Written evidence submitted by UK Trade
& Investment
CHINA
1. Chinese economy
China has been one of the world's economic success
stories since reforms began in 1978, and has recently overtaken
Italy to become the world's sixth largest economy. Official figures
suggest that GDP grew on average by around 9% per annum from the
mid 1990s. China attracts more foreign investment than any other
developing country, and is cumulatively the fourth largest recipient
of foreign investment in the world. China's economy is emerging
at a similar pace to Japan and the Asian Tigers during the second
half of the last century. China became a member of the WTO in
December 2001.
Until recently, China was primarily thought
of as a location for cheap outsourcing. However, as the economy
has grown, it has increasingly become a market in its own right.
This has led to an increasingly dynamic trade and investment relationship,
as China develops its infrastructure, diversifies its manufacturing
base and individual's spending power increases.
This dynamism has certainly impacted across
the region. For example, since the establishment of diplomatic
relations with South Korea in early 1990s, the bilateral trade
between the two countries has grown dramatically. By the end of
2004, the total China/RoK trade value reached $100 billion, which
was almost five times higher than that of the UK. The average
rate of growth in exporting to China from other countries in the
region jumped from 11% between 1996 and 1999, to 28% between 2000
and 2003. China has overtaken the US as both Japan and South Korea's
biggest trading partner and is now the prime generator of regional
export growth.
Recognising the increasing opportunities for
UK business across the region, UK Trade and Investment (UKTI)
is developing a work programme driven by the Asia Taskforce (ATF).
The ATF was set up by the Chancellor of the Exchequer to "bring
together experts from industry, education and government, to focus
on boosting British exports to, and investment in, Asian countries"
by building trade links with Asia that match the UK's relative
success in Europe and America. The work programme is designed
to change the behaviour of British businesses in Asian markets,
so that they are better informed, more aware, more discriminating
and better able to cope with some of the pitfalls, as well as
exploiting the opportunities. Given China's position as a dominant
regional economy, this work will cover its potential impact on
the UK's future strategy across the region.
2. UK-China bilateral trade and investment
Comprehensive figures for UK-China trade in
both goods and services over the last five years are attached
at Annex A.
Total bilateral trade increased to over £14
billion in 2004, up from £7 billion in 2000—an increase
of 104%. UK exports to China grew by £1.5 billion or 79%
during this period, whilst Chinese imports to the UK grew by £5.5
billion or 113%. In the first half of 2005, UK exports to China
were £1,255 million, an increase of 12% over the figure for
the same period in 2004 (£1,117 million). At the same time,
the UK imported £5,724 million of goods from China—an
increase of 26% over the figure for the same period in 2004 (£4,542
million).
The UK is one of the largest investors in China
(and the largest EU investor if Hong Kong figures are included)
with over 4,585 British-invested projects as of June 2005. This
could indicate that many British companies are choosing to invest
in—rather than trade with—China.
At present, the balance of trade in services
is almost teo to one in the UK's favour. In 2004, the UK's exports
of services to China were £1.049 billion and imports of services
from China were £577 million. However, this is still relatively
poor in comparison to our global performance (2% of the China
market compared with 8% of the global market). However, this situation
is likely to improve as China opens up its service sector market
in accordance with its WTO commitments.
China's investment in the UK is also growing
and it is now the second largest Asian inward investor. Since
1998 the number of Chinese companies choosing to establish a business
overseas has steadily grown. It is expected that it will continue
to do so. The last financial year, 2004-05, saw a record number
of new Chinese firms coming to the UK—37 in total, a 61%
increase on the previous year. There are now 181 mainland Chinese
companies in the UK, up from 50 only four years ago.
3. UK trade and investment support
UK Trade & Investment (UKTI) recognises
the huge potential of the China market for British business and
it has been designated a priority market. As well as providing
support to UK companies looking to trade with China and to Chinese
companies looking to invest in the UK, it is also actively involved
in a wide range of strategic and policy-setting activity aimed
at enhancing the level of government-to-government interaction
and support.
