Examination of Witnesses (Questions 160
- 180)
TUESDAY 4 JULY 2000
MR TOM
GOLDBERG, MR
STEPHEN PERRY
AND MR
JAMES RICHARDS
160. From your experience, you have a variety
of clients and therefore a varied experience. What about ECGD
cover and these other things?
(Mr Perry) ECGD cover Mr Richards has addressed very
clearly. We need to be in a position as good as our competitors
to take advantage of the opportunities in that field. The Chinese
have said to me that they are surprised at the limits imposed
on ECGD cover given the positive results of ECGD cover in China.
There has been 100 per cent success, I think.
Mr Illsley
161. In your memorandum, you make a point of
talking about sport as an untapped potential market in China,
speaking about the visits of West Bromwich Albion and latterly
Manchester United. Crystal Palace recently signed two players
from China. I think there was talk at that time of a Chinese market
in telecommunications for the televising of football matches and
sports events from this country. Is there a real potential there
for that market? Is it on a smaller level, maybe just taking football
teams out there, or is the television market and the sports market
a viable opportunity?
(Mr Perry) The one starting point you have to have
with China always is that their government is going to protect
their sovereignty. They are going to ensure that the country develops
in line with values which they feel consistent with. Having said
that, they have more and more money available to people of all
ages and they have a need to provide them with entertainment,
sport and leisure. We have a number of products in this country.
Perhaps we have operated in the field of exporting but we have
not operated in the field of investing overseas. Football is one.
I have to be very careful talking about football because we have
seen some terrible scenes of some aspects of our football culture
which are not very attractive. If we take our football product,
it is very well regarded. I am not sure whether the Football Association
has addressed the question whether there is an opportunity to
take up football as an investment activity into overseas markets.
There are a number of other sports and a number of other entertainment
fields. China, being one quarter of the world's population, being
probably the second largest economy within 10 or 15 years, must
have substantial money being spent in that field. The opportunity
for foreigners, particularly for us in Britain, to take advantage
of that is pretty good.
162. One of the things which became apparent
to us during our visit was that in telecommunications, mobile
telephones, the Chinese have jumped a generation of products,
up to the state of the art stuff. In television and video recordings,
they were marketing DVD digital disc equipment and cutting out
everything that the video age has had in the past. Do you see
them leapfrogging in front of the market in terms of those types
of products?
(Mr Perry) Absolutely. The Chinese go looking for
the latest technology. They have had a lot of problems taking
in latest technology and finding they could not apply it to their
own concrete circumstances but, more often than not, they have
been able to get the right, latest technology for their conditions.
The incredible figures of the rate of increase in mobile phones
are dramatic. I heard you talking before about the internet. The
Chinese estimate that internet usage within three or five years
will be 100 million. That will be on latest technology. There
are also some political aspects to that, but the Chinese market
is one where the S-curve of development is extremely tight. The
Chinese will go from a very low usage to mature markets sometimes
within five years. Airlines are another example of enormous off-take
once they decide to go into foreign and internal travel.
163. Would you like to comment, Mr Richards?
(Mr Richards) There are industries where the Chinese
are able to move ahead very quickly and become competitive in
the world market, but there are many other industries where, if
one is realistic, it would be very difficult for them to become
competitive in any reasonable time frame. Aerospace is a case
in point where they have a huge industry—until very recently
about 570,000 people employed in supposedly making aerospace products.
Actually, most of them are making all sorts of other things. The
problems in terms of training, technology, organisation, integration
skills and the barriers to entry into the world market are huge.
The Chinese recognise all too clearly that these are very difficult
barriers to overcome. Those remarks would apply in quite a number
of other fields too. It is easy to exaggerate the ease with which
China will be able to catch up in high-tech fields.
Sir John Stanley: As all our witnesses are aware,
we have a wholly unique organisational structure for promoting
British business interests in China which is not paralleled anywhere
else in the world in the shape of the China-Britain Business Council,
a private sector organisation receiving a substantial measure
of government funding and taking over the roles which are discharged
by effectively the FCO/BTI elsewhere in the world. I would like
to ask you whether you regard that as being a unique asset in
business terms in China or whether you think it is an area of
weakness. I am struck by the fact that both Mr Goldberg and also
Mr Perry in their respective memoranda do seem to be somewhat
critical of the present setup. I note, Mr Goldberg, you referred
to "the China-Britain Business Council (whose remit seems
to duplicate the FCO, with the same diplomatic/economic emphasis
and the same strengths and weaknesses)." Mr Perry, I note
on page 14 of your paper, you say, "Despite the relaunch
of CBBC from the CBTG, and a series of other bureaucratic measures,
we are still confronted by a confusing morass of fragmented initiatives
and structures, spread over many of the same often ill-defined
areas of responsibility and competence, with loose integration,
no unified structure, and, in certain instances, inadequate or
unsuitable leadership and direction." I would like to ask
you all, as we do have this unique structure in China, whether
it is something that you feel we should build on or possibly something
that you perhaps feel we should not have at all.
