I was delighted to take part in a televised discussion on The Agenda with Stephen Cole, a new TV programme launched by CGTN Europe earlier this month (October). The topic for discussion was trade relations between the UK and China and I was joined by David Henig, Director of the UK Trade Policy Project.
Prime Minister, Boris Johnson has said that it is his ambition to have stronger Sino-British ties in areas like trade and investment – and so we were exploring how that ambition could best be realised, especially with the shadow of Brexit looming over everything.
Firstly, as I pointed out in my opening remarks on the programme, the UK is very important to China as both a friend and a trading partner; China’s friendly ally in the West, if you like. The UK was the first Western country to join the Asian Infrastructure Investment Bank and, following President Xi Jinping’s visit to the UK in 2015, we entered a new golden era of UK-China relations which continues to grow.
We have seen many projects ongoing since then, especially with smaller tech companies expanding into China. So, from a Chinese perspective, the UK is generally seen as “open to doing business” and, indeed, is one of China’s largest trade partners.
David Henig was equally optimistic. In fact, his view is that the “golden era” is yet to come, and he went on to highlight how much more the UK could be doing in services with China. And I agree. The UK currently exports about four billion in services to China compared to 60 billion in services to the US. So there really is a lot of scope for growth here in terms of two-way trade in both goods and services – importing more from China and exporting more back to them.
If we look at UK exports to China, the largest commodity is road vehicles, followed by manufactured goods. Then, within services, there is the travel sector, which is equal to the input from China. But, within each of these sectors, there is still room and the potential to grow. Similarly, so in those sectors where China has set its goals for 2020: advanced manufacturing, medical science, medical products, agriculture and tech in general. All are good areas to grow.
Currently there is a trade deficit very much in China’s favour. The UK imports nearly twice as much from China as it exports back. Latest statistics from the House of Commons library show that in 2018, UK exports to China were worth £23.1 billion whilst imports from China topped £45.4 billion - resulting in a trade deficit of -£22.3 billion.
In 2018, too, China accounted for 3.6% of all UK exports and 7.0% of all UK imports. And it’s been a 19-year upwards trend with trade between the two countries increasing rapidly since the turn of the century. China is now the UK's sixth largest export market (up from 26th in 1999) and fourth largest source of imports. (up from 15th in 1999)
However, to bridge the trade deficit, the UK should be focusing on its strengths and exporting more in those particular areas that are appreciated in China. That is, high quality products, especially in pharmaceuticals, food and drink, vehicles and engineering products.
Indeed, we hope that Crayfish.io’s innovative cross border service platform will help local businesses to trade with China in a smarter and more efficient way. Even for a small player, it’s important to think big and have a China strategy in place, especially in light of Brexit and the emerging global trade landscape.
We are here to provide the support needed to navigate the turbulence of today's world. But it’s one in which well-positioned British companies can flourish. We can help businesses better engage with China - by developing the right business model and managing flexible talent acquisition through to understanding the culture and engaging with Chinese investors. And these are especially timely for businesses to thrive in a changing world.
David also made the point that Fintech is a huge growth area in London, and the UK really should be doing more between London and Shanghai as the major financial centres. And that is starting to happen now.
And let’s not forget branding, marketing and advertising. They sound small – but, actually, they are significant as they are sectors where the UK especially is seen to have a great competitive advantage.
With regards Brexit, the argument from the ‘leave’ camp has always been that the UK will be free to negotiate its own trade deals with countries like China. And I think that’s going to be true. Up to now, with the UK being part of Europe, China would always have to consider the whole of Europe in any deal it wanted to make with the UK. But after Brexit, they will be free to negotiate their own deals more tailored to the UK-China trade relationship. And that can only be seen as a positive.
As David then pointed out, post-Brexit, the problem with any trade deal the UK is going to face in the coming years is going to be the tension between the trading relationship with the EU, which is clearly uncertain; the trading relationship with its traditional ally, the United States; and the trading relationship with other countries like China. And I agree with him that, actually, the opportunity of Brexit is about countries like China; it is about the emerging economies. The UK already has a big trading relationship with the EU and the US, and so the growth opportunities lie with China.
For me, the trade deal is one thing, and that’s between governments. But, on a business level, I am seeing increasing interest in trade deals with China from the companies I work with. Many of them are tech companies but also in retail, education services and schools which is a huge growth area for the service trade with China, particularly now with China’s second child policy. For the first time, the growth of students coming to the UK to study has surpassed that of the numbers going to the US in terms of percentages. So, whilst I appreciate that trade deals take time, I am seeing business deals going on and increasingly so.
Moreover, the UK is now the most desired immigration destination, attracting a more affluent demographic than anywhere else in the world - and seeing a 54% increase in this respect in Q1 this year. However, only time will tell how Brexit will affect this.
Lastly, I would like to leave you with this poignant thought from our discussion with Stephen: More students coming to the UK from China means, in the future, we should be building on the opportunities. These students are potentially the business leaders of tomorrow, and they have a background rooted in both the UK and China. Who better to spearhead a new era of golden trading relations between the two countries?