Cam eron in China

By KERRY BROWN

Cam eron in China

By KERRY BROWN

British prime m inister’s first official visit enhances China-UK ties

HