British Business in China
62. Following WTO admission in 2001, new opportunities
have emerged for foreign business in China. Dr Yueh said that
"following WTO accession, a major source of opportunities
will be provided by the opening of China's domestic market".[78]
Dr Yueh went on:
Insurance, banking and financial services will
be liberalised, though the issue remains one of timing and degree.
Geographical restrictions will be removed and foreign banks will
be permitted to engage in Chinese currency (renminbi) business
by the end of 2006, for instance [
] Other areas of WTO-related
opportunities lie in education and service professions, such as
law and accountancy. The opening of these sectors is significant
and follows a trend of increase in global trade in services. For
a developed country such as the UK, its trade surplus in services
with Chinadespite an overall trade deficitis likely
to continue and grow.[79]
63. However, James Forder, of Balliol College, Oxford,
emphasised the difficulties in doing business in China despite
the WTO reforms:
It should never be doubted that China remains
a very difficult place to do business. The legal system is developing
from a very primitive base; there have until recently been serious
concerns about widespread corruption within it; and it is in many
respects obscure and confusing to outsiders. At least one British
law firm advises its clients of the dangers of falling foul of
laws which are actually unpublished.[80]
64. Dr Christopher Dent of the Department of East
Asian Studies, University of Leeds, was more optimistic when he
said in his evidence that:
China's difficult regulatory environment and
lax commercial laws continue to frustrate European, American and
other foreign investing firms alike, although the Chinese are
making some progress at improving the situation. Corruption levels,
while still comparatively high by broad international standards,
are reported to be falling significantly. The commercial legal
environment is improving too, partly out of intensified competition
between provincial governments to attract foreign investment.[81]
65. Notwithstanding the difficulty of doing business
in China, some witnesses felt that Britain was lagging behind
its competitors. Stephen Perry, Chairman of the 48 Group and Vice-Chairman
of the China Britain Business Council, made a negative assessment,
saying:
Whilst Germany has a positive trading balance
[with China] the UK is in deficit in a ratio of approx[imately]
4:1 in visible trade and is underperforming even on invisible
trade [
] Over the past five years the UK has underperformed
in both goods and services. Only 1.25% of UK total exports are
to China and what is more the UK share of the [
] total market
has fallen, even if the total value of exports has risen. Economists
might argue that we are a service economy and since China's services
sector is relatively underdeveloped the UK can hope to make its
comparative advantage count in years to come. But the figures
show that the UK share of total cross border trade in services
is 8% but we only have a 2% share of China's service imports.
And before you start to think it, trade through H[ong] K[ong]
does not even up the figures at all.[82]
66. Caution has been expressed about these statistics.
We heard from a range of interlocutors in China that the figures
were distortedRolls Royce engines, for instance, count
as French trade because of their incorporation into Airbus airplanes.
We also heard that investment substituted, to some extent, for
trade. However, Stephen Perry said:
The UK is the biggest European investor by stock
but not by trendGermany is en route to overtake
us soon. And our investment in China accounts for only 1% of their
total investmentthe real money comes from East Asia and
the States. And our investment is heavily skewed. If we strip
out Shell, BP and Vodafone who have in the past taken equity stakes
in Chinese companies for strategic purposes, our investment level
declines by almost 50%. And almost all our investment is concentrated
in the Pearl River Delta, Bohai Rim and Yangtze River Delta. If
you travel the rest of China you will frequently find Germany
and other European investment but not UK.[83]
Lord Powell also told us: "Our market share
is 1.3%, which is obviously inadequateChina is Britain's
sixteenth export market. Here is the world's fastest growing economy
on course to be the third largest before very long and it is our
sixteenth market."[84]
67. We asked the Foreign Secretary about this, and
she said:
In the past we have not enjoyed as great a share
of trade as one might think judging from the share we have of
investment in China [
] it is my understanding that part
of the issue has been that the things that China has most needed
in the most recent past have been in the heavy goods/heavy machinery
end of things, where, for good or ill [
] the fact is that
these are not areas where Britain has the strengths that we have
had the past.[85]
68. We conclude that the United Kingdom's market
share in China is lagging behind its competitors, and that the
Government must do more to support British business in China.