UKTI was responsible for the commercial elements
of the Prime Minister's visit to China in September, and the bilateral
programmes for both Secretary of State Alan Johnson and the Minister
for Trade Ian Pearson. A business delegation of 30 senior executives
also accompanied the PM. A number of significant commercial contracts
including Standard Chartered's acquisition of a 19.9% equity stake
in Bohai Bank and China Southern Airlines' purchase of 10 A330
planes from Airbus were signed.
When President Hu Jintao visited the UK in November
2005, a number of major commercial deals were announced. These
included the approval for Lloyd's legitimate right to apply for
a reinsurance operation in China; Air China's purchase of Rolls-Royce
Trent 700 engines for its Airbus A330-200 fleet, total value of
US$800 million and Arup's partnership agreement with the Shanghai
Industrial Investment Corporation to develop the world's first
sustainable city. A business delegation accompanied the President
and a comprehensive programme of activity was organised for them
aimed at deepening their understanding of the UK business environment
and expertise.
Other trade and investment related visits in
2005 included: Ian Pearson, Minister for Trade in July; the Chancellor,
who made his second visit to China this year in October, with
a strong trade and investment focus. In 2006, the Deputy Prime
Minister, Foreign Secretary, Ian Pearson, the Duke of York and
Alun Michael are planning visits to China.
UKTI also drive the trade and investment elements
of the China Task Force and the UK—China Joint Economic
Trade & Investment Commission. The China Task Force made recommendations
to strengthen collaboration across five key sectors: finance,
energy, ICT, healthcare and water, as well as to develop a UK
National Trade and Investment Strategy for China. The latter is
due to be completed by the end of the financial year.
On 8 November 2005, the fifth meeting of the
UK-China Joint Economic and Trade Commission (JETC) took place
in London. The Secretary of State Alan Johnson chaired the meeting
with his Chinese counterpart Minister of Commerce, Mr Bo Xi Lai.
The Commission sets the framework for bilateral trade and investment
co-operation over the coming year, with work being taken forward
by the relevant sectoral working groups under the JETC umbrella.
The China Markets Unit within UKTI helps co-ordinate
and provide strategic direction to UKTI's trade development activity
in China, whilst a team in Inward Investment Group promote the
UK as an investment location. The full range of UKTI services
are provided for companies looking to trade with China. These
are delivered through UKTI's International Sectors Group, regional
teams and staff in posts. In 2005-06 UKTI is supporting over 100
missions, seminars and trade show events, up from 77 in 2004-05,
and a series of Greater China Roadshows (which include Hong Kong
and Taiwan) for SMEs in the English Regions.
UKTI teams in the British Embassy in Beijing
and the British Consulates-General in Shanghai, Guangzhou and
Chongqing deliver UKTI services directly to companies in country.
A recent survey indicated that around 20% of UKTI China staff's
time is spent on "lobbying" on major issues or on behalf
of major UK business interests, 27% is spent on trade development
activities, and around 20% is spent delivering general market
information and consultancy services to UK businesses, with the
remainder being spent on inward investment.
UKTI works closely with the China Britain Business
Council (CBBC) in both China and the UK. The CBBC is the UK's
leading non-Government organisation promoting the increase of
UK business with China. They offer a range of services, information
and advice to UK companies and HM Government via a network of
offices in the UK and in China The CBBC has over 600 member companies.
4. UKTI resources
UK-based China resource
UK Trade & Investment's International Business
Schemes have spent on average £1.5 million annually on promotional
events in China, whilst the International Sectors Group spent
around £0.5 million per annum since 2003.
There are currently in total eight staff working
in the China Markets Unit with four China Business Advisers shared
with the China Britain Business Council. A team of five work in
the Greater-China team of Inward Investment Group. In 2004-05,
£260,000 was spent promoting the UK as an inward investment
location to Chinese business.
China-based resource
There are four British diplomatic posts in China:
the British Embassy in Beijing and Consulates-General in Shanghai,
Guangzhou and Chongqing. In 2004, China Posts were asked to consider
what extra resources they would need to undertake additional work
arising from the Task Force agenda. By the end of this financial
year, China posts will see an average of 11% increase in staff
resources.
