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Westminster Hall

Wednesday 15 October 2008

[Mr. Eric Illsley in the Chair]

British Business (China)

Motion made, and Question proposed, That the sitting be now adjourned.—[Mark Tami.]

9.30 am

Mr. Eric Illsley (in the Chair): In view of the inordinate temperature in the Chamber, exceptionally, hon. Members have my permission to remove their jackets. That would not normally be the case, but I think that the circumstances dictate it.

Mr. Bill Olner (Nuneaton) (Lab): I hope that it will be a distinct pleasure to serve under your chairmanship, Mr. Illsley. I am delighted to have secured this debate on a crucial topic. It was important in May and, given the global situation, it is even more important now that British businesses can operate globally and particularly in China. I am delighted to see here today so many of my colleagues who accompanied me on the Industry and Parliament Trust’s most informative and highly educational visit to China in May—[Interruption.] I am gently reminded that we went to Shanghai, which I thought was in China! We did spend some time in the Shanghai region though.

I am also pleased that in the Public Gallery we have representatives from the Chinese embassy and British businesses who provided people and resources to make the parliamentary fellowship programme possible. I pay tribute to the chairman of the all-party China group, my hon. Friend the Member for Wirral, South (Ben Chapman), who accompanied us on our visit and who, over many years, has done tremendous work in fostering relationships between China and the UK. While I am in the business of giving my sincere thanks, I should mention that we were accompanied by two very helpful representatives from the Shanghai People’s Congress, who made things work and were very informative and supportive. My thanks to them.

All hon. Members, particularly those in the Chamber today, will be familiar with the work of the IPT, of which many here are fellows. They have benefited from the opportunity to undertake an attachment in industry to see at first hand the challenges and successes of British industry both in the UK and overseas. As chairman of the IPT, I remind hon. Members that its mission is to foster understanding between us as legislators and those who, over the years, have created the industrial wealth of our country. We have done that very successfully, and recently the IPT took the next step of integrating with Europe, so that we could understand European industry and Parliaments, too. Our trip to China was our first venture to look at the global marketplace, which was what made the visit so educational.

Mr. Mark Hendrick (Preston) (Lab/Co-op): I concur with what my hon. Friend says about the IPT and the way in which it is branching out, not only in the UK, but across Europe and globally. I was fortunate enough
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yesterday to receive my fellowship to the IPT from PricewaterhouseCoopers, to which I pay tribute not only for providing me with that opportunity, but for the chance to visit Brussels and Shanghai to see its business operations in those places.

Mr. Olner: Everyone in the delegation was a great ambassador, not only for the IPT but for the UK Parliament. I do think that the trip was important. It was non-political and formed a genuine basis on which we could learn better about how UK business operates and works in China and the rest of the world. I agree with my hon. Friend that that happens because of the sincerity of the relationship between the UK businesses that support the IPT and the fellows who get attached to them. I think that bond is very unique. We would be challenged if we tried to emulate it, because it has developed over many years.

We were impressed by our visit to the Suzhou industrial park—a joint venture with Singapore. Following an agreement signed in 2002, funding was made available and within five years we saw a massive industrial park offering every facility to Chinese and international businesses.

We also learned about how China is handling climate change. BP China is at the forefront of investigating clean technology and has invested in a university-scale research unit that employs more scientists and climate change experts than I care to mention. Not only did we hear about its extensive research and development, which will produce remarkable results in reducing emissions, but about its skill in handling a major joint venture with China to shape a way forward for energy to serve a country of 1.5 billion people. I think that when the Chinese consider the scale of what is being done, and needs to be done, in their country, their position becomes apparent to them and they think, “We might be China, and we might punch a bit, but there is a real big world out there that we need to know about.”

Having arrived shortly after the earthquake in Sichuan, we paid our sincere respects to all those who tragically died in that natural disaster and signed the book of condolences at the foreign ministry. The power of nature can make us realise how frail human beings are.

As my hon. Friend the Member for Preston (Mr. Hendrick) said, we were presented with an excellent overview of Chinese operations by PricewaterhouseCoopers. We also learned from Arup about eco-city initiatives and saw many of the magnificent earthquake-proof high buildings, which are very visible on the skyline. China is an earthquake region and major engineering is needed to ensure that buildings are safe. We also visited the consul and were advised by UK trade investors on their initiatives on UK investment in and out of China and the major Expo scheduled for 2010. Sadly, that has attracted little UK funding. Are we doing enough at ministerial level to provide aid and assistance to UK businesses, particularly in China?

Education was also a focus of our visit. British interests were represented in various joint ventures delivering high-quality secondary and higher education on a major scale. With the British Council, we visited the campuses of the universities of Nottingham and Liverpool and of Dulwich college to see how non-Chinese children can receive an international education and hopefully contribute in the future to China’s fast-growing economy.

