Asian leaders urge UK to stay in EU

Asian leaders urge UK to stay in EU

Big industrial investors fear having to rethink their plans

UK Prime Minister David Cameron made a powerful appeal on June 9, when he visited Hitachi Rail Europe’s factory in Newton Aycliffe in the north-eastern county of Durham.

“There is an absolute umbilical cord linking the single market and jobs in the north-east. My message is: Don’t cut that cord,” he told local media, making a last-minute call for staying in the European Union ahead of the June 23 referendum.

To many Asian corporations, the UK itself serves as the umbilical cord, if not the lifeline, that connects their home countries and the vast EU market of over 500m people. Those companies with a footing in the UK increasingly fear losing unfettered access to the single market if voters endorse a British exit from the EU.

Top management at Hitachi, which opened its £82m rolling stock plant just last September, said EU membership was “a big reason” many companies have chosen to invest in the UK. Indeed, it plans to export the rail cars and may be forced to rethink future investment in the case of a Brexit.

Nissan Motor warned likewise. The carmaker produces nearly 500,000 autos in the northern English city of Sunderland, of which 80 per cent are shipped to EU members. In the absence of post-Brexit trade agreements, they could face 10 per cent export tariffs that may push up prices.

Besides being a gateway to continental Europe, the UK has also become a popular destination for Asian investors. For example, Hong Kong conglomerate CK Hutchison Holdings, led by Chairman Li Ka-shing, the richest man in the territory, has been investing heavily in the UK in the past several years and now has an estimated $50bn worth of business interests in the retail, water supply, railway and telecom sectors.

But “if Brexit really happens, we will surely cut back our investments,” Li said on March 17 at a press conference announcing annual earnings.

On May 11, the European Commission blocked Hutchison’s plan to become the UK’s largest mobile operator by acquiring O2 from Telefónica and merging it with the group’s existing operator Three UK. But days later, Victor Li Tzar-kuoi, chairman Li’s eldest son and the vice-chairman of the company, called the EU decision a “blessing in disguise,” citing the increasing economic and political risks of Brexit.

Warnings against separation also came from the richest man in mainland China, Wang Jianlin. The founder of Dalian Wanda Group, which owns the UK’s prestigious Sunseeker yachts and a five-star hotel development in London, among other investments, said the separation would create challenges for investors.

Indian companies voiced their concerns too. More than 80 British and Indian business leaders recently signed an open letter in support of the UK’s continued membership of the EU. That is no surprise, given that India is now the third-largest source of foreign direct investment into the UK after France and the US. Tata Motors is among the most active in the UK, having bought iconic British luxury carmaker Jaguar Land Rover. Automaker Mahindra & Mahindra is also investing heavily in the UK, in areas such as next-generation electric vehicles.

During his visit to the UK in November last year, Indian Prime Minister Narendra Modi urged the country to stay in the bloc. Other Asian leaders, including Japan’s Shinzo Abe, China’s Xi Jinping and Malaysia’s Najib Razak, all sent similar messages during visits to the UK.

The UK is the fifth-largest importer in the world, with inbound shipments totalling $663bn in 2014. Nearly 20 per cent of that came from Asia, of which half was from China. Brexit would almost certainly hit manufacturing supply chains throughout the region.

The UK is also the top destination for foreign direct investment in Europe and ranked as one of the most attractive FDI markets in the world. But investment would tumble at least 22 per cent over the next decade in the event of Brexit, according to a recent study by the Centre for Economic Performance at the London School of Economics and Political Science.

For investors, one big worry is the likely fall in the value of the British pound, which would spark losses in their UK assets. Lower growth in the nation will mean a less preferable environment for their business investments to generate profit.

Meanwhile, Japan’s Sumitomo Mitsui Financial Group warned that increased complexity in financial transactions and regulations might force Asian companies and banks to revise their business structure.

Will the voices from Asia be heard? This is unlikely amid the heated verbal exchanges among the British people. For the time being, Asian stakeholders can only hold their breath and cross their fingers.

FT