An innovative partner of choice

Know-how puts Britain in prime position to deal with China, says trade and investment head

British creativity and innovation can help the Chinese economy move up the value chain from one driven by exports to one driven by knowledge, says Catherine Raines, director-general of UK Trade and Investment in China.

China has close trade and investment ties with Germany, and there is now great potential for the UK to form a similar relationship with China given the latter's need to become a consumption-driven economy, Raines says.

"The last phase of China's development, with the installation of industrial capacity and the building up of export industries, played well to the economic strengths of Germany, but the next phase of China's development plays very much to the strength of the UK."

British innovation, education, research and development, and a strong financial sector can all play a role in helping Chinese companies internationalize their brands and business, and in liberalizing the Chinese economy, she says.

Raines was speaking at the Oxford China Forum, attended by more than 100 guests from academic and professional sectors. It is an annual conference organized by students of Oxford University.

Raines started her career at ICI Pharmaceuticals, which eventually merged into the British pharmaceutical giant AstraZeneca. Her early experience was in international production and program management. She later moved into corporate leadership roles.

Since joining UKTI last year, Raines has greatly changed its structure and strategy in China. She identified five key areas of complementarity between what the UK can offer and what China needs, and focused UKTI's resources in China on these strategic areas.

Before the restructuring, UKTI helped many individual businesses with advice on the Chinese market, including setting up offices and dealing with intellectual property rights issues.

But Raines sees greater potential in China-UK trade beyond individual business cases. She outsourced the work of helping individual businesses to the China Britain Business Council, and refocused the 130 employees of UKTI's China team on strategic sectors.

The five strategic areas she identified are: life sciences, health and social care; energy, environment and infrastructure, finance and professional services and technology; consumer, creative and education; advanced manufacturing; and transport.

Healthcare, the first strategic area of work she helped to establish a year ago, is already producing fruitful results. In the first six months of this year, UK healthcare exports to China facilitated by UKTI reached 500 million pounds ($783 million; 625 million euros). In comparison, total UK exports to China facilitated through UKTI last year totaled 378 million pounds.

Raines says the UK has great creativity and innovation, partly due to the research strength of its universities, and she believes Chinese companies could work more with spinoff companies from UK universities.

In addition, she says the UK's great research and development capability makes it an ideal location for Chinese companies to locate their overseas R&D centers.

Huawei is an example of a Chinese company that has invested heavily in R&D research in the UK, she says. In 2011, it opened its R&D center in Ipswich, eastern England, after buying the Center for Integrated Photonics. In April last year Huawei opened a new UK headquarters in Green Park, Reading, west of London.

Raines says she has visited Huawei's R&D centers in the UK and China.

"Huawei is a very innovative technology company, and they understand the value of research," she says.

Particularly encouraging is the company's investment this year in Neul Technologies, the British Internet of Things innovator, she says.

Huawei bought Neul Technologies for $25 million in September. The deal will accelerate Huawei's presence in the growing Internet of Things market, as well as technology being used in smart city trials in the UK.

In addition to individual Chinese companies' R&D efforts in the UK, government-level exchanges on R&D are also important. In particular, the UK government can share its ideas with its Chinese counterpart on how to encourage innovation through a beneficial tax regime, she says.

As China moves up the value chain and becomes a consumption dominated society, much of the UK's expertise will become increasingly relevant for China, including financial services, healthcare and education, Raines says.

On the financial services front, London has become a key offshore renminbi center, helping the Chinese currency to internationalize with the goal of eventually becoming a global reserve currency.

"Britain is already the fastest growing market in Europe for renminbi payment," Raines says. "Over three-quarters of Europe's renminbi payments are done via the UK."

Trade finance transactions using renminbi in London totaled almost 28 billion yuan ($4.6 billion; 3.68 billion euros) in the first half of last year, compared with 13.8 billion yuan a year earlier. Daily average trading volume of renminbi-related foreign exchange products rose to $22.3 billion, up from $11.6 billion, according to official statistics.

London's efforts to support renminbi internationalization began in September 2011, when VIce-Premier Wang Qishan welcomed London's private-sector-led initiative to develop offshore use of the renminbi.

The quantity of renminbi activities in London has grown rapidly over the past few years, especially in trade finance and foreign exchange. The UK has also become the first country outside China to issue a sovereign renminbi bond.

The UK has also established a renminbi swap agreement with China, and a renminbi clearing bank has been appointed in London. Last year the UK received 80 billion yuan of RQFII (RMB qualified foreign institutional investors) quota, which allows UK firms to invest renminbi directly in Chinese financial markets.

The UK's export of healthcare products and services in China has grown after the country established a coherent strategy for this trade. An important part of this strategy was setting up Healthcare UK, a government body to promote healthcare exports to emerging economies.

"China is experimenting with bold reforms to improve public health," Raines says. "Private investment, including from abroad, is being encouraged. The National Health Service has a very strong brand in China. It is a model that closely fits Chinese needs."

The British government team in China is working closely with Chinese policymakers and regulators to define the rules of this new market, and working with British companies to make the most of this new opportunity, she says.

In addition, Raines says the UK's energy, infrastructure and urban planning expertise can help China's rapidly booming cities maintain sustainable long-term growth.

Many British architects, master-planners and related consultants are already expanding their work in China. In March 2010 the privately led UK-China Eco-cities and Green Building Group was launched to help improve bilateral collaboration in this field.

During the visit by Britain's Communities Secretary Eric Pickles to China this month, the two countries signed an agreement on green and low-carbon urbanization.

In September the former lord mayor of London Sir Michael Bear was also appointed as the UK's special envoy for sustainable urbanization in China.

Raines says she sees great potential for UK urban planners and other related companies to help with the whole-cities approach to developing successful urban centers in China, including education, health and cultural provision, development financing and property management.

Furthermore, the UK's strong creative industries, fashion and luxury goods are also in high demand from Chinese consumers, playing an important role satisfying the needs of China's rapidly growing middle-class consumers, Raines says.

A lot of popular British television content, such as the series Sherlock Holmes and Downtown Abbey, are being shown on Chinese television.Many British art exhibitions and performances are also touring in China.

Raines says these British cultural elements are a part of Britain's process of building soft power influence internationally, and this process could also be a valuable lesson for China, which too is working hard to build soft power.

For the UK there is a strategic soft power agenda for China to help ensure the UK's core values are understood by the Chinese public: values of honesty, integrity, openness, creativity and value for money.

Raines says it is important to communicate these values so the Chinese people understand what the UK stands for, as opposed to assuming it to be what it was in historic times.

"Our soft power agenda is deliberate but it is honest," Raines says. The messages of Britain's soft power agenda are communicated through the UKTI's 'Britain is Great' campaign, which showcases the best of what Britain has to offer through a series of events, activities and messages.

Raines says such techniques can be used by China to boost its image globally, and such lessons are important as China over time becomes a powerful country that is service led and consumption driven.

Raines is optimistic about the potential of the China-UK partnership in all fields. "These are markets still in their infancy in China, and new markets in which Britain can be the first mover, in which we can become in effect China's knowledge economy partner of choice".

cecily.liu@chinadaily.com.cn

(China Daily European Weekly 12/05/2014 page19)