Mr Illsley
164. Could I ask Mr Perry to expand on his comment
in his memorandum about the 48 group when he says that the group
has been marginalised and not utilised enough?
(Mr Perry) The answer to your question is that, when
I am talking in that paragraph about those features that you identified,
I do go on to draw attention to some of the organisations that
are between business and expert advice. There is DTI, FCO, British
Trade International, CBBC, Business Links, London First, Chambers
of Commerce, a number of different organisations.
165. RDAs?
(Mr Perry) Yes. This is not the way it should be.
It should be simple, almost one port of call for a small company,
wanting to get access to the information. When it comes to do
I agree with the CBBC uniqueness, I would go much further. I am
a believer that British Trade International ought to be an organisation
run by business, not an organisation run by government. It is
a businessman's field of skill. Government needs to make sure
that it meets the objectives that are correctly sought by the
nation for that organisation, but I believe business people experienced
in export activity are the best people to run an export organisation.
My concerns about CBBC would take that form. Later on in my paper,
I draw attention to the Davies Report on China, commissioned by
the DTI, I believe—I forget which organisation it was at
the time—in which he recommended that at its core should
be a group of experienced business people running that organisation.
My wish would be that the CBBC would go down the road of becoming
more clearly run by people with experience in business in China,
linking up with chambers of commerce in China, creating one seamless
organisation, where experienced business people were providing
to business the answers to the questions that they needed. To
take the 48 group question, time and again every Chinese leader
who comes here starts off their speech by referring to the 48
group. It is usually translated into English as being the China-Britain
Business Council, but in fact the Chinese word is the 48 group.
It was an organisation that took initiatives in the early 1950s
to open relations with China. It has no counterpart in Europe
or north America and it is regarded very well by the Chinese.
It is a name which I believe should be much better exploited by
Britain in China. Some people might say, "You would say that
because you are connected with them", which is of course
true, but it is a very valuable asset, one which could create
a lot of goodwill inside China by permeating rather than, as possibly
has been done in the last few years, taking the opportunity maybe
to diminish the significance of the name. I would lift it up and
say it is an asset which we ought to build and develop.
(Mr Goldberg) I agree absolutely with Mr Perry's observations
on the need to get business involved in the governmental support
mechanisms and the confused situation of the numbers of people
and bodies he outlined. Certainly five or six years ago when we
started going into the Far East and the China market we were totally
confused about the different roles of the different bodies. That
has recently been simplified in the set-up of BTI and, as far
as business is concerned, I would guess that we all applaud that
simplification. Then the question arises what is the role of BTI?
The role of BTI I think must be to get further into that business
environment and take on board more people with direct business
experience, particularly in the export fields, which Mr Perry
is working towards. The CBBC is unique in that it exists in terms
of a potential for doing that in China. My observation in my evidence
that there was an overlap between the FCO and CBBC says really
that both of them have some jolly nice people involved, some jolly
helpful people logistically. They will provide interpreters. They
will explain how to get from Shanghai to Guangzhou. They will
provide offices, space, help and advice of a general nature, but,
as I remarked earlier this morning, nothing of expert, usable,
directly useful advice that SMEs particularly can latch on to.
I would hope that somehow or other, either BTI or CBBC gets that
kind of expertise in their operation. Clearly, you do not want
it in both, so somebody has to make a decision. Which horse are
they backing in the China market? CBBC probably has its nose in
front and is more usefully spread at the moment. Whatever you
decide for CBBC in relation to BTI and China, I would guess that
provides some kind of blueprint for elsewhere in the world because
my observations are not just related to China. You cannot get
specific advice on how to go in and operate in eastern Europe,
south America or wherever. We really have to gear ourselves up
more to that kind of businesslike approach to these bodies. In
my evidence, I point out that my experience says other countries
do it better than we do. My company has a company in Germany.
