Written evidence submitted by Dr Shaowei He (BFA0020)
My name is Shaowei He and I am an Associate Professor in International Business at the University of Northampton. My research concerns the rise of Chinese enterprises and the associated impact on global business. In particular, my recent projects focused on Chinese acquisitions in the UK and the resultant impact on the acquired British firms. I feel that, with my research and knowledge, I should contribute to the important inquiry into ‘The FCDO’s role in blocking foreign asset stripping in the UK’.
Before I venture into the specific questions that the Committee seeks for answers, I think there are two general issues that deserve greater attention. The first one is the alleged ‘asset stripping’ nature of foreign takeovers. There might be individual cases of ‘asset stripping’, but overall there is a lack of evidence, particularly in the context of the UK, that this is the general nature of foreign takeovers. Some of the earlier witnesses have expressed their concerns that foreign takeovers might contribute to the UK’s lacklustre productivity. However, I tend to agree with other witnesses, particularly those from the practitioners’ world, on that foreign investors are important elements of the UK’s business ecosystem and would actually help drive up the country’s productivity. For example, in the emerging technology areas such as AI and robotics, foreign investors, usually come with different perspectives, are important to help understand the enabling power of these technologies.
The second issue is regarding the impact of Chinese investment and acquisitions in the UK and in developed countries in general. There is a lack of investigation in this area and my own research (He et al., 2018) is perhaps pioneering in that regard. In this British Academy - funded research, we drew upon an in-depth case study and examined the impact of Chinese acquisitions on the acquired British firms who already owned advanced technologies. In particular, we collected convincing evidence showing that the Chinese acquiring firm, despite its primary knowledge-seeking motivation, brought new knowledge into the British firm and helped the latter further upgrade their technologies and competitiveness. Over time a mutual-learning mechanism was established enabling both the acquired and acquiring firms to jointly explore new technological development. Our research therefore indicates that, in order to maximise the potential benefits, UK policy makers and business leaders should pay attention to the learning opportunities that Chinese investors may bring up.
My research (He et al., 2017, 2018, 2019) has led me to believe that the UK and China are natural innovation partners. Here we should recognise that innovation, by definition, is more than scientific discoveries and involves successful commercialisation of ideas. And the UK and China have complementary strengths in driving future innovation: Whilst the UK is strong in scientific discoveries, China is still catching up; Whereas the UK lacks application markets, customer feedback and scale-up capabilities, China has a huge and still fast-expanding market and offers formidable scale-up capabilities. I cannot imagine how much the two countries could achieve together if they work closely and collaboratively.
Now let me try to directly respond to a few specific questions that the Committee ask:
• How does the FCO assess whether a potentially hostile party is seeking to secure significant influence or control over a UK company?
I think there are two issues in this question: 1. Whether the acquirer is a potentially hostile party. This is a question that the FCO might be able to contribute with its intelligence; 2. Whether the acquirer is seeking a significant influence or control. This however would be a question that the FCO might struggle with. You may look at the share of the stake the acquiring firm is seeking, but that may not reflect the real picture of control/influence it has on the acquired firm. To make it more complicated, the academic literature on mergers and acquisitions indicate that control/influence and power relationships between the acquiring and acquired firms is a very dynamic picture and evolves over time.
• In what circumstances should the FCO seek to intervene in decisions on takeovers on the grounds of the impact on bilateral relations or the UK’s geopolitical interests?
I would argue that much of the recent U.S. policy is driven by: 1. The anxiety associated with the perceived loss of its superpower status in response to the rise of China; 2. The Americans hugely underestimated the potential of the Chinese innovation system up until 2015. This is followed by a subsequent and sudden overestimation of the strengths of the Chinese innovation system. This sudden change both resulted in and from the aforementioned anxiety. To what extent the UK, despite it’s not a superpower, should share the same level of anxiety is a question that needs to be carefully assessed. It seems to me that maintaining as far as we can the country and its firms’ (e.g. ARM) neutrality would generate the best outcome for the UK and should be something this country aspires to achieve.
• What safeguards are required in the forthcoming National Security and Investment Bill to ensure that the FCO has a full role in the decision-making process in relation to interventions?
The principles of transparency, openness and fairness. Chinese investment in the US didn’t recently plummet as a result of CFIUS per se, but the perceived lack of the aforementioned principles as well as American politicians’ demonisation of China. In addition, the decision-making should be evidence-based. For example, is there any evidence that the current system is not working? Any evidence that the Chinese investment systematically caused harm to the UK?
Thank you for the opportunity to supply evidence to this important issue. Please do not hesitate to contact me should you want to probe further.
Yours sincerely,
Shaowei He
He, S., Khan, Z., Lew, Y. K. and Fallon, G. (2019) Technological innovation as a source of Chinese multinationals’ firm-specific advantages and internationalization. International Journal of Emerging Markets 14 (1): 115-133
He, S., Khan, Z. and Shenkar, O. (2018) Subsidiary capability upgrading under emerging market acquirers. Journal of World Business 53 (2): 248-262.
He, S, Fallon, G., Khan, Z., Lew, Y.K., Kim, K. & Wei, P. (2017), Towards a New Wave in Internationalisation of Innovation? The Rise of China’s Innovative MNEs, Strategic Coupling and Global Economic Organisation, Canadian Journal of Administrative Sciences 34 (4): 343-355
October 2020