UK's China opportunity: Greater trade and investment mutually beneficial

On Christmas Eve, in a nail-biting finale, the United Kingdom announced that it had negotiated a post-Brexit trade deal with the European Union, which met most of its requirements. Taking effect on January 1, upon the expiry of the UK’s 11-month transition period out of the EU’s institutional framework, it is worth 660 billion pounds a year, the biggest trade deal ever signed by either party. It gives the UK what the Prime Minister, Boris Johnson, had sought, namely, a “Canada plus plus” arrangement, which incorporates the main features of the EU-Canada trade deal of 2016, but without any of the quotas or tariffs imposed on some Canadian goods.

The chief British negotiator, Lord (David) Frost, a key Johnson ally, fought doggedly over many months to achieve the deal for which the British people voted in their “in-out” referendum of June 23, 2016, and which now restores British sovereignty. In consequence, exactly 48 years after Britain joined the European Economic Community, the EU’s predecessor, in 1973, the UK will once again take back control of its laws, borders, money, trade and fisheries, and the legal jurisdiction of the European Court of Justice over British affairs will end. Frost called the agreement a “moment of national renewal”, and it opens up huge opportunities for the UK around the world.

In particular, the UK, while retaining free trade with the EU, can now also pursue free trade agreements with other countries, of which there are already 61. Whereas its deal with Switzerland is worth 37 billion pounds annually, those with Canada and Singapore are worth, respectively, 22.4 billion and 17.6 billion. Since 2016, much has been said about “Global Britain”, which means that the UK will once again be engaging with the rest of the world, and this is where China has a key role to play.

On December 26, the UK-based Centre for Economics and Business Research announced that China, with its population of 1.4 billion, will overtake the United States as the world’s biggest economy by 2028, five years earlier than previously forecast. As the global economy recovers from the Coronavirus pandemic, China’s growth is expected to pick up to 8.4% in 2021. Its market obviously has great attractions, and China and the EU are currently finalizing a joint investment pact, which will provide the EU with fresh openings in areas like financial services, manufacturing and real estate. This, moreover, is occurring in an increasingly business friendly environment, particularly for foreign enterprises.

On January 1, 2020, China’s new Foreign Investment Law commenced, and this provides new opportunities for foreign investors, with more flexibility on joint venture agreements and reduced requirements for local partners. Previously protected sectors are being opened up for foreign firms, greater protection is being provided for intellectual property and property rights, and less technology will need to be transferred to Chinese subsidiaries. By making the management of foreign investment more convenient, efficient and transparent, the new law will create more certainty, which explains why Linklaters predicted in 2019 that US$1.5 trillion in foreign investment would flow into China over the next decade. The EU obviously appreciates the impact of the changes, and so also, hopefully, will the UK.

As China’s economy becomes increasingly open, so must British businesses act quickly to enter the market. Time waits for no man, and the recent global tensions created by the US, which pressurized the UK into banning Huawei from its 5G networks in July, must not be allowed to do long-term damage to British business interests in China. Although the US, envious of China’s progress, has done its best to poison international relations, it is now time for British companies to step up to the plate. In this, they will hopefully be supported by Boris Johnson, who, on July 20, declared that the UK “will continue to engage with China”, and that “China is a giant factor of geopolitics”. He will, hopefully, now put his money, or at least that of his investors, where his mouth is, and get behind British businessmen as they adjust to life outside the EU customs union, and seek to make a reality of his global aspirations.

The UK, after all, despite US opposition, was the first G7 country to join the Asian Infrastructure Development Bank in 2015, and it also supported China’s application to join the World Trade Organization in 2001. A solid basis for a fuller engagement therefore exists, provided that Johnson does not allow himself to be diverted by those who wish China ill. If they play their cards right, British companies will be able to take advantage of the opportunities opening up in areas like media and entertainment, with openings for publishers, music producers and televised sport; education, with British teaching methods being highly regarded; and business services, including accounting, advertising and medicine. If, however, the UK misses out, its EU rivals will undoubtedly step in, which would be a lost opportunity.