YEAR END 2005
| UK-Based | Locally-Engaged
| Total |
| Beijing | 8 | 26
| 34 |
| Shanghai | 6 | 14
| 20 |
| Guangzhou | 5 | 15
| 20 |
| Chongqing | 2 | 9
| 11 |
| Total | 21 | 64
| 85 |
| | |
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UKTI staff resources are supplemented by the CBBC network
with combined UK/China staff numbers totalling approximately 60,
the majority of whom are bilingual in Mandarin and English. UKTI
provide CBBC with an annual Grant-in-Aid, which totalled £1
million in 2005-06.
HONG KONG
Historical factors and the prime role of Hong Kong as the
gateway (both inward and outward) for trade and investment links
with Mainland China mean that Hong Kong is a crucial centre for
UK business interests in the Asia Pacific region. This is demonstrated
by the fact that Hong Kong is the UK's 13th largest export market
(the 2nd in Asia Pacific after Japan), with exports in 2004 of
£2.6 billion. Our exports to Hong Kong grew by 20% in the
first half of FY 2005-06. Despite the increased focus by many
businesses on the China mainland market, UK exports to Hong Kong
continue to grow steadily, on the back of local sustained economic
growth. As a result, UK exports to Hong Kong continue to outpace
those going direct to the Mainland, and are growing, at least
recently, at a higher rate. In 2004, 19% of the UK's exports to
China went through Hong Kong.
There are approximately 1,000 British companies with offices
in the Hong Kong market. Of these, over 300 also use Hong Kong
as the base for their wider Asia-Pacific operations. Like most
foreign companies operating out of Hong Kong, they are attracted
by Hong Kong's very strong Common Law and IPR protection framework
supported by sophisticated financial and legal services. These
factors make Hong Kong an attractive and relatively risk-mitigated
route for SMEs into the China Mainland and other Asia-Pacific
markets.
In order to help UK SMEs better take advantage of the opportunities
in the region, UKTI launched the Hong Kong-UK Business Partnership
with the Hong Kong Trade Development Council in October 2004.
The Partnership's prime objective is to develop bilateral business
opportunities and in particular to ease the "customer journey"
for UK SMEs into Hong Kong and through Hong Kong on into the Mainland
and other regional markets. This is done through stimulating partnerships
between the UK and Hong Kong companies, the latter having strong
business and cultural connections, especially in the Mainland
market. The Partnership has focussed in its first year of operation
on developing business in the ICT and creative industries sectors,
involving some 1,000 UK and Hong Kong companies in the process.
Hong Kong is also an important source of inward investment
for the UK. Hong Kong's investment in the UK represents around
70% of all Hong Kong investment in Europe. There are over 170
companies from Hong Kong investing in the UK, covering a broad
range of sectoral activity, from telecoms and electronics, through
manufacturing, logistics and business services. A recent estimate
puts the value of Hong Kong investment in the UK at around £19
billion.
Hong Kong investors are attracted to the UK because of its
role as a familiar gateway into the wider EU market; its pro-business
culture and its reputation as a fair and transparent market open
to all.
Increasingly Hong Kong is being used by Chinese companies
as the conduit for the internationalisation of their business,
including access to capital, technology development, product design,
branding and marketing and access to world markets. This makes
Hong Kong an increasingly important location for UK Trade &
Investment to tap into the flows of outward Chinese investment.
TAIWAN
Despite the lack of diplomatic relations with Taiwan, we
have a significant trade and investment relationship with the
market. Bilateral trade was valued at over £3.3 billion in
2004, with exports of goods amounting to £952.9 million up
5.4% on the previous year. The UK is the EU's third largest exporter
to Taiwan. Our share of Taiwan's imports stands at 0.9% (behind
Germany with 3.1% and France with 2.2% and ahead of the Netherlands
with 0.7%).