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While in Shanghai, I did my fellowship with GKN, and it was very good to witness the GKN experience in Shanghai. It was making automotive products for the Chinese automotive industry. Some of my colleagues on that visit said that my face became a little more animated when I saw metal being cut and other things that I fully understood and was au fait with. I congratulate GKN and others on being able to move into that sphere and contributing to Chinese automotive industries.

The purpose of today’s debate is threefold. First, if they catch your eye, Mr. Illsley, it gives an opportunity for hon. Members to recount their experiences and impressions and to tell us what perceptions they formed on the visit. Secondly, I want it to raise awareness of what more British business could do in China, and how that could be helpful. I should be grateful if the Minister, even though he is new to his job, told us how important he thinks that relationship is.

Thirdly, given the global crisis that we face, with Chinese sovereign reserves amounting to something like $1.8 trillion, we should foster our relationship with China and encourage it to invest more in British businesses. Global economies have changed a great deal in the past six months, and that makes it even more important that the UK is a major player in the global field of business in both China and the wider world.

Mr. Eric Illsley (in the Chair): Order. Before I call the next speaker, I remind hon. Members that they are not to refer to the Public Gallery in any way.

9.41 am

Mr. Mark Prisk (Hertford and Stortford) (Con): Thank you, Mr. Illsley. I start by warmly commending the hon. Member for Nuneaton (Mr. Olner) for securing the debate and for his excellent leadership of the trip, in conjunction with the hon. Member for Wirral, South (Ben Chapman). Perhaps I should confirm that I was a member of the delegation, although I suspect you will have gathered that, Mr. Illsley. As a trustee, I was impressed by the organisation provided by the IPT’s staff and by the wonderful support and involvement given by the companies that sponsored and supported the trip. It was immensely helpful to have UK businesses alongside us while we were in Shanghai.

I am aware that a good number of colleagues wish to contribute, so I shall move quickly through three broad points that I hope will add to the debate. First, reflecting on our trip to Shanghai from a little distance, I note that China is not a single market. In business and politics, we tend to talk in shorthand as though it were one large, homogenous market, perhaps because the Han ethnic group makes up about 90 per cent. of the population, or because Mandarin tends to be the language that most UK businesses or politicians encounter. There is an assumption that there is a homogenous whole, but if one looks carefully, one sees that the continent is just as diverse as Europe.

Let us consider the north-south divide. In the south, cities such as Shanghai are fast moving and entrepreneurial. We saw that on our trip. Time and money matter there, as they do in many western cities. That is a crucial characteristic for such cities, and is one reason why
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Shanghai is the financial centre of China, although there may be competition from Hong Kong in that regard. There is a cultural focus on entrepreneurship. However, when I talk to UK businesses, they tell me that their experiences in the north of the country—north of the Yangtze—are of a relatively slower and perhaps more bureaucratic way of dealing with business. That might be because Beijing, like Washington in the USA, is a corporate town and the corporation is government, making the culture somewhat different to that in Shanghai, Hong Kong or Shenzhen. It is important to understand that there is a difference between the areas to the north and south of the Yangtze.

It is also important to remember, when thinking about whether China is a single market and how businesses should approach it, the difference between the eastern seaboard and the rural hinterland. Roughly half of the 1.3 billion people in China live not in major urban centres or sprawling suburbs, but in the poorer and more remote towns and villages. We saw on our trip that there has been a huge migration of labour into the cities, with many such people working unofficially on construction sites. However, a substantial section of the population are not part of the economic revolution, perhaps because of their income level, location or age. From a business point of view, when thinking about the scale of that marketplace, it is worth remembering its characteristics and how it is differentiated.

My second point is that China is not becoming a western nation, as might initially have appeared to be the case. It is simply becoming a modern nation. My first impressions of Shanghai were, I suspect, the same as those of most hon. Members present. It seemed remarkably like our western cities, with the shops and brand names, the people’s adoption of western fashion, and even traffic jams. However, on talking to UK and local business people I realised that there are still vital differences to living and doing business there. I offer hon. Members a simple, but perhaps controversial, example. When we arrived at the hotel, a letter awaited us that set out the Government’s rules and regulations governing use of the internet. I shall not test the patience of the House by giving all nine rules, but they included the following examples. When using the internet, one should not:

Those rules might seem strange, but they are not simply the demands of a one-party state. The character of rules such as the one about the country’s honour, suggests something very different to our social norms.

As I suspect my hon. Friends will realise, I am no expert on the teachings of Confucius, but it seems to me that certain values that are distinctly different to our own remain central to the people of China. We believe in democracy and freedom of the individual, whereas they instinctively respect their rulers and always put family first. We believe in equality before the law, whereas they have far more regard for the quality of the ruler. Even with the upheaval of huge migration between rural and urban areas, there is still a strict hierarchy of relationships in China that shapes every family, business, community and political organisation. What we might
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perceive as subservience, they regard as respect. The paramount importance of face, or mianzi, matters greatly to every person, business and part of that nation.

