Written evidence submitted by the City
Remembrancer's Office, Corporation of London
1. The Corporation of London's contribution
to the Committee's inquiry on East Asia attempts to reflect a
range of City views. As such there is naturally a very strong
emphasis on China, particularly in relation to trade and economic
issues which is reflected in this note. A number of the points
have also been raised in evidence to the Treasury Committee's
recent inquiry on China.
BACKGROUND
2. Since joining the WTO in December 2001
China has maintained its liberalisation timetable. Minor non-tariff
barriers remain, however, where local companies, in the insurance
sector for example, have fewer and cheaper administrative barriers
than those for foreign firms. Mandatory capital requirements for
foreign firms are often onerous compared with elsewhere. Issues
also arise for both national and provincial authorities for foreign
firms seeking to establish country-wide operations.
3. There is a tendency on the part of local
players to focus on short-term advantage as against 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. Continual Government support for market
access is thus very welcome and 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 appreciated that service industries, termed "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. The Bank of England and the Financial
Services Authority have close relations with their Chinese counterparts,
providing support for UK firms' commercial endeavours. The Corporation
works closely with HM diplomatic posts, and they in turn are working
to a "Four Pillar" business plan, focusing on:
— London listings—The
London Stock Exchange (LSE) opened their Asia Pacific regional
office in Hong Kong in October 2004. There are six Chinese firms
listed on the LSE's Main Board, but recent activity has focused
on their AIM secondary market which has listed fifteen Chinese
firms in the last two years. The LSE stands to benefit from a
window of opportunity to attract Chinese firms seeking overseas
listings: New York has become less inviting due to the Sarbanes-Oxley
regulations, and foreign listings in Tokyo have been on the decline
for some time. However there is reason to fear that many Chinese
firms will find their needs met by listing in Hong Kong, where
the due diligence requirements appear to be quite relaxed in comparison
with London.
— The corporate bond market—The
Shanghai Futures Exchange is a member of the Futures & Options
Association (FOA). Under UK Trade and Investment (UKTI) funding,
the FOA produced a report on the Chinese corporate bond market;
which is a strong piece of research, with 25 specific recommendations
for enhancing the market to support emerging Chinese industry
by offering an alternative to stock exchange listing. One problem,
well recognised by the Chinese authorities, is the lack of reliable
ratings agencies in China. However a positive recent development
has been the issuance of RMB denominated bonds by the Asian Development
Bank and the International Finance Corporation, followed by the
German KfW development bank; all with the aim of deepening the
domestic market.
— Venture capital—The
field of venture capital and private equity finance is one where
the City leads the rest of Europe and has considerable global
expertise. Venture capital is especially useful in the commercialisation
of technology by, for example, investing in firms set up by universities.
Lord Sainsbury and his Chinese counterpart signed a Memorandum
of Understanding (MoU) in Oct 2002 to increase cooperation in
this field. Considerable promotional activity has followed, though
it has been led by an ad hoc grouping of individual firms rather
than by the British Venture Capital Association.
— Training & qualifications—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 expand this out to other big cities in China, as and when they
are allowed to do so. 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.
OTHER FINANCIAL
ACTIVITIES
6. There have been other notable British
successes in China:
— The development of HSBC and Standard
Chartered as retail banks. Liberalisation means the opportunity
to open banks throughout the country and deal directly with Chinese
clients.
— The penetration of life insurance
companies—notably Royal & Sun Alliance, Aviva, Standard
Life and Prudential, largely in partnership with local firms.
There is however an absence of the big UK investment
banks, which means that the advice available to Chinese firms
is likely to come from the big American investment banks.
7. Lloyd's negotiated for a prolonged period,
with strong Government support, to explore how, with its unique
structure, it might take its place in the Chinese insurance market;
and was rewarded with success last month, when the Chinese authorities
approved a proposal involving the use of a subsidiary company.
The approval gives Lloyd's a year to start up business in China.
