London’s Newest Ghost Town Was Financed by China
Chinese President Xi Jinping and then-U.K. Prime Minister David Cameron were on hand to toast the signing of the deal to transform 35 acres of derelict London riverfront into a bustling finance hub.
Five years on, in the wake of Brexit and a cooling of Sino-British ties, developer Xu Weiping’s vision for another Canary Wharf packed with Chinese companies looks more like a mirage. Overlooking the Thames, along the old Royal Albert Docks and across the water from City Airport, stand 21 new buildings that form the first phase of the 1.7 billion-pound ($2.2 billion) project. They’re almost all empty.
“All of these geopolitical changes have brought uncertainty, which affected the mindset of Chinese and Asian investors,” says Xu, a China-born citizen of the Seychelles who has been in London since the outbreak of the pandemic. “Some of them already paid deposits, but because of those changes they had a change of heart. Therefore the tension between China and the U.K. definitely brought risks to our project here.”
Not just Xu’s project. U.K. real estate investors, already facing a deadly virus that’s threatened rent payments, occupancy and defaults, have seen the tap from China virtually shut. While investment was curbed by the tightening of capital controls in 2017, investors from China, excluding Hong Kong, have yet to acquire a single commercial property in Britain so far in 2020, according to data compiled by broker CBRE Group Inc. This would be the first year they’ll have been out of the market since 2011.
The U.K decision, under U.S. pressure, to ban Huawei Technologies Co. from building its 5G networks and the suspension of its extradition treaty with Hong Kong have sparked a new era of hostility between the world’s rising superpower and the territory’s 19th century colonizer. In retaliation, China scrapped a new London headquarters for social media giant TikTok Inc., and state-run media has warned that steps to punish HSBC Holdings Plc, Jaguar Land Rover Automotive Plc and Burberry Group Plc could be next.
“This is another era of cold war that we need to wake up to,” Tobias Ellwood, a Conservative lawmaker and chairman of the U.K. Parliament’s Defence Committee, said in a Bloomberg TV interview. A former army officer, Ellwood is among the backbenchers who persuaded the government to reverse an initial decision to welcome Huawei.
It’s all a far cry from the heady days of 2015 when Cameron boasted that Britain was “China’s best partner in the west.” The mere fact Xu won the rights to the site two years earlier hints at a friendlier era. Financing was provided by some of China’s biggest lenders, including Citic Bank, Bank of China, Agricultural Bank of China, Industrial and Commercial Bank of China and China Construction Bank.
Xu was an unknown quantity in London even after his Advanced Business Park was selected to develop the plot in 2013. When city officials who oversaw the bidding asked for proof of his credentials and ability to finance the project, he offered them his custom-made watch.
“The most valuable item on me was that watch,” Xu said in a Zoom interview. “It was expensive but more importantly it was very valuable to me personally so I wanted to offer it to show our commitment to this project.”
The procurement process was later investigated by the city government’s oversight committee to examine whether officials had tweaked the rules in ABP’s favor. It eventually concluded the company was the only viable contender for the project.
Spokespeople for the Greater London Authority, as the city government is called, didn’t return calls or emails seeking comment.
ABP’s pitch that it could deliver Chinese companies to occupy the site was the clincher. It became a pet project of then-Mayor Boris Johnson, currently the prime minister. During a visit to Beijing in 2013 Johnson’s office announced 10 Chinese companies had pledged to take space, taking the total number of businesses set to move into the park to 57.
“Originally, we received letters of intent for over 70% of our space, even before construction began, and we received deposits,” Xu said. “Since then we have seen a series of geopolitical changes, Brexit being one of them.” Another is the delay to the planned Crossrail train service that was due to open in 2018; after a series of missed deadlines, there’s now no confirmed completion date. “This has cast doubt by international investors to the stability of the investment environment in the U.K. and whether the government can keep its promises,” he said.
Some Chinese investment is still finding its way to the U.K.: Link REIT, Hong Kong’s largest real estate investment trust, this week completed the purchase of a Canary Wharf office leased to Morgan Stanley for 380 million pounds, the biggest London office deal so far this year.
“Nothing has changed,” Savvas Savouri, chief economist at Toscafund Asset Management, a London-based investment firm, said in a telephone interview. “It is all diplomatic air punches.”
Air punches or not, the political tensions and the pandemic threaten to complete the destruction of the original design. After all, the newly built complex has been ready for occupancy for almost a year.
But Xu has a plan.
The company is developing working space for people keen to both get out of the house and stay away from densely packed buildings. Xu sketches a vision of kitted out individual spaces where people can work without coming into contact with hundreds of others, a sort of home office away from home.
Even if the company can find willing takers, the future of the project - including apartments, a hotel and more office space -- remains up in the air.
ABP and China’s state-owned Citic Group Corp. have put in 300 million pounds, and Xu says he remains committed to the vision. His partners may not.
“De-coupling from China means de-coupling from opportunities,” Liu Xiaoming, Beijing’s ambassador to London, said in an online briefing on Thursday, warning Great Britain it will “pay the price” if it pursues a hostile policy.
Without a stamp of approval from President Xi, a decision by Citic to spend on the subsequent planned phases of project could be out of its hands.
“Their leadership cannot make the decision on their own,” Xu said. “They need to follow the guidance of the Chinese government.”
Quote of the Day
Push will get a person almost anywhere- except through a door marked “pull.”