Sheffield pulls out of China deal; files reveal financial concerns
Ditching of plans to have a Chengdu-based developer turn the city's landmark central library into a five-star hotel follows an Asia Times investigation
Following a major Asia Times investigation in October, the northern English city of Sheffield has announced that a Chengdu-based developer’s plan to transform its landmark town-center library building into a five star hotel has been shelved.
The redevelopment, which was originally supposed to be part of a grandly ambitious £1 billion (US$1.34 billion), 60-year agreement between Sheffield City Council and Chinese developer Wang Chunming and his Sichuan Guodong Group, has been mothballed after negotiations, seemingly on all aspects of the plan, proved “increasingly difficult.”
The Council indicated it was cancelling the library deal via a story in local newspaper, The Sheffield Star. In October, the Council also turned to the The Star to deflect due diligence and developer probity issues raised by Asia Times in October.
Asia Times questioned how and why the focus changed from a project that was initially going to “transform the city’s downtown” to one that would instead turn the art deco Central Library into a five-star hotel. It also asked which Chinese company actually signed the deal and about the connections linking the Sheffield affair to one of the biggest corruption and political scandals in modern Chinese history, and to a US$557 million international fraud case.
Asia Times published its story on October 14 2017. On October 17, The Sheffield Star ran a front-page story, under the banner headline “City’s £1bn China deal – what’s not to like?,” that quoted council leaders saying ‘‘good progress” was being made between the council and Sichuan Guodong and that the £1 billion property deal was moving “full steam ahead.”
Less than two months later, on Thursday December 7, a council official told The Star that although Sheffield was hopeful it could work with Sichuan Guodong on other potential projects, where the library redevelopment was concerned the council was “now at that stage where we need to look at the other options.”
Cost and complexity were the issues cited by Sheffield City Council to explain the termination but the announcement in fact came just days after a set of documents related to the development entered the public domain via a local Freedom of Information request.
The request, made in November, produced a stack of documents including Sheffield council emails, letters, minutes of meetings and draft development plans. They offer a revealing snapshot of the protracted, awkward and often quite desperate lengths the Council went to in its efforts to get a deal signed with Sichuan Guodong.
The documents reveal that Sichuan Guodong did not sign the Council’s initial 12-month exclusivity deal, which was intended as a precursor to the parties’ commercial relationship, nor a later Heads of Terms contract. They also reveal how the council sent officials on numerous trips to Chengdu and retained a leading UK law firm with offices both in London and Beijing to try to help move the deal along. Perhaps most revealing, however, are the details that have emerged that illustrate the difficulties Sichuan Guodong’s Wang Chunming had in getting the necessary funds out of China.
“The ability of businesses and investors to transfer capital out of China has been severely restricted recently and it is possible a further approval process will be needed to enable Guodong to deploy significant sums in the UK”
In June, Sheffield City Council’s Chief Executive, John Mothersole, wrote to a member of the Capital Investment Team at the UK Government’s Department of International Trade. This person – the name is redacted in the released FOI documents – had just met with Wang Chunming in Chengdu and Mothersole wrote a follow-up to that meeting urging that a “joint announcement celebrating our joint work” be made so as “to gain high-level support from your Chinese counterparts to ensure expediency in the transfer of the required capital sum (US$300M) from China to the UK.”
In a subsequent Sheffield Council “China Programme Board” meeting that was then held in September, it is clear from the minutes – also released via the FOI request – that the passage of Wang’s funds had not yet been secured.
“The status of Guodong’s permissions for the foreign currency transfer requires management,” states the meeting minutes, “and represents a significant and escalating external risk. The ability of businesses and investors to transfer capital out of China has been severely restricted recently and it is possible a further approval process will be needed to enable Guodong to deploy significant sums in the UK.”
This refers to China’s capital controls, introduced in 2016 to shield the renminbi from external downward pressure and clamp down on money laundering and fake outbound investment transactions. In summary, any projects – new or on-going – that required in excess of US$50 million to be transferred out of the country were halted, with the Chinese government declaring it would be particularity scrupulous when examining intended hotels and entertainment businesses.
The Sheffield Council “China Programme Board” minutes indeed show the requested US$300 million had by September become US$200 million and the actual amount that had been transferred stood at only US$4 million. “Reaching a common understanding with the investor regarding a number of key principles has proven more complex and time-consuming than originally anticipated,” the minutes dryly conclude.
A spokesman from Sheffield City Council told Asia Times: “We continue to be in dialogue with Sichuan Guodong Group and many other interested developers on a number of projects across the city.”
This article was updated on December 14, 2017, to include comment from Sheffield City Council.