Over 300 British companies have invested in Taiwan. They
include HSBC, Standard Chartered Bank, Mott Macdonald, B&Q
and MFI and newcomers to the market, Barclays Capital and Heath
Lambert Group. There are also a range of smaller companies investing
in Taiwan, for example suppliers to the semiconductor industry
such as specialist chemical company Epichem. The UK is the world's
sixth largest investor in Taiwan, with approved foreign investment
since 1952 standing at US$4.03 billion.
There are currently over 170 Taiwanese companies operating
throughout the UK, a significant percentage of all Taiwanese investment
in the EU. ICT companies make up the majority but a number of
other sectors are represented, many using their UK business as
a European HQ.
Taiwan can also act as a gateway into China. Despite a lack
of direct transportation and postal links with mainland China,
there is an increasingly growing Taiwanese business presence in
China. More than 70,000 Taiwanese enterprises are currently operating
in China. 500,000 Taiwanese are based in the Shanghai area alone.
UKTI trade development activity on Taiwan covers 16 sectors,
including environment, railways, creative and media, healthcare,
ICT and financial services. Recent business won with active UKTI
support for British companies includes Brecknell Willis, a world
leader in electrified rail transport who recently secured their
largest ever contract in Taiwan. Also in the rail sector Balfour
Beatty Rail won a contract to extend a metro line in Taipei.
REPUBLIC OF
KOREA
Trade and Investment links with the Republic of Korea (ROK)
have a long and robust history. As an OECD member with the world's
11th largest economy, the ROK cannot be ignored. South Korean
companies are already among the leading players in the automotive,
ship-building, steel and electronics sectors. They are now moving
into knowledge based sectors such as Biotechnology (Korea leads
the world in stem cell research) and are seeking to establish
South Korea as a North East Asian hub for logistics and financial
services.
Total UK-Korea bilateral trade in goods in 2004 amounted
to £4,578.6 million. The UK is Korea's preferred location
for Foreign Direct Investment in Europe, with total projects to
a value of $1.4 billion (1980-2002). Total notified investment
from the UK into Korea (1969-2005) is US$ 5.47 billion.
UKTI supports Trade activities with Korea based around the
priority sectors of Automotive (particularly motorsport), Biotechnology,
Creative & Media (including Product Design), Education &
Training, Environment including Water, Financial Services, Information
& Communications Technology (ICT) & Electronics and Marine
Engineering. Our inward investment activity is currently focussed
on attracting projects in biotechnology, design, online/mobile
games and European Headquarters. There were 60 UK Trade &
Investment supported UK/Korea events in 2004-05.
UKTI supports the wider bilateral relationship with Korea
through support of high level visits both inward and outward,
and strategic S&T related activities. Examples during the
past year are: The State visit of the ROK President; A High Technology
Industry Forum; A meeting involving the Korean president, leading
Korean Government figures and chief executives of companies with
a significant UK/Korea interest at Buckingham Palace; a visit
to the market by Ian Pearson (Trade Minister) and HRH The Duke
of York.
JAPAN
The UK enjoys excellent trade and investment relations with
Japan. Our bilateral trade in 2004 was £12 billion. UKTI
attach great importance to improving our trade performance with
Japan. We run a substantial trade deficit with Japan (£4.5
billion in 2004), which is partly offset by a £1.6 billion
surplus on trade and services.
As the world's second largest economy Japan is a well established
market for UK exports. Key areas include healthcare, bio, pharma,
chemicals, automotive and aerospace. Demand for design services
are also strong and look likely to increase.
The UK has the largest amount of Japanese FDI in Europe,
accounting for over a quarter of the total. In value, the stock
of Japanese investment since 1997 alone, stands at US$8.6 billion.
There are almost 1,500 Japanese companies in the UK. 100,000 people
are employed in the 230 manufacturing, and 151 R&D operations
here.
The UK remains successful in attracting Japanese investment
across a range of industries in high-value added manufacturing,
research and development, and regional headquarters and European
marketing functions. In 2004-05 we recorded 57 projects from Japan,
creating 3,279 new jobs. Priority sectors include automotive,
ICT, life sciences and effort is also being targeted at companies
with emerging technologies in the environmental and renewable
energy sector.
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