By Anika Patel and Mark Preen
A front-seat view to UK-China trade
Today, the British Chamber of Commerce in China celebrates 40 years of supporting enterprises in market and bringing together the business community. Since the establishment of Chamber in 1981, we’ve seen the transformation of the Chinese economy after ‘reform and opening up’ first-hand. UK companies have thrived in a steadily improving business environment and flourishing market.
Few could have imagined the extent of the changes that China would experience when ‘reform and opening up’ policies were first launched. When the Chamber was established, China’s GDP stood at RMB 1.3 trillion (GBP 143 billion). Since then, it has soared by more than 75 times this size to RMB 102 trillion in 2020 (GBP 11 trillion).
Of course, there are far more dimensions to the UK-China relationship is far more than just trade. We have many areas of shared interest – from combating climate change to building financial bridges to using transnational education to support the next generation, our relationship is built on far more than just strong trade numbers.
Brand Britain gaining ground in China
The UK export of goods to the Chinese mainland really began to accelerate in the early 1990s, and since then has averaged 16% each year between 1993 and 2019. Much of this early growth was presided over by Tony Blair, who became Prime Minister just a few weeks before the handing back of Hong Kong to China in July 1997. During his tenure, China joined the World Trade Organisation, Jiang Zemin became the first Chinese President to visit the UK in a state visit, and the UK became China’s second largest European trade partner behind Germany.
Blair’s policy towards China was one of engagement, broadly maintaining a positive relationship while addressing difficult issues, such as disputes in the WTO. Business delegations hosting anywhere between 50 and 150 British delegates visited China in order to explore partnership and export opportunities. The UK government and international companies also worked together to establish the first international management training school in Beijing, providing vital skills to the Chinese workforce.
David Cameron continued this policy tack, famously calling for a ‘Golden Era’ in UK-China relations. During one visit to China in 2010 alone, more than 40 trade deals for companies in the agriculture, creative and built environment industries. Exports to China then went on to nearly double to GBP 17 billion (RMB 154 billion) between 2010 and 2015.
Quality, expertise and green innovation
Although the UK-China trade relationship under Theresa May and Boris Johnson has been more sober compared to Cameron’s vision, UK exports to mainland China continue to thrive. The UK was Country of Honour at the China International Import Expo in 2018, where millions of pounds’ worth of trade deals were signed for UK food and beverage, healthcare, energy and aviation companies.
In 2019, ‘Brand Britain’ continues to appeal to the average Chinese consumer, creating enormous opportunities for top-notch British products and generating GBP 22 billion (RMB 198 billion) worth of exports of cars, petroleum, pharmaceuticals, gas turbines and other goods.
The UK services industry exported at least GBP 5 billion (RMB 45 billion) to China 2019. Services sectors are all core elements of the UK industry, and in many cases businesses have found strong demand in China for their knowledge, innovativeness and experience in cross-border business and third markets.
Whether it’s the travel industry showcasing the best of British culture and history; architects and advertisers educators providing creative and innovative solutions to clients; teachers guiding the country’s young minds; or professionals across legal firms, accounting firms and business advisory firms sharing their expertise in their fields, many British firms continue to go from strength to strength in the Chinese market.
Demand will continue to grow as China continues to boost domestic consumption and boost innovation under the 14th Five-Year Plan. At a consumer level, many shoppers have positive perceptions of the quality of British products, particularly in education, luxury retail and food and beverage.
British businesses are also pushing to create more sustainable products and services. Consumer goods companies are developing green products on order to beat carbon neutrality targets, financial services companies are developing effective and substantial ESG products and energy companies are exploring the new frontier of hydrogen power.
British businesses here to support economic growth
Foreign investment plays an important role in markets around the world. A diverse environment filled with different market players encourages the delivery of competitive products and new ideas into the business ecosystem, helping to drive innovation and economic growth. Beyond the economic scope, these businesses act as a bridge between markets and people, fostering a greater understanding of different cultures and opinions.
British businesses have had a strong presence in the Chinese mainland and have played an important role contributing to the growth of the Chinese economy since 1981. Roughly one in five of our members entered established their mainland China operations over 20 years ago. These companies are providing education to thousands of schoolchildren, financing sustainable development projects, developing the Internet of Vehicles and providing life-saving medicines to the market.
As China’s economy and domestic capabilities grew, Chinese investors have increasingly sought out opportunities in overseas markets, in part encouraged by government incentives through the ‘Go Out’ policy. In 2005, Chinese net investment into the UK was only GBP 18 million (RMB 162 million), but by 2019 this had grown to GBP 800 million (RMB 7 billion). In terms of investments in the UK, Chinese investors are particularly interested in financial services, education, consumer brands, healthcare, and technology.
The Department for International Trade reported that, between 2019 and 2020, 87 new Chinese FDI projects were established in the UK, creating 1,820 new jobs. The UK receives roughly 10% of Chinese investment into Europe, making it the second most popular investment destination in Europe after Germany. However, Chinese capital only accounts for around 2% of all investment into the UK, and 0.2% of all foreign stock in the UK.
Significant potential remains in both the UK and Chinese markets for foreign investors, and both markets are likely to remain attractive going forward.
What do the next 40 years hold?
The UK government recently published its Integrated Review. The review echoes the post-1997 policy of engagement, highlighting the importance of a positive trade and investment with China while recognising other challenges in the relationship.
Trade is a vital mechanism to foster dialogue and drive economic growth. It, along with climate change, development projects and other similar issues, are important areas of collaboration such that must be sustained. China is the UK’s second-largest non-EU trade partner, and disengaging is not an option.
As the British Chamber of Commerce in China celebrates our 40th anniversary, we reaffirm our call for a constructive UK-China policy that recognises the need to continue cooperating in areas of mutual benefit. We are proud of the work we have done to support our community of 500 member companies across the Chinese mainland over the past 40 years. Going forward, we will continue to stand side by side with our other chapters, businesses and government as we help British companies thrive over the next 40 years.