8. The main commodities centre is the Shanghai
Futures Exchange, which trades aluminium, copper and rubber. The
London Metal Exchange has an MoU with the latter, but may regard
them as more of a potential competitor in the longer term. However
commodity trading also flourishes in Dalian, whose Commodity Exchange
now rivals the Chicago Board of Trade in the volume of soya bean
contracts, reflecting massive Chinese imports. Zhengzhou in central
China has also emerged as a centre for trading wheat.
9. There are also major activities by the
UK accountancy and legal firms in an attempt to promote London
as a centre for dispute resolution.
CHINESE ACTIVITIES
IN LONDON
10. The Bank of China has had a branch in
the City for eighty years, and is also established in Birmingham,
Manchester and Glasgow. Twenty years ago the China Insurance Company
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.
Four other Chinese banks have representative offices here, and
there are six Chinese insurance companies in London.
CORPORATION OF
LONDON ACTIVITIES
11. 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.
12. At a formal level, Lord Mayors usually
visit China annually and are well received. The Chairman of the
Corporation's Policy and Resources Committee also visited in the
company of the then Chief Secretary to the Treasury last December.
In 2006 the Lord Mayor, Alderman David Brewer, whose expertise
on China is widely recognised, is due to make two visits to China
and visit eight cities. A particular objective will be to promote
the City as a source of capital and expertise to emergent Chinese
industry, and as such to fit in with the Chinese Government's
own "Going Global" campaign aimed at medium-size industries.
13. Last November saw the establishment
of City representation in Beijing and Shanghai with the aim of
projecting the services of the City to Chinese clients, and will
also assist new UK-based firms to enter the Chinese market.
14. Numerous Chinese delegations visit the
City of London. Most notably, President Hu was welcomed to a banquet
at the Guildhall last November as part of his State Visit. Many
other senior visitors, such as the Mayor of Beijing, the Party
Secretary of Shenzhen and the Head of the Banking Regulation Agency,
are welcomed by the Lord Mayor personally in a business environment.
Others, such as 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.
15. In sum, the City sees the emergence
of China in a thoroughly positive light. The City is supporting
China's growth in the world economy, both cooperating with it
and benefiting from it.
OTHER EAST
ASIAN MARKETS
16. The Corporation endeavours to promote the
City elsewhere, though there is not the level of perceived urgency
that holds for China.
— Hong Kong. Despite its return
to the PRC in 1997, the Hong Kong Special Administrative Region
remains strikingly separate in practice. It remains unclear however
the extent to which it will continue as a gateway to China, a
role increasingly taken on by Shanghai. At the same time it seems
to be adopting an increasing local role as the gateway to the
Pearl River Delta and southern China. The Lord Mayor is due to
visit in 2006.
— Taiwan. Taiwan is diminishing
in relative importance as activity is switching to the mainland.
Taiwan normally forms part of the Lord Mayoral Visits programme
every two to three years.
— Japan. The most significant
issue in Japan is the privatisation of the Post Office, which,
once achieved, will bring into the private sector a swathe of
banking and insurance activities previously in the hands of a
state monopoly. More domestically the City believe it is important
to maintain the considerable Japanese presence that was set up
in London during their "boom years". The Lord Mayor
is due to visit in 2006.
— Korea. Currently in the throes
of attempting to liberalise its financial markets, though seemingly
against every instinct. This has generated a high level of City
interest, fuelled by perceptions of a limited opportunity to "get
in on the ground floor". Standard Chartered bought Korea
First Bank, the country's eighth largest, early in 2005. HSBC
is expanding organically, and in November gained permission to
expand beyond Seoul and open three provincial branches. The Lord
Mayor is due to visit in 2006.
— Mongolia. Not totally off
the financial services map, and the Lord Mayor is to visit in
2006 with a small business delegation.
17. A recent research paper commissioned
by the Corporation ("The Competitive Position of London
as a Global Financial Centre") saw rivalry between London
and New York in this regard, but cast doubt on whether any Asian
centre would achieve global, as opposed to national, status.
City Remembrancer's Office
Corporation of London
December 2005
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