announced during Osborne’s visit that it will allow London-based renminbi-denominated funds to invest up to $13 billion in Chinese securities markets, a privilege previously only accorded to Hong Kong, Singapore and Taiwan. The chancellor also encouraged Chinese banks to expand in the U.K., stating that they would be allowed to operate in the wholesale market through branches instead of subsidiaries subject to stricter capital requirements. After facing criticism that the rules were being bent for China, the government clarified that it was relaxing rules for all non-European banks, not just Chinese ones.
Wang says he thinks efforts by the British government will pay off for London’s financial sector and the law firms that service it.
“There is a good chance that this will come together in the near future,” he says. “It will make it easier for Chinese banks to conduct wholesale banking in the London market and bring funding to U.K. infrastructure and other projects. Lawyers would certainly play a key role in helping Chinese banks set up in London and assist with their lending and trading businesses there.”
Wang also thinks that, in the longer term, Chinese financial institutions will expand their presence in the U.K. by taking meaningful stakes in British financial services firms.
But Jamie Barr, a Hong Kong partner at Hogan Lovells, is more skeptical that China will prove a big boost to the City anytime soon. For one thing, the renminbi is not freely convertible, and it’s unclear when it will become so. As long as the Chinese currency remains relatively illiquid, its trading volume will be far below that of the dollar or euro.
“The U.K. excels in financial service and China will be a part of this if the renminbi becomes a reserve currency, which I believe will happen longer term,” he says, “but I think it’s premature to call [London] a financial center [for China] in the foreseeable future.”
Moreover, Barr says the major Chinese banks, which are all state-owned, are still heavily focused on domestic lending and supporting outbound investment and projects involving other state-owned companies. So far, they have made few moves toward expanding their lending to non-Chinese companies.
“They are sure testing the market, but I don’t think they will do anything more than dipping their toes into it,” he says.