We got a German general manager in China once we were established
there. He made contacts with the German consul and their commercial
section and they had an ex-businessman in his mid-forties. He
had been exporting for 20 years. He knew how to network the German
companies in the Shanghai area. I did not come across anybody
within the FCO or the CBBC with that kind of impact, that kind
of knowledge, that kind of effectiveness. This is where we need
to go.
Mr Mackinlay
166. That is your experience elsewhere in the
world as well?
(Mr Goldberg) Yes.
Sir John Stanley
167. Mr Richards, have you any comments on how
satisfactory or not you find the CBBC/BTI interface in China?
(Mr Richards) I have not. In the note I sent to the
Committee, I did not mention the CBBC. We are a long time member
of and supporter of the CBBC. We think they do a lot of very useful
work. For the reasons that I have already touched on—the
fact that we have been in the market a long time and have our
own infrastructure—we do not on a day to day basis really
require their services, so I am not very well placed to answer
your question. What we do need and what we get is the support
of the embassy in a commercial or political sense. I have not
personally noticed any change in that since British Trade International
was introduced, but that is probably because I continue to see
the same helpful people who give the same kind of help.
Mr Rowlands
168. This Committee is concerned primarily with
United Kingdom and Chinese political relations. Have you any examples
where you have found business not being successful because of
discrimination on non-commercial grounds? In other words, where
the politics of our relationship have got in between you achieving
a successful commercial decision?
(Mr Richards) There is little doubt that political
considerations, and in particular the state of the bilateral political
relations, the state of Sino-British relations, whatever you call
them, can have an impact on high profile, sensitive deals involving
areas of the economy which the Chinese regard as sensitive and
involving large bucks. It is very difficult to say that, because
of this or that event or this or that tiff, a particular piece
of business has been lost, or indeed to say that, because things
have got better, you have won a piece of business that you might
not have won anyway, but there is a widespread feeling and impression,
which I am sure people in the FCO would share, that at least at
that high level of business the Chinese do quite deliberately
show pleasure and displeasure by allowing things to happen or
making it difficult for them to happen.
169. A higher or lower profile by a British
government on the issue of human rights would or could affect
your business?
(Mr Richards) I do not think there is any problem
for the business community in the British government engaging
in a dialogue, expressing firm views on human rights. Just how
it is done clearly can make a big difference.
170. If it is done ineffectively, you do not
mind?
(Mr Richards) That is not the way I would put it.
What is effective and what is ineffective is an interesting subject
for debate. Sometimes, it may be that public rhetoric can be effective.
Sometimes it can be counter productive. That is an interesting
question. It is not strictly a question for businesses. Supposing
there was a situation in which the dialogue on human rights led
to a political row between the governments, that would fall into
the category of worsening political relations, which could have
an impact on high level business. Depending on how the dialogue
is conducted and how it goes, there are potentially risks at least
for some businesses in China.
171. Business at your end is selling engines
to state airways, for example?
(Mr Richards) Some of them, yes. The structure of
the airlines is changing. Some of them now have foreign shareholdings
in them, but they are still largely controlled either by central
government or by regional authorities.
172. That is exactly the kind of business which
can be turned on and off.
(Mr Richards) It can be affected by instructions from
the centre, yes, and when it comes to large purchases it is still
largely controlled by the state planning commission.
173. You have been in the market since 1963.
You referred to "tiffs". Have there been any tiffs that
you can recall which you think did influence business decisions?
(Mr Richards) Before my time with Rolls-Royce, the
bad feeling which existed in China over Governor Patten's conduct
was generally felt to disadvantage us in relation to our American
competitors at that time. For reasons we have given, it would
be difficult to prove that, but I think that would be a very fair
assumption.
174. What about your clients, Mr Perry? Have
you come across any of them who have said to you, "Our business
has been affected for non-commercial reasons by the politics situation"?
(Mr Perry) None of our clients has been affected in
that way. We have always been aware that it has been happening.
We have been fortunate in the way we have handled our relations.
I do not know, but possibly because of what Mr Richards points
out our areas of business are less directly influenced by the
state in some ways. We have been aware that there has been action
taken by China to encourage relations with some countries and
to discourage them with others.
175. You have no illustrations of that? Mr Goldberg?
(Mr Goldberg) No, no real experience except in the
sense that the construction industry in China is still at least
partially protected and certain projects are always going to be
made by a Chinese company and are going to be installed by a Chinese
contractor. That is, in a sense, commercial.