69. A coherent Government approach is crucial in
supporting British business activity in China. The FCO described
Government structures for dealing with China:
The FCO takes the lead in developing UK policy
towards China and for ensuring that the work of other groups such
as the China and Asian Task Forces are reflected in broader strategy.
The Government's strategy on China as a whole is coordinated by
the Cabinet Office. It arranges meetings of the Whitehall China
officials group, which enables individual Government departments
to feed in their views on the Whitehall China strategy and to
update others and contribute towards a cross-Government detailed
action plan on China.[86]
70. However, Stephen Perry criticised the Government's
approach to China:
There is no Whitehall China trade strategy. It
is true to say that Whitehall departments meet periodically in
the Cabinet Office and detail their respective bilateral initiatives
which are then put together under four or five headings. But this
is a description of activity with the word strategy imported as
a heading
Equally, UK Trade & Investment do not have
a China Strategy [
] Indeed the China unit which did have
a pan-China brief staffed with China hands has been radically
reduced in numbers and responsibility restricted to managing overseas
posts [
] The last couple of years have seen almost all the
regions establishing physical offices in China; the mayor of London
is setting up offices; the City of London is setting up an office;
the CBI is setting up offices. And who is coordinating all of
this? No-one.[87]
71. Lord Powell, on the other hand, expressed a more
positive view of Government co-ordination. He told us:
co-ordination has improved greatly in recent
years for a number of reasons. One has been the establishment
of the China Task Force, set up about three years ago. For the
first time, all elements of British policy towards China involving
not just business but education, health care and cultural matters
are drawn together. We are approaching the point where you could
say we have a national strategy towards China, which is co-ordinated
through a clearing house called the China Task Force. This is
a great step forward, and I think the Government deserves a lot
of credit for it.[88]
72. The Deputy Prime Minister, who chairs the Task
Force explained its role:
The China Task Force was established as a result
of my right hon. Friend, the Prime Minister's visit to China in
2003, when he agreed with the Chinese Premier Wen Jiabao that
a group should be set up to consider issues of interest to our
two countries' bilateral relations [
] The Task Force's remit
covers trade and investment, education, science and technology,
health, culture, environment and sustainable development, and
development issues. These areas align closely with the areas identified
for cross-departmental action being developed in response to the
challenges of globalization.[89]
73. We asked the Foreign Secretary about Whitehall
co-ordination on China, and she said:
As to an issue of Whitehall strategy in departments,
again this is something that one can always say one can improve
[
] but there is actually quite good co-ordination between
the different departments and the involvement of departments working
together to support things like the UK-China
Task Force and so on. There is quite a lot of good engagement.[90]
74. We heard that the United Kingdom has not yet
signed up to the Shanghai 2010 commercial exhibition (Expo 2010).
We asked the Foreign Secretary about this, and she said: "This
is an issue that has to go to the Prime Minister but what I can
certainly tell the Committee is that I do intend to recommend
to the Prime Minister that we should in principle accept that
we should be participants in Expo".[91]
75. We conclude that Expo 2010 presents a key
opportunity for the Government to support British business in
China, and we recommend that the Government sign up to Expo 2010
forthwith. We further recommend that the Government undertake
a review of Whitehall structures dealing with China to ensure
that they operate together in an co-ordinated fashion, so as to
avoid leaving the United Kingdom and its businesses at a disadvantage
when dealing with China.
76. A number of organisations support British business
in China. The FCO described the structure of support for business
as follows:
UK Trade and Investment (UKTI), the China Britain
Business Council (CBBC) and the British Chamber of Commerce in
China (BCCC) have different and complementary roles in supporting
UK business in the China market. UKTI and the CBBC work in partnership
to provide a range of business promotion activities for UK companies.
These activities are divided between UKTI and CBBC by way of a
Service Level Agreement between the two parties. This arrangement
enables UKTI to draw on the CBBC's organisational flexibility,
expertise and resource in China (and UK) to deliver a wide service
in a cost-effective manner. CBBC has nine offices in China, seven
in cities where there is no British diplomatic representation.
CBBC also provides a range of independent services for UK business.
