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UK takes aim at China with revamp of takeover rules



Former chancellor George Osborne in 2015 promised a “golden decade” of business relations between China and the UK, but that pledge was effectively ditched by prime minister Boris Johnson on Wednesday.

The government published legislation giving ministers sweeping new powers to block overseas companies from buying UK businesses on national security grounds, in a move that appeared squarely aimed at Beijing.

Lord Patten, former governor of Hong Kong and a leading China hawk, welcomed the government’s “sensible” national security and investment bill that outlines the biggest overhaul of UK takeover rules in almost 20 years.

“It’s important to stop the sort of predatory buying up of important security interests in the UK by China or anyone else,” said Lord Patten. “China is not a country which you want to contain but a country that you want to constrain.”

The detente Mr Osborne unleashed between London and Beijing has dissipated over several years: it was former prime minister Theresa May who in 2017 began the policymaking that paved the way for Mr Johnson’s overhaul of takeover rules.

Relations deteriorated further this year when UK ministers blocked an investor linked to China from taking control of the board of British chip designer Imagination Technologies. Mr Johnson also executed a major U-turn to ban Chinese telecoms equipment maker Huawei from supplying kit for the UK’s 5G mobile phone networks.

“The open, liberal common investor approach made sense up to 2012,” said Alex White, partner at Flint Global, a consulting firm. “Xi Jinping is the big change. It took time for people to realise that China was going to take a more aggressive approach.”

The shake-up of Britain’s takeover regime is consistent with changes introduced by western allies including partners in the Five Eyes network: the US, Australia, Canada and New Zealand.

Michele Davis, a partner at law firm Freshfields, said the UK was “late to the party”. “The UK regime has been a real outlier compared to what anyone else has been doing over the years,” she added.

Over the past decade, China has been busy acquiring British businesses, leading some bankers to warn that the UK’s new takeover rules might come too late in some strategic areas.

Jingye owns British Steel, while China Investment Corporation has taken stakes in Heathrow, National Grid and Thames Water. Other Beijing-backed bodies own large parts of UK North Sea oil production, and a stake in Hinkley Point C, a nuclear power plant under construction in south-west England.

Alok Sharma, business secretary, said he wanted to keep the UK “one of the most attractive investment destinations in the world” while also “shutting out those who could threaten our national security”.

Former business secretary Greg Clark, who worked with Mrs May on an early version of the revamped takeover rules, said investors should be reassured that the measures were not “draconian”. “The government has been meticulous in getting this right,” he added.

A Beijing foreign ministry spokesperson said the Chinese government expected countries to provide a “level playing field” for its companies, which would abide by host-nation laws when operating overseas.

“It’s not a friendly gesture but it’s also not an obvious provocation,” said Ding Chun, a European affairs expert at Fudan University in Shanghai, referring to the proposed new UK takeover regime.

However, any specific application of the revamped rules in a way that Chinese officials feel is discriminatory could prompt a backlash. After a rapid deterioration in relations between Beijing and Canberra this year, many Australian exporters have recently run up against a range of obstacles.

Under the UK plans, prospective overseas buyers of British companies, shareholdings or intellectual property in 17 sensitive industries will be required to alert a new government unit about the transactions.

British officials expect between about 1,000 and 1,800 transactions to be notified to the unit every year. Out of those, officials expect 70 to 100 to face “national security assessments”, with only a limited number being blocked or subjected to “remedies”.

That is a vastly more intrusive takeover regime than the current one, under which ministers only tend to intervene in acquisitions of UK companies with annual turnover of more than £70m, or where the merged business would have a market share of more than 25 per cent.

British officials acknowledged the cost of complying with the new regime could be as high as £330,000 for a single transaction involving a large company. A regulatory impact document published by the government suggested a total cost to businesses of about £40m a year.

Experts said the revamped takeover rules would raise questions about the UK’s hitherto open approach to inward investment, and those concerns are particularly acute given Britain is about to leave the EU single market at the end of December.

In dollar terms, the UK has the world’s second-largest stock of foreign direct investment after the US. Since 2007, and relative to gross domestic product, the UK’s FDI stock doubled to 73.6 per cent in 2019, with the US being the main acquirer of British companies.

However, the coronavirus pandemic has resulted in a sharp decline in all components of FDI. So far this year, there were 462 deals involving overseas companies buying UK businesses: 28 per cent fewer than in the same period in 2019.

“Post Brexit it is even more critical that we have to be open to trade and inward investment,” said Mike Rake, a City of London grandee who sits on the British board of Huawei and is chair of the International Chamber of Commerce’s UK arm.

“There will be countries whose political system or policies we don’t agree with but that doesn’t necessarily mean we don’t trade with them.”

Some business leaders complained of “mixed messages” from the government, noting how the new takeover regime came 48 hours after ministers launched a new office to woo inward investment.

But for Lord Patten, the revamped takeover rules are entirely logical. “If you tried to buy an artificial intelligence firm in China do you think you’d be allowed so? Certainly not,” he said.