Chairman
176. On the World Trade Organisation, Commissioner
Lamy is said to have clinched the deal when various offers were
made on supermarkets in the Chinese market. We know that even
Tesco is relatively small compared with the major French and German
supermarket groups. Have there been any responses to your knowledge
from our supermarkets, following the Lamy deal? What prospects
are there for Tesco, Sainsbury's and Asda?
(Mr Goldberg) Tesco are already in China. They have
a joint venture with a Taiwanese company called Lotus. They are
appearing. They have a number of development plans in China.
(Mr Perry) Your question touches on an issue of whether
we approach our market with a combination of expertise and sectoral
skills. This is a field where there have been attempts in the
past to get a focus, but they tend to start and stop. Marks &
Spencer went in and came out. Sainsbury's and Tesco have been
referred to. What we need is a very strong trade association that
can lead its members, together with the country expertise, which
should be resident within the CBBC, to take an opportunity like
that and make it happen. I am not aware, but there may be things
happening that I am not aware of.
Mr Illsley
177. I wanted to ask about visa requirements
and immigration issues. Mr Perry, you in your memorandum are perhaps
slightly more critical than our previous witnesses were. You made
the point that visa issuing had improved over the last couple
of years. Is that your experience?
(Mr Perry) We have a long way to go. One of the interesting
things I listened to in the session before was about the openness
of the Chinese on the freedom to travel. The Chinese have said
that one of the things that interests them was the opportunity
to engage in quite a large amount of tourism in the United Kingdom,
upwards of perhaps half a million people a year. We are not in
any way organised to deal with that because of our restrictions
on Chinese coming into the United Kingdom as regular tourists.
In the business field, the mechanism that we apply for issuing
visas does take longer than our European counterparts. We still
do receive criticisms from the Chinese on this matter. I understand
it is part of a wider issue that the Home Office has to consider.
I do understand where the problem starts from, but it is still
something which needs work doing on it and it would be a tremendous
benefit to Sino-British relations, the development of understanding
that you were alluding before, a whole number of fields, if we
were able to improve the situation of the numbers of Chinese that
could come here as quickly as possible.
Mr Rowlands
178. I thought in Shanghai they were interviewed
on the same day. It is not the process; it is the actual refusal
rate in Shanghai?
(Mr Perry) In different parts of China there are different
experiences, but it is also access to a visa office. They only
have that in Beijing and Shanghai at the moment. The process rate
and the refusal rate does vary.
Mr Mackinlay: That is a common problem, probably
found in Russia as well.
Mr Illsley: If the numbers of people wishing
to visit the United Kingdom increased dramatically, for instance
for tourism, we would be over stretched.
Chairman
179. We have heard from the Tibet Society that
"because of the closed nature of information in China and
the limited access to factories it is impossible to check in what
conditions" products are made in China. Is this correct?
What concerns, if any, do you have about human rights standards
in businesses in China? Are you able, for example, to monitor
the standards of your subcontractors?
(Mr Perry) I have never had any problem in that field.
I am sure there are some difficulties in some areas of China.
One would be foolish to try and pretend that the situation is
ideal, but the openness with which the Chinese are moving and
now opening up the west of China, which includes Tibet, would
suggest that it is going to be extremely difficult to maintain
that level of secrecy. We have dealt with a large number of products
purchased from China and we have never come across any attempt
to conceal from us what is going on there about the people who
are employed.
(Mr Richards) Where our business is concerned, we
have satisfactory access in the joint venture we have. Although
it is majority owned by the Chinese, we manage the joint venture
and the conditions are those with which we are happy. In other
factories where things are made for us, we go in and look at them
being made. We introduce practices which will ensure the quality
that we need. We are satisfied that, where our particular business
is concerned in China, there are not significant issues of the
kind which could give rise to concern, but there are obviously
very significant labour issues in China.
(Mr Goldberg) I have visited construction sites and
fabrication works in China and clearly their health and safety
requirements are not to the same sort of standards that we operate
here in the United Kingdom. However, if we get involved with the
construction sites or an international contractor gets involved
with the construction sites, they quickly tighten up those habits
and requirements on site. The opening up of the Chinese economy
will lead to this kind of improvement.
Mr Rowlands
180. On the construction site we went to see,
we saw neither boots nor helmets in most cases.
(Mr Goldberg) Which contractor was running the site?
A Chinese contractor?
Mr Illsley: It was a joint venture between a
road building company based in Tyne and Wear and a Chinese company.
It was in Shanghai, a ring road.
Chairman: Gentlemen, you have given us the
benefit of your experience in the Chinese market. You have submitted
helpful memoranda and we thank you also for your evidence today.
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