The BCCC is primarily a knowledge accumulation and sharing organisation
through its provision of connectivity and networking opportunities
for its membership. The Chamber has a small paid staff and no
desire or facility to replicate the work of the CBBC and UKTI.[92]
77. Our predecessor Committee in a Report in November
2000 commented on this issue, saying:
We recommend that the British Trade and Investment's
long-term trade and investment strategy for China take account
of the potential overlaps between the CBBC, the diplomatic posts'
commercial work, and the Chambers of Commerce in China, and should
aim to eliminate duplication.[93]
78. We asked Lord Powell, the President of CBBC,
about this arrangement. He told us:
it is fair to say there has been improved co-operation
between UKTI, which of course is the Government's trade promotion
body generally, and the China Britain Business Council. We have
a service level agreement with them, which describes exactly what
the Government expects of the China Britain Business Council,
as well as of course what business expects of it. That enables
us to work very closely with UKTI without duplicating what they
are doing. That coordination also extends into China where we
have a clear understanding with the Embassy and the consulates-general
what they do, particularly what I would call the higher level
work, the policy work, ministerial visits work, and what the China
Britain Business Council does, which is to deliver the basic commercial
trade promotion services.[94]
79. CBBC shares an office with the British Chamber
of Commerce in Beijing which has aided effective co-operation
between the two organisations. Lord Powell described the role
played by the CBBC in encouraging British businesses to enter
the China market. He said: "In the China Britain Business
Council, we run a programme called Take the China Challenge,
which goes out to different regions, spends a day, invites in
smaller and medium sized companies."[95]
We heard in Shanghai that the CBBC does provide a useful service,
since its geographical spread means its people can offer services
to British companies where there is no diplomatic representation.
80. However, one consequence of this system is that
businesses operating in China have to join several organisations,
adding costs and complexities to their efforts to enter the Chinese
market. The presence of the United Kingdom's Regional Development
Agencies adds to the confusion. Yet the Foreign Secretary defended
the arrangement when we asked her about it. She said:
I can understand [
] in the business community
there is a tendency to want
one kind of simple channel, but
China, as you have seen for yourselves, is a large and very complex
place and what we have at present is not a plethora of bodies
but we have a number of different bodies, each of whom play a
role which is slightly distinct [
] It appears to me [
]
there is quite a good working, constructive relationship. They
are not competing with each other.[96]
81. We conclude that the Government must seek
to ensure that lines of responsibility between UK Trade and Investment,
the China-Britain
Business Council, the British Chambers of Commerce and Regional
Development Agencies are clear and that there is no duplication
of work, so that smaller businesses seeking to 'take the China
challenge' do not face duplication of costs and services provided
by the range of organisations. We recommend that the Government
increase the number of high level ministerial visits to China
in support of British business.
82. In addition to these structural questions, submissions
have emphasised the need for the UK to step up language training
if British companies are truly to take advantage of opportunities
in China. The Great Britain China Centre and the China Media Centre
at the University of Westminster stated in evidence that "research
by the British Association for Chinese Studies has demonstrated
just how little knowledge of China, or study of the Chinese language,
takes place in UK schools" and that "we need to think
seriously about encouraging widespread Chinese language study
in our schools".[97]
83. Don Starr, Head of East Asian studies at the
University of Durham, also stated:
Britain's poor record in studying the languages
and cultures of East Asia is impacting negatively on our effectiveness,
particularly in business [
] British universities have gone
from having some of the most extensive and highest quality East
Asian language and culture programmes in the world to languishing
behind other European countries, the US and Oceania. This reflects
the way governmental bodies charged with overseeing skills needs
have consistently under-rated the importance of language skills
and been unwilling to pay for them.[98]
Lord Powell agreed that the lack of expertise was
a problem. He told us: "There is a very big problem in that
the number of Chinese speakers and the amount of Chinese studies
in this country are quite clearly inadequate."[99]
84. We asked the Foreign Secretary how to improve
this. She told us:
In the UK there is a quite substantial [
]
and growing area of study. There is the educational co-operation
programme with schools in China [
] Just under 2,000 15-year-olds
were entered for a GCSE in Chinese in 2005 and just over 1,600
16 to 18-year-olds were entered for a GCE A level.[100]
85. We conclude that the United Kingdom must attain
greater proficiency in East Asian languages and cultures or face
a diminution of influence in a very dynamic region. We recommend
that the Government redouble its efforts to support the teaching
of Chinese and other East Asian languages in schools and universities
in the United Kingdom.
9