2024 RT Amination Banner.gif

China Daily

Asia Pacific> Global Weekly> Content
Monday, November 11, 2019, 15:09
Uncharted territory
By Andrew Moody
Monday, November 11, 2019, 15:09 By Andrew Moody

(SONG CHEN / CHINA DAILY)

Peter Batey believes that if the United Kingdom leaves the European Union, there will be no subsequent compensatory boost to trade and investment between the nation and China.

The 61-year-old is the eminence grise of the British business community in China, having been in the country since the 1980s.

He is founder and chairman of Vermilion Partners, a strategic advisory firm which has advised on some major Chinese acquisitions in the UK, including that of West Bromwich Albion football club in 2016.

“Those who think there is any benefit in free trade deals are building castles in the sky. There is nothing about being a member of the European Union that stands in the way of the UK doing business in China,” he said.

Batey, who returned to China from the UK the same week the Oct 31 deadline for Brexit was further extended to Jan 31, has another distinction.

In the early 1980s, after graduating from Oxford University, he was political private secretary to former UK prime minister Edward Heath, who had major connections with China and took the UK into the then European Economic Community in 1973.

Batey said that many UK politicians who are strong advocates of Brexit know very little about trade or business.

“I don’t think they have any real idea at all. People like (former UK international trade secretary) Liam Fox promised we could have these wonderful trade deals with the rest of the world, but it was a lot of nonsense,” he said in his office at the China World Trade Center in Beijing’s central business district.

“Countries like China can’t give anything particularly special to the UK, because it knows it would have to immediately give the same to America and Europe. In terms of giving anything new to China, the UK is already as open to Chinese investment as it possibly can be.” 

Arguments for and against Brexit will be central to the UK general election on Dec 12, including the potential of new enhanced engagement with countries like China.

According to a September briefing paper from the House of Commons Library, China has become an increasingly important trading partner to the UK, as it has with many other countries over the past 20 years.

China is now the UK’s sixth-largest export market compared to its 26th in 1999, and the UK’s fourth-largest source of imports, compared to its 15th two decades ago. Overall, the UK had a trade deficit of 23.1 billion pounds (US$29.8 billion) with China but a surplus in services valued at 3.1 billion pounds.

Pro-Brexit supporters are pictured in London on Nov 5 outside the Houses of Parliament on the final day of the lawmakers sitting before the start of the general election campaign. Arguments for and against Brexit will be central to the UK general election on Dec 12. (ALASTAIR GRANT / AP)

With the UK being the world’s largest exporter of services after the United States, many expect the sector to be the centerpiece of any China-UK trade deal, particularly in view of China’s ongoing trade friction with the US.

Unlike Batey, Chris Yang, chairman of the Hampton Group, a consultancy based in Beijing and London that enables business opportunities between both countries, said Brexit will present tremendous opportunities for boosting trade in services between the UK and China.

He noted that China is on a similar trajectory to the UK, with services making up 52 percent of the economy, well below the 70 percent average of developed countries. Services in the UK have risen from 46 percent of the economy in 1949 to 79 percent today.

“The services sector in China has great unrealized potential. This potential could be realized through far greater collaboration between China and the UK,” Yang said.

The opening of China’s financial market is likely to be one of the next global mega trends over the next 10 to 15 years, with investment flooding into the world’s second-largest economy.

Douglas McWilliams, deputy chairman and founder of the Centre for Economics and Business Research, an economics consultancy in London, recognizes this opportunity, but remains cautious.

“It may not be such a great opportunity for UK companies as some think. There may still be barriers to entry and lack of access to international firms. 

“It may be that the UK does best exporting services in places like India, which is another potential growth market for it and with which it has closer historic ties,” he said.

Simon MacKinnon, chairman of tech company Xeros China, wonders how much scope the UK will have to negotiate a trade deal with China. MacKinnon is based in Shanghai and has, like Batey, been in China since the 1980s.

“An FTA with China will be heavily influenced by protocols of the UK’s deals with the EU and the US, particularly in import tariff levels. The reality is also that the UK is quite a small trading partner for China, less individually than Australia, Vietnam, South Korea and Malaysia,” he said.

(From left) Chris Yang, chairman, Hampton Group; Douglas McWilliams, deputy chairman and founder, Centre for Economics and Business Research; Peter Batey, founder and chairman, Vermilion Partners; Simon MacKinnon, chairman, Xeros China. (PHOTO PROVIDED TO CHINA DAILY)

There are concerns that Brexit could have a negative impact on London’s role as the leading clearing center for the yuan outside of China. The UK capital is also the home to many Chinese banks, including the Bank of China’s European headquarters.

But Yang at Hampton believes such concerns are alarmist.

“Whatever the outcome of Brexit, it would take decades for any other European city to replicate the world-beating strengths of London as a global financial center. London has this strength because of the depth and scale of the range of its financial services,” he said.

McWilliams at the Centre for Economics and Business Research said that after Brexit, London might become an even more attractive financial center to Asian countries, including China.

“It may gravitate to being more regulatory aligned to the US than Europe, which might make it more attractive to the Asian market. It will still probably keep its European identity,” he said.

Chinese investors have shown an appetite for UK technology business in areas like healthcare and biotechnology.

Some believe the UK could become a major partner for China as its economy moves into new high-end sectors and becomes a global technology leader by 2035.

Xeros China’s MacKinnon said: “The UK’s universities and its technology innovation capabilities are very attractive to China and are a good fit with China’s capabilities and needs. Much is being done already, but there may be areas that can be accelerated once the UK is outside of the EU.”

With the general election just weeks away and its outcome uncertain, particularly in relation to whether there will be a Brexit — depending on who triumphs or whether there is another parliamentary stalemate — some Chinese investors are putting their investment decisions on hold for now.

However, Yang believes they should ride out the uncertainty.

“Chinese investors will suffer greatly if they try to follow every daily twist and turn of Brexit, particularly a general election, which will be beyond confusing for non-British nationals,” he said.

“They need to focus on the fundamental strengths of the UK as the sixth-largest global economy and Britain being a world leader in innovation and invention in the unfolding digital revolution.”

andrewmoody@chinadaily.com.cn


Share this story

CHINA DAILY
HONG KONG NEWS
OPEN
Please click in the upper right corner to open it in your browser !