There are, of course, hard-right forces at all levels in the UK, preaching hostility towards China at every turn, and spreading myths, but they cannot be allowed to set the agenda of the newly independent UK. As China’s ambassador to the UK, Liu Xiaoming, recently explained, “de-coupling from China means de-coupling from opportunities”, and this should be the last thing on the mind of an emerging trading power. This, of course, is recognized by the commercial world, and, according to a new survey conducted by the British Chamber of Commerce in China, and involving 256 companies, 44% of the firms are seeking to grow their investment in China. Most of them are involved in professional services, advanced manufacturing and the transport and education sectors, with the bulk planning to invest more in Shanghai, about half looking to expand in Beijing, and 13% intending to invest more in Hong Kong. They were, however, worried about the UK’s policy towards China, and Johnson must now allay their concerns.

As its record shows, China has always set great store by Sino-British ties, but the future relationship must be based on mutual respect. Quite clearly, this will benefit both countries, and the UK’s trade with China has already increased dramatically this century. In 1999, China was the UK’s 26th largest export market and the 15th largest source of imports, accounting for 0.7% of UK exports and 1.56% of UK imports. By 2019, however, China had become the UK’s sixth largest export market, with its exports worth 30.7 billion pounds, while UK imports from China were worth 49 billion pounds, accounting for 7% of UK imported goods and services.

China, moreover, is keen to invest in the UK, with London’s financial center and its professional services attracting its investors. In February, Grant Thornton’s Tou Ying Tracker (TYT) research confirmed the increasingly significant contribution Chinese companies are making to the UK economy. The TYT covers about 800 companies that, in 2019, had a combined turnover of 91 billion pounds, enjoyed a revenue growth of 17%, an increase of 12% over 2018, and employed 71,000 people, up from 62,000 the previous year. These 800 businesses, moreover, are only a fraction of the Chinese companies operating in the UK, and Grant Thornton has identified over 13,000 companies that are either part of a China-owned corporate group or are majority held by a Chinese national, and 100 representative offices.

While the 30 leading Chinese companies are primarily involved in industrial and manufacturing enterprises, there is also considerable growth in the technology, media and telecoms sectors, although some of this is being hampered by global tensions. The Canary Wharf development project, for example, which was heavily backed by Chinese investors, sought to develop a derelict London waterfront into a financial hub that would have generated jobs in the capital, but is currently on hold, a victim of geopolitical uncertainties.

However, with Brexit done, the UK can re-calibrate, and there are some positive signals. On November 26, for example, at the online launch of a report from the China Chamber of Commerce in the UK, on the development of Chinese enterprises in Britain, John Edwards, the UK’s trade commissioner for China, said his country “welcomes Chinese investment”, and that Britain is open for business as it leaves the EU. Having acknowledged that China’s “size, rising economic power, and influence make it an important partner in tackling the biggest global challenges”, he emphasized that the UK has “a policy of engagement with China and our approach will remain consistent, even if difficulties emerge”. There is, moreover, a recognition in the UK that Chinese investment can help its infrastructure and other projects, and China is already heavily involved in such things as the HS2 high-speed rail link, the Crossrail London line, the Northern Powerhouse initiative, and North Sea oil extraction.

As the UK repositions itself, therefore, it must recognize that the global context is changing, and seize the opportunities available in the East, the new center of economic gravity. It has always been more outward-looking than its neighbors, and China and the UK are already important business partners, which augurs well for future co-operation. If the UK is now prepared to enhance its trade and investment with China, in the way its hard-won independence now permits, both countries stand to be big winners.

The author is a senior counsel and professor of law, and was Leave Means Leave ambassador for Hong Kong and Macao, 2018-2020.

The views do not necessarily reflect those of China Daily.