What are the prospects for China-UK economic ties?

UKNCC: In your view, how important is China to British business today?

Ray Chisnall: China remains one of the largest global markets despite recent challenges. According to our surveys at the Chamber, one of the main reasons that British businesses are in China is that they are bullish about China’s market potential and the size of its consumer base. According to the latest trade figures, overall trade between the UK and China has remained relatively stable throughout Covid-19. Many sectors continue to see big business opportunities in China – advanced engineering and manufacturing, automotive, pharmaceuticals, healthcare, financial services (particularly in Shanghai), education, consumer goods of all kinds, the creative sector (marketing, branding, architecture) and the sustainability sector have all continued to do well. There continues to be a great opportunity for growth for businesses in China. I also notice a trend of growth in Chinese exports to the UK but a reduction in Chinese investment into the UK, which is a big change from the ‘Golden Era’ of David Cameron’s time.

UKNCC: How have UK-China relations changed since the ‘Golden Era’?

Mr Chisnall: Aside from the significant geopolitical shifts over the past few years, there has been this trend of more people taking a divisive, ‘black or white’ view of China. In the eyes of some people, we’ve gone from being China’s friend to being its enemy. Some have adopted an almost US-type ‘us’ and ‘them’ approach. There is very little positive coverage of China in the UK – China is now almost entirely seen as a threat in some quarters.

Many people in the UK took a somewhat naive view of engagement. Their understanding was that if we engage with China, then that will bring freedom and a society that we can recognise as similar to our own. In this view, the fact that this has not happened over the past few decades means that engagement has failed. But this was never realistic. Dialogue is important to mutual understanding even if you do not agree on the details.

Another trend I’ve noticed is that the situation for expats in China has been getting worse for several years. So a number of Western expats have left China and Hong Kong. The positions that China adopts also worry people – and not just foreigners. This is a challenge for businesses as it puts employees off coming to China to work: they are concerned about their futures in China. The problems of getting senior people into China, particularly due to Covid-19 border restrictions, mean that there has been a marked decline in planning future investment in China. People simply can’t come to assess the investment opportunity and risks first-hand on the ground. For geopolitical reasons, several manufacturers have chosen to diversify their supply chains to countries like Malaysia and Vietnam to improve supply chain resilience and manage against all eventualities. Many companies now have put systems in place that allow people to work remotely and so avoid being based physically in China, particularly if they’re working in pan-Asian roles. This helps them avoid losing key talent. These changes are all impacting UK-China relations. Hopefully, the recent easing of Covid restrictions will cause this to quickly improve.

UKNCC: What was the impact of Covid-19 on UK-China relations?

Mr Chisnall: Covid has had a significant impact on China-UK relations. The impact on travel has been very widely-felt. And this makes maintaining good relations harder when far fewer people-to-people exchanges occur. There are quite a few people leaving and not many new people coming in. This is due to fears of China drummed up in the media, Covid restrictions, and a feeling that China is a more challenging place to live & work.

Like a number of countries, China is also more inward-looking than it was. This is partly politically-driven but is also a result of Covid and reduced cross-border interactions. Regardless of your view of the Xi-Trudeau interaction at the G20, at least they were having a face-to-face conversation and building a relationship of some form.

As always with China, nuance is key. So while Covid has had a significant negative impact, in some ways China has also become more open to British businesses. Before Covid, it would have been difficult for the Chamber to meet government officials in Shanghai. The government now wants to know what the concerns of the Chamber are and is more willing to meet us. The dialogue on an international level could be better, but it remains strong on a local level.

Covid policy has changed outside perceptions of China. In 2020, China was a bastion of stability, while the rest of the world was far from it. This is because China shut its borders and so there was no Covid in the country. This made business conditions predictable despite the travel restrictions.

China has had great success managing Covid, but it hasn’t been as dynamic as it could have been over the past year as the virus changed. It wanted to avoid the approach which led to so many deaths in the US, UK and elsewhere. So one can understand why China was cautious. But we had the lockdown in Shanghai, which had a huge economic cost, as well as the testing of millions of people daily. It raised questions about Shanghai as a viable city for business.

The biggest worry for me is that a lot of the older China hands are deciding that enough is enough. People who have been in China for a long time now want to leave. China has gone from the bastion of stability to quite the opposite. This is because there wasn’t a clear message from Beijing on how they’re planning to get out of Zero-Covid. This is a challenge for businesses. So I hope the recent easing of restrictions continues while China balances the various risks associated with opening up and learning to live with Covid.

I am sure the next 3-6 months will present challenges for us all but at least we are now on a pathway out of zero Covid. It will be interesting to see if China manages to stay ahead of the Covid wave and hence avoid further business disruption as the UK saw due to mass illness closing down services, businesses, etc for a period of time.

UKNCC: What is your view of technology in UK-China relations?

Mr Chisnall: Technology has largely been a victim of the geopolitical situation. More and more countries, including the UK and China, are viewing technology as a national security issue. The way the UK (and others) has changed its technology policy has upset some countries who see the changes as targeted against them. But this is largely in line with global trends.

There are areas for cooperation in technology, nonetheless. We are seeing less pushback on cooperation in China. However, we do need to have grown-up discussions with China about technology. This is particularly true in relation to us being an open market but not receiving the same level of access in China.

UKNCC: Are foreign companies still welcome in China?

Mr Chisnall: Yes, with some sectors seeing genuine opening up (such as financial services) although for many it has either not improved or become harder to do business in China over the past 12 months, mostly due to the changing regulatory environment. There are also many new initiatives that foreign organisations have been kept out of. And there is also a blanket ban on new private educational facilities here which has impacted the very successful UK schools operating here, as well as companies such as mine (Gleeds) which manages the design & building of many different facilities. Until the regulation changes schools were a major part of our business.

This is still a great market with huge potential for UK firms. We do see a desire by the government to open up the country post-Covid and welcome in foreign businesses. This is a positive. In particular, Shanghai continues to implement measures to try to keep its expat talent as it wants to keep a high level of foreign investment and be a global financial hub.

So UK companies should still be actively exploring new opportunities in China, but do so from an informed & nuanced position – organisations like the Chamber here in Shanghai have a wealth of expertise in our membership who are all willing & able to help.