On my trips to Shanghai and to Hong Kong the previous year, I saw that things are changing. One interesting dynamic is what changes will come of the “Little Emperor” generation. Children grow up with considerable demands on them, but they also have considerable opportunity and might become more self-centred than their parents. If we look across the piece, British businesses that want to succeed in China will continue to need to understand the distinct values of that nation.

My third point is that UK plc needs to do better. As I have said, I have been to both Hong Kong and Shanghai in the past 18 months, and I have been immensely impressed by many of the UK players whom I have met, such as the team at BP. I am sure that hon. Members will agree that they showed a long-term vision and professionalism that could match any competing company in the world. Other companies that are leading players, such as GKN and Arup, command immense respect in China. However, I fear that the overall effort of UK plc is not working as well as it might. Although our exports to China have grown, French exports have grown at twice the rate of ours, and German exports at three times the rate. In my discussions with businesses in Shanghai and subsequently, I have met several people who believe that the UK’s official representation is not as effective as it should be.

One of the problems is the unnecessary duplication of effort by Government agencies—the peculiarity of having different offices in different parts of Shanghai that often go to the same meetings and pitch for the same opportunities. The regional development agencies and UK Trade and Investment should not be jostling with each other for the same business. There should be one strong team working for the whole country, pooling resources and operating in each of the key cities. I would be particularly interested to hear the Minister’s response to that point, given that the former Secretary of State for Business, Enterprise and Regulatory Reform made it clear, quite rightly, that he wanted to see that duplication ended.

Equally, there is evidence to suggest that some of the original dynamism of the China-Britain Business Council has been lost and that British businesses and politicians are not getting in to see the right people in the Government at the right time. That problem was much commented on. I hope improvements have been made. If it can be demonstrated that things have changed, that would be fantastic; if it cannot, urgent work is needed.

The opening up of China and the rapid expansion that that has created is a great opportunity for businesses in this country. We already have world-class players there—people who are regarded highly in China because they have taken the time to understand the markets and the people with whom they are working—yet UK plc is falling behind. Politicians in government and the business world generally need to realise that China is not a single market, but a continent of different cities and peoples and a truly segmented marketplace. We need to strengthen and unify our presence on the ground. Indeed, as the global economy turns down, we must become even more competitive. Our trip last May certainly helped me to understand the opportunity and challenges before
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us—I suspect that the same is true for other hon. Members—and I hope that it will inform Government policy in the coming months.

9.52 am

Ben Chapman (Wirral, South) (Lab): May I first refer to my entry in the Register of Members’ Interests? I am delighted that my hon. Friend the Member for Nuneaton (Mr. Olner) has secured the debate. As chairman of the all-party China group, I was delighted to join him in leading the delegation and contributing to it. The all-party China group has nearly 500 members, and it is vastly important that all parliamentarians and not only members of the group are aware of the scale, speed and nature of change in China. There is simply insufficient knowledge on China, not only among the general public, but among parliamentarians. I try to take a delegation of around 10 Members to China each year, but even assuming the group’s membership of 500 did not change, it would take me 50 years to get through the list, so I will lose no opportunity to get hon. Members to see and believe what is happening in China, and particularly in Shanghai. It is also particularly important that visits are as focused as ours was on the specific issue of British business in China.

I congratulate the staff of the IPT on their work and initiative. I would like to join the other members of the delegation who have already spoken in thanking all those who received us and helped us on both the British and Chinese sides. We have not yet mentioned Virgin, which was helpful, not only in getting us to China, but in briefing us on the issues that it and other companies face there. Overall, we could scarcely have received a more rounded view of the issues and opportunities of the business environment.

When I first went to China in 1986 as commercial counsellor, it was a very different place from the China we see now. It was a country of Mao suits and bicycles, and doing business was pioneering and difficult. Commercial practice and law was not as we know it, negotiations were a special art form and intellectual property issues were problematic at best. However, many of the companies we saw in Shanghai in May were in China before I went in 1986, which is a fulsome demonstration of their commitment to the market.

For many years China was the biggest potential market in the world. It took a number of years for the actuality to arrive, but now that it has we can see that in rounded terms the Chinese economy has grown at about 10 per cent. per annum since 1978. My maths is not so good, but I know that that is a lot of growth. It is a phenomenon that has changed the shape of the world. It is clear that an organisation that is in business in any serious way needs to be part of what is happening there.

The perception of China has been changing ambiguously over the years, from booming market to challenging competitor. For many years it was regarded as an exporter of deflation, but more recently it has been regarded not only as a good place to do business, but as an exporter of inflation and a voracious consumer of raw materials and other goods for which the rest of the world has a need.

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