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London 'risks losing Chinese finance status' if Hinkley bid rejected

Published 28/08/2016

Artists impression of the how the new Hinkley Point C station would look if given the go-ahead (EDF/PA)
Artists impression of the how the new Hinkley Point C station would look if given the go-ahead (EDF/PA)

London risks losing its status as a global hub for Chinese finance if the UK Government rejects a key nuclear deal, experts have warned.

Prime Minister Theresa May earlier this month delayed approval for the China-backed Hinkley Point Site C nuclear project, prompting Beijing's ambassador to warn that Sino-British ties were at a "crucial juncture".

China is set to hold a 30% stake in the multibillion-pound project, with a final decision due in the coming weeks, but ana lysts now say a scrapped Hinkley deal could prompt retaliation and put London's relationship with Chinese business on the chopping block.

"It will set a negative tone for future Chinese investment," said Andy Liu, a senior vice president covering China at Teneo Intelligence.

For example, China could end up abandoning the proposed Shanghai-London stock connect programme, Mr Liu said.

The scheme, which has been undergoing feasibility studies by Chinese and British watchdogs, would give UK-based investors access to China-listed shares, and vice versa.

Some reports suggest the programme was set to be unveiled ahead of September's G20 summit in Hangzhou, China.

"London will also likely lose Beijing's support to compete against Frankfurt, Paris and other European cities to become an offshore RMB (renminbi) centre," Mr Liu added.

The UK capital is the largest offshore clearing centre for the Chinese currency, accounting for 6.5% of all renminbi transactions as of July 2016, according to figures released by the Society for Worldwide Interbank Financial Telecommunication (SWIFT).

It could affect London's share of renminbi-denominated bonds too, Mr Liu said. "At least, it will be harder for London to compete with other financial markets, such as Hong Kong or New York."

Losing its clout as a Chinese financial hub would strike pain into the heart of the capital at a time when Brexit has left observers wondering whether financial institutions will remain headquartered in the UK.

"The UK used to be an entry point, or indeed a platform, to enter Europe. Now that is definitely in danger of being changed," said Guo Yu, head of Asia research at risk analysis firm Verisk Maplecroft.

Currently, financial firms based in a European Union (EU) country are allowed to carry out business across borders without having to obtain a licence in each state as part of the bloc's so-called passporting regime.

A post-Brexit UK may benefit from new rules that allow non-EU states to qualify for the same passporting rights under "MIFID II", but will still be subject to negotiations.

London now faces what Mr Yu called a "double whammy effect".

"The scrapping of Hinkley point will reduce certainty of UK investment. Brexit will reduce UK attractiveness," he said.

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