Editor's Note:

Chinese investment in UK firms is set to increase, but there are still some barriers to overcome.

The Global Times (GT) London correspondent Sun Wei met Sir Richard Heygate (RH), the inventor of the first online ATM and a long-time partner at management consultancy McKinsey & Company, and talked about how to overcome the barriers. Heygate is also a co-founder of The 88 Initiative, which aims to connect Chinese investors with innovative British companies.

A view of the skyline of the City of London Photo: IC

Sir Richard Heygate Photo: Sun Wei/GT

GT: China is set to invest 105 billion pounds ($163 billion) in British infrastructure by 2025, with energy, property and transport the biggest recipients, according to a report by the Financial Times on October 27. What do you think of the plan and what would you suggest for Chinese investors?

RH: An understanding of innovation and how to invest is critical for Chinese investors. Currently, many of them are just interested in making quick money in areas like real estate and coal mining. However, creating something amazing takes a much longer time and a lot of toughness.

It's better for Chinese investors to invest in the process of innovation and distribution and take part in the entrepreneurship, rather than just buying innovative products.

GT: How far is China from making the transition from "Made in China" to "Invented in China"? Are we going to see more Chinese brands in future?

RH: China needs innovation. For example, the parts for Apple computers may be made in China. But you need to make a corporation. China has to have its own intellectual properties. Manufacturing is only part of the value chain, and increasingly a smaller part. With wages going up, there are not many advantages left. Then it's all about building the value and international brand.

Now the problem is that few people understand the cycle of innovation. Instead, they are obsessed with the idea of making money through e-commerce. But e-commerce cannot make the "Chinese Dream" come true on its own. The real inventions are in areas such as healthcare and technology.

The cycle of innovation typically has five steps: laboratory, commercial prototype, approval from the authorities, local market, and international market. It needs money at every stage, and it's often about fundraising. The required investment can be up to 100 million pounds, and it normally takes seven to 10 years. However, when intellectual property becomes real, it creates value and the return can be more than 100 times the investment.

GT: What are the challenges that Chinese companies face in forming partnerships with UK companies?

RH: Many British businessmen go to China, attend banquets and spend money but then end up not meeting anyone important. They kind of give up. In China, it's a case of "No guanxi (connections), no deal."

China has a lot of wealthy individuals, who are interested in making money and are willing to take a risk. But they only do business with people they trust. The older generation that has power and influence in China is not easy to connect with, because they don't speak English and rely on trust.

On the other hand, Chinese investors often complain that "acquisitions don't work," because buying a company overseas is just buying a fraction of its value. Even if you don't have a language barrier, the culture matters. If you don't understand the culture, it's like being in water that is different from the water you grow up with.

GT: What's the ideal model for cooperation between Chinese and UK entrepreneurs?

RH: China and the UK can have much deeper collaboration because while China needs UK innovations and can offer the largest pool of venture capital in the world, UK entrepreneurs have many ideas for invention and are keen to attract Chinese wealth.

A better model would require entrepreneurs and highly skilled staff to take a longer time in developing an innovative product, commercializing it, and adapting it to emerging markets.

China and the UK can work together to create a supportive innovation "ecosystem." We are planning a project in the south of Cambridge that will link to a science park in China. The whole idea is about creating an environment similar to the Massachusetts Institute of Technology (MIT), which is based on community.

MIT understands that innovation requires outstanding technicians, entrepreneurs, and businesspeople, and for all the people in your team to be retained in a single world, rather than being scattered around. Because innovation doesn't come alone - it occurs when an incredibly bright person works with a very intelligent user.

Another successful business community is BioCity in Nottingham, which created the right environment and became an international hub for life sciences.

GT: Do you see a trend of entrepreneurship in China? What's the younger generation's role?

RH: The good thing is that China has a fantastic young generation. They are the key to solving the investment problems in both countries.

I came up with this idea when I met young professionals from the British-Chinese Energy Association [a nonprofit organization that unites Chinese energy professionals based in the UK and China]. I found that young Chinese people form their own networks in the UK. I soon realized that they are my "bridge" to gaining access to high-net-worth individuals and venture capital firms in China.

I have almost tapped into all the network groups of young Chinese entrepreneurs in the UK. They are from varied career backgrounds, including banking, consulting and energy. Many of them were educated in the UK and want to stay in the West. I was impressed by their entrepreneurial spirit. This incredible young generation holds the key to doing business with the older generation.

GT: What drove you to set up The 88 Initiative? What progress have you made?

RH: The question is how do I connect my "bridge" - the young Chinese professionals and PhD and MBA students with entrepreneurial passions - with innovative UK firms and venture capital companies? Together with Sir Paul Judge, a millionaire and City of London veteran, we formed The 88 Initiative, a firm that aims to match Chinese investors with innovative UK firms that have significant potential for expansion in China.

We found a number of innovative UK companies that have already been through one or two rounds of fundraising and that have great ideas. We look at around 2,000 cases a year and pick up less than 10, going through a very rigorous process to choose those that are most suitable for China. The cash raised by The 88 Initiative will be used to fund joint ventures between the UK and China and to help entrepreneurs from both countries.