Dawn of the "Golden Era" for UK-China Relations
By Paul Drechsler CBE, President, Confederation of British Industry.
Recently, a new dawn has risen on the thriving Sino-British relationship. Last autumn, we were delighted to see the huge success of President Xi Jinping’s landmark state visit to the UK, which marked the culmination of a very special year for bilateral exchanges as well as the dawn of a new “golden era” for the UK-China relationship.
As we are already into the second half of their first year in the new era, now is an opportune moment to weigh and reflect upon the current status of the relationship between our two countries.
Realising the "golden era"
The major bilateral agreements inked during the President’s visit, such as the Joint Statement on building a global comprehensive strategic partnership for the 21st century, and the nearly £40 billion worth of commercial deals that were agreed upon – on average, about £400 million of deals agreed upon every hour – now form the anchor of the “golden era”.
But the continued success of this era will hinge on a number of key things. From increasing high-level government-to-government exchanges and building an even stronger trading and economic relationship, to cooperating on tackling global challenges - such as climate change, international health & development issues, and expanding people-to-people exchanges, particularly in terms of students, tourists, and businesspeople - there is much we can do together.
For example, a fantastic initiative both countries are working on is promoting diversity in the workforce. The British Council’s Inspiring Women initiative focuses on exposing girls and young women across China to a range of professional roles and career options, aiming to inspire the next generation to expand their horizons, realise their ambitions, and fulfil their career potential.
A slowing Chinese economy still offers huge opportunities for British business
Turning to the economy, although China grew at 6.9% last year, marking the slowest pace in a quarter of a century, it still accounted for more than a third of all global growth. The economic slowdown has led to a two-track economy, with some sectors in recession while others plough ahead. For example, the retail and e-commerce sectors are growing rapidly while many of the industries tied to the housing cycle, such as coal and steel, are in trouble. As a result, it is unwise for companies to view China’s GDP growth as a single figure. Instead, they need to examine it sector-by-sector.
But even a slowing Chinese economy still offers huge opportunities for the UK. Even if China grew by just 5% this year, it would still add more than twice as much to the world economy than when it was growing at 10% in 2006. And as China carries out the complicated reforms necessary to steer the shift towards an economy based on consumption and services, the UK will find itself in an excellent position to benefit from and contribute to the next phase of China’s development. For example, a number of areas prioritised over the new Five-Year Plan’s (2016-2020) timeframe are exceptionally well-matched with the UK’s strengths in areas such as financial and professional services, healthcare, e-commerce, education, and low-carbon.
China is an opportunity for every UK region
Look at almost any UK region and there’s a Chinese story waiting to be told, with Chinese firms creating jobs, driving innovation and, most importantly, forming part of the global answer to our regional challenges.
In London, we’ve seen investment in everything from iconic black cabs to Canary Wharf. This summer, China Merchants Bank, China’s sixth-largest bank, opened its London branch, the first of its kind set up by a Chinese joint-stock bank and one of the most recent outcomes of the UK-China “golden era”.
Looking further afield, there are many China success stories across the UK, many of which don’t get the attention they deserve. For example, Greater Birmingham in the West Midlands has secured almost 50 Chinese FDI projects over the last decade, creating nearly 2,700 new jobs and safeguarding an additional 1,700.
Meanwhile, exciting new flight routes are opening up new and lucrative regional trade corridors between the UK and China. This summer saw the inauguration of two important new services by CBI members. Manchester Airport, launched the first ever direct, scheduled UK flight from anywhere outside of London to mainland China - expected to be worth at least £250 million in economic benefits to the UK over the next decade and help support the future of the Northern Powerhouse - whilst Gatwick Airport opened the UK’s first direct flight to Chongqing, one of the world’s largest urban centres.
China is an opportunity for British exporters
So it’s clear that China represents a huge opportunity for British exporters. However, the UK can’t just sit around and wait for opportunities to land on its doorstep. British exporters need to get out and seize them. The UK has already made a great deal of progress, with British exports to China more than doubling since 2010 and more than trebling since 2007.
Chinese consumers already have a huge appetite for anything with the “Made in Britain” mark, from Burberry scarves to Bentleys and Land Rovers. And recent regulation changes have also yielded significant gains for British food and drink exporters. China has a growing demand for British beer - in 2014, £15 million worth of British beer was exported to China, up an astonishing 186% over the previous year – whilst £30 million worth of pork is shipped to China every year.
Looking ahead, China’s rebalancing towards services is big news for British business, from insurance to professional services to the UK’s world-beating creative industries. For example, CBI member, The British Film Institute has already struck a deal with China’s largest Video-On-Demand platform, making some great British and world cinema titles available to audiences across China. And e-commerce is another ‘stand out’ area with huge potential, with exports to China potentially reaching £14 billion pounds by 2020.
UK-China relations post-Brexit
Of course, the talk of the town in the UK is the country’s decision to leave the European Union, after 43 years’ membership of the Single Market. The EU referendum’s outcome has raised concerns about the sustainability of the “golden era”, but we have already seen several positive developments that show the bilateral relationship continues to thrive post-Brexit. These include the biggest Chinese investment deal outside London – a 60-year partnership agreement with Sichuan Guodong Construction Group, that will fund four or five Sheffield city centre projects over the next three years – and a visit by the British Minister for Trade Policy, Lord Price, in July, where Huawei confirmed it will go ahead with its planned £1.3 billion investment in the UK.
All of the fundamentals of the bilateral relationship remain in place, and there is a strong commitment on both sides to maintaining robust ties. The Chinese government appears to be taking a cautious and pragmatic approach to the Brexit vote, emphasising its strategic and long-term perspective vis-à-vis relations with the UK. Indeed, the UK’s push for new markets post-Brexit could ultimately yield an even stronger trading relationship with China.
But there are challenges as well. The UK’s exit from the EU means that China will lose one of its leading economic cheerleaders in the European bloc. There are worries that Brexit could imperil London’s current status and continued development as a global RMB hub, and there is now a degree of uncertainty about future Chinese investment in the UK. Just this July, the British Government decided to postpone approval of the Hinkley Point nuclear power station, which is supported by Chinese investors led by China General Nuclear Power. It’s crucial the Government makes a clear and timely decision on this major infrastructure project to show that the UK is open for business.
Despite the Referendum though, the CBI remains confident that bilateral relations will continue to thrive. We have a seat at the table with both government and business and will continue to work hard to ensure our members’ voices are heard and articulate their perspectives on the EU Referendum’s outcome to both the British and Chinese governments, particularly regarding its implications for the future of the bilateral relationship. As we celebrate the 10th anniversary of our Beijing office this year, we remain fully committed to sustaining the momentum achieved during President Xi’s state visit last year and ensure that the “golden era” ascends to new heights in the years to come.
Paul Drechsler CBE
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