Additional reporting by Valentina Romei and Matthew Vincent


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Iranian TV action thriller delivers warning to Zarif




It is hardly surprising that Mohammad Javad Zarif, Iran’s foreign minister and nuclear negotiator, is not a fan of Gando, a popular television drama that depicts an incompetent minister who scuppers nuclear talks with world powers by hiring dual nationals who turn out to be spies for MI6.

The series — made by an institute believed to be affiliated to the elite and hardline Revolutionary Guards — “is a lie from the beginning to the end” that “damages foreign policy more than me” by fuelling public mistrust, Zarif said.

By focusing on the nuclear talks, the Guards’ motive goes beyond creating compelling drama, reformist analysts say. Iran is in discussion with western powers about reviving the nuclear deal, a key reformist achievement, and hardliners want to deter the popular foreign minister from declaring his interest in the presidency in what is a crucial election year.

“I’ll be grateful to Gando-makers to let us continue our current job,” Zarif said this month, and commented that he would not run for the presidency.

The possibility of nuclear talks with the US and other powers has complicated an already fraught Iranian political scene ahead of the June election. Many reformists are pinning their hopes on Iran’s top diplomat to reinvigorate the nuclear deal and boost support at the ballot box. Hardliners might prefer to negotiate the deal themselves after the election. The polls are also seen as particularly crucial in case supreme leader Ayatollah Ali Khamenei, 81, dies during the next president’s term.

Pendar Akbari, left, and Ashkan Delavari, right, in a scene from ‘Gando’
Pendar Akbari, left, and Ashkan Delavari, right, in a scene from an episode of ‘Gando’. The series title refers to an Iranian crocodile able to distinguish its friends from its enemies © Bahar Asgari/Shahid Avini Cultural and Artistic Institute via AP

The purpose of Gando, which refers to an Iranian crocodile able to distinguish its friends from its enemies, “is to tell Zarif that should he dare to announce his candidacy, he will be destroyed immediately,” said one reformist analyst. “When the intelligence service of the Guards truly believes in the Gando plot lines, it means even if Zarif decides to defy such warnings, he will not be allowed to run.”

Centrist president Hassan Rouhani is due to step down this year after two terms and it is not yet clear who the presidential candidates will be. Politicians register as late as May and then have to be vetted by the Guardian Council, the hardline constitutional watchdog, which can disqualify nominees. Potential hardline candidates include Mohammad Bagher Ghalibaf, the parliament speaker and a former guards commander; Ebrahim Raisi, the judiciary chief; and Ali Larijani, a former speaker of parliament. On the reformist side, speculation has centred on Es’haq Jahangiri, first vice-president, Hassan Khomeini, a grandson of the founder of the Islamic republic, and Zarif.

A US-educated career diplomat widely respected in the west for his pragmatism, Zarif was instrumental in the historic deal in 2015, under which Iran curbed its nuclear activity in exchange for the lifting of sanctions. But Donald Trump abandoned the accord in 2018, imposed sanctions, including on Zarif, and said he would pursue a new accord to contain Iran’s regional and military policies. The US move emboldened hardliners, confirming to them the untrustworthiness of the US.

Zarif’s background in the US both as a university student and as Iran’s head of mission at the UN — during which he met US politicians including then senator Joe Biden — has long made him a source of suspicion for hardliners.

This wariness of both Zarif and the west is evident to viewers of Gando, as is the heroism of the Revolutionary Guards. Mohammad, the action hero protagonist, warns that western negotiators may sabotage refineries as part of nuclear talks. Mohammad works out of elaborate facilities akin to those in a James Bond film. The fictional foreign minister is advised by a media adviser, the main culprit, “to enter into direct talks with the US and accept the conditions of the leader of the global village”.

Vahid Rahbani in a scene from an episode of ‘Gando’
Vahid Rahbani in a scene from an episode of ‘Gando’. State TV abruptly stopped broadcasting the series that was less than halfway through its 30-episode run © Hassan Hendi/Shahid Avini Cultural and Artistic Institute via AP

The dramatic scenes reflect, in part, the worldview of some of Zarif’s critics. “Reformists, Mr Zarif and his lobby group in Washington [Iranian dual nationals] should be wiped out from Iran’s politics,” said an aide to a senior hardline politician who is a potential presidential candidate. “We have to get rid of this cancerous tumour once for good.”

Gholamali Jafarzadeh, a former conservative member of parliament, said Zarif “is not a good statesman and should not run for president” while “reformists should know that their choices have no chance to be allowed to run”. 

This month, state TV abruptly stopped broadcasting the series that was less than halfway through its 30-episode run. Local media said broadcasts would resume when the presidential race was over. Iran’s centrist president Hassan Rouhani, whose signature achievement is the nuclear deal — alluded to the show on Wednesday and said “people’s money” should not be spent on “fabrication of the truth” and “distortion of facts”.

After three years of sanctions, many voters are disillusioned by the infighting and the prospect of real change, whatever the outcome of the election. “Whether Zarif or a figure more senior than him runs or not, I’m not going to vote,” said Hamid, a 40-year-old engineer. “Let the Guards win the election as they are the ones who are running the country anyway. Why shall I make a fool of myself?” 

