Memorandum submitted by the Corporation
of London
1. Since joining the WTO in December 2001,
China has kept to its timetable on liberalisation but there remain
minor non-tariff barriers, where local companies (eg in insurance)
have an easier and cheaper administrative route than their foreign
counterparts. Mandatory capital requirements for foreign firms
are often onerous compared with elsewhere. There can also be issues
with both national and provincial authorities for foreign firms
seeking to build up country-wide operations.
2. A broad negative factor in China is the
tendency of local players to focus on short-term speculation rather
than long-term investment and risk management. This practice is,
of course, also present elsewhere, but local factors can pose
particular challenges for UK businesses in China.
3. Continual support from Her Majesty's
Government for market access is thus very welcome. It is worth
highlighting the excellent service that UK firms have received
from the British Embassy and its subordinate posts.
4. A positive factor is that the Chinese
have realised that service industries (which they term "tertiary
industries") are not only necessary to support the growth
of the Chinese economy but, as in UK, can be a major source of
employment opportunities.
5. Nevertheless, there are a number of British
successes in China and these include:
— The development of HSBC and Standard
Chartered as retail banks. Liberalisation means the opportunity
to open banks throughout the country and to handle Chinese clients.
— The penetration of life insurance
companies—notably Royal & Sun Alliance, Aviva, Standard
Life and Prudential, largely in partnership with local firms.
The UK arguably suffers, however, from the absence
of the big UK investment banks, which means that much of the advice
available to Chinese firms is likely to come from the big US investment
banks.
6. Notwithstanding this, the London Stock
Exchange (LSE) is now moving forwards in the Chinese market. In
October they opened their Asia Pacific regional office in Hong
Kong. More recently Air China was listed on the LSE, joining five
other firms on the main exchange and one on the AIM small firms
market. The LSE stands to benefit from a window of opportunity
to attract Chinese firms seeking overseas listings—New York
has become more uninviting in recent years due to the Sarbanes-Oxley
regulations, and Tokyo has been losing large volumes foreign listings
for some years.
7. Lloyd's is negotiating, with strong support
from the British Government, to see how, with its unique structure,
it may take its place in the Chinese insurance market. A large
amount of reinsurance comes to Lloyd's and the London market through
the brokers. Last September saw the celebration of the 30th anniversary
of the reinsurance in London of the Chinese civil aviation fleet.
8. The Shanghai Futures Exchange is a member
of the Futures & Options Association (FOA). The FOA is drawing
up a plan for the issuance of corporate bonds, so that Chinese
industrial companies have an alternative to stock exchange listing
if they want to raise money. One problem, however, lies with the
lack of reliable ratings agencies in China.
9. To strengthen the relationship between
the City and China's two financial centres (Shanghai and Shenzhen),
the Corporation has signed a Memorandum of Understanding with
each, intended to lead to cooperation and sharing of experience
in running a financial centre.
10. It will be appreciated that Beijing
is not a financial centre as such, although it is important as
the location of the regulators and administrators. A number of
localities, including Beijing's Chaoyang District, have sought
to present themselves as "financial centres", when they
are in reality concentrations of general business.
11. Commodity trading, however, flourishes
in Dalian, whose Commodity Exchange has now overtaken the Chicago
Board of Trade in the volume of soya bean contracts, reflecting
massive Chinese imports. There has also been the emergence of
Zhengzhou (in central China) as a centre for trading wheat but
the main commodities centre is the Shanghai Futures Exchange,
which trades aluminium, copper and rubber. The London Metal Exchange
has a Memorandum of Understanding with the latter, but probably
regards them as more of a potential competitor.
12. There are also major activities by the
UK accountancy and legal firms. A particular issue is the promotion
of London as a centre for dispute resolution.
13. The Bank of China has had a branch in
London for 80 years and 20 years ago the China Insurance Co was
the first wholly-owned Chinese company to be set up in UK. In
September 2003 the Industrial & Commercial Bank of China set
up a UK subsidiary and general banking hall in King Street.
14. To cement links between China and UK,
the great interest of Chinese students in coming to UK for secondary
and tertiary education should be built upon. Last November a delegation
from training institutions in the City visited Beijing, Shanghai
and Shenzhen, to discuss cooperation in areas of professional
training and distance learning and obtaining professional qualifications
from London-based organisations.
15. An example is the operation by the Cass
Business School, which has combined with the Bank of China and
the Shanghai University of Finance & Economics, to offer a
two-year part-time Executive MBA. This is based on distance learning
combined with intensive workshops in Shanghai, a model developed
elsewhere. They are hoping to roll this out to other large cities
in China, as and when they are allowed to do so.
16. UK firms are also transferring skills
under international development programmes. For example Lloyds
TSB are training staff of various Chinese regulatory bodies under
EU funding and the Crown Agents are installing the Commonwealth
Secretariat Debt Recording & Management System at the Ministry
of Finance under World Bank funding.
17. The Bank of England and the Financial
Services Authority have close relations with their Chinese counterparts,
and this provides helpful support for commercial endeavours.
18. At a formal level, on average, the Lord
Mayor visits China on an annual basis with a business delegation
and the visits are generally well received. In addition to the
visit of the Lord Mayor in 2004, the Chairman of the Corporation's
Policy and Resources Committee, Michael Snyder, accompanied the
Chief Secretary to the Treasury on a visit in December.
19. The Corporation regularly plays host
to Chinese delegations which visit the City. In May 2004, the
Lord Mayor hosted a breakfast meeting at the Mansion House with
the Prime Minister of China attended by the Chief Secretary to
the Treasury and senior figures from City institutions. Other
senior figures, such as the Mayor of Beijing and the Head of the
Banking Regulation Agency, visit the Lord Mayor personally whilst
delegations from particular cities are fielded at working level
and given extensive briefing on how the City works. A particular
theme has been the promotion of UK expertise in all aspects of
privatisation.
January 2005
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