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Rising inflation complicates Brazil’s Covid-19 crisis




After seven months in lockdown, Michele Marques received some unwelcome news when she returned to work: while she was away the prices of almost all the products she uses as a hairdresser had soared.

“A box of gloves rose 200 per cent. Colouring products increased at least 100 per cent,” said the 37-year-old from São Paulo, underlining how costs were rising while her revenue had collapsed. “I had to raise the price of my services, too.”

It is a dynamic that is playing out across Brazil, adding an extra layer of complexity to the country’s coronavirus crisis, which has already claimed the lives of almost 350,000 individuals and pushed hospital services to the brink.

With much of Latin America’s largest economy being shuttered, inflation is surging to its highest level in years, fuelling a silent scourge of hunger among poorer citizens that has run in parallel to the Covid-19 pandemic.

“The high price of staple foods — rice and beans, for example — has led to the disappearance of these items from the table of millions of Brazilians,” said Ana Maria Segall, a researcher at the Brazilian Research Network on Food and Nutritional Sovereignty and Security. In the 12 months to the end of March, the price of rice increased 64 per cent and black beans 51 per cent.

“In Brazil currently food inflation has penalised the very poorest, preventing them from having adequate access to food and in many situations leading to hunger,” she said, adding that rising unemployment and the curtailment of social programmes were also contributing factors.

Volunteers hand out food in São Paulo © Alexandre Schneider/Getty Images

Less than half of Brazil’s population of 212m now has access to adequate food all the time, with 19m people, or 9 per cent of its inhabitants, facing hunger, according to a recent report by Segall’s group.

“I’m doing some odd jobs, but it’s not enough to keep us going,” said Jonathan, a 28-year-old who lost his job in the kitchen of a Chinese restaurant in São Paulo when the pandemic began. He said he now struggles to provide enough food for his three young children and pregnant wife.

On a 12-month basis, inflation in June is expected to surpass 8 per cent, far above earlier estimates. In the 12 months to March, food prices jumped 18.5 per cent, while the price of agricultural commodities in local currency surged 55 per cent and the cost of fuel increased almost 92 per cent.

Line chart of Percentage increase over past 12 months showing The price of rice in Brazil is soaring

The developments pose a fresh challenge to President Jair Bolsonaro, who is already under fire for his handling of the Covid-19 pandemic. Across Brazil’s biggest cities, graffiti has sprung up labelling the populist leader “Bolsocaro” — a portmanteau of his name and the Portuguese word for expensive.

The rising prices are also likely to provide useful ammunition to leftist former president Luiz Inácio Lula da Silva, who returned to the political fray last month and may challenge Bolsonaro in elections next year.

“Bolsonaro is to blame for the increase in food prices, he is to blame for everything. They have to remove this guy,” said Maria Izabel de Jesus, a retiree from São Paulo.

Armando Castelar, a researcher at the Brazilian Institute of Economics, said the government had underestimated inflation both in terms of the numbers and also “how much a concern it should be”.

He attributed the rising prices to the devaluation of the Brazilian currency, triggered in part by the stimulus packages passed by the US government — which helped to bolster the dollar and led to higher Treasury yields — and the brighter economic outlook outside Latin America.

“You have a situation where commodity prices are going up because the global economy is going to grow a lot this year. With the growth in the US, interest rates are going up and the dollar is strengthening. This puts a lot of pressure on the exchange rate in Brazil and emerging markets in general,” he said.

As the spectre of inflation loomed last month, the Brazilian central bank raised its key interest rate by 75 basis points, higher than the half-percentage point many economists had expected. A further rate rise is expected next month.

“The central bank acted correctly, but it cannot stop there. It is important not to be too lenient in dealing with this,” said Castelar.

Silvia Matos, a co-ordinator at the Brazilian Economy Institute, also pointed to Brazil’s weakening currency as a contributing factor to inflation. But she said the slide in the real was triggered by investor concerns over Brazil’s deteriorating public finances.

Following the creation of two separate stimulus packages to mitigate the impact of Covid-19, government debt has risen to about 90 per cent of gross domestic product, a high level for an emerging market economy.

The rollout of the second of these packages began this month, with 45m Brazilians set to receive $50 a month for four months.

Critics said, however, these stipends were not nearly enough to keep people both fed and at home in lockdown.

“It is essential that the emergency aid is of a greater value, so that people do not leave the house but no one also stays at home starving,” said Marcelo Freixo, a federal lawmaker with the leftwing PSOL party.

“We need to reduce the circulation of the disease. Brazil is already experiencing 4,000 deaths per day. We will reach 500,000 total deaths by the middle of the year.”

Matos says that inflation had hit poorer citizens much harder than middle-class and rich Brazilians because a larger portion of their income was dedicated to food, the price of which has increased substantially.

“The only thing that could help right now is to get out of this pandemic,” she said.

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Can CVC pull off a $20bn ‘deal of the century’ at Toshiba?




Proposed management buyout looks like an improbable win for the Japanese conglomerate’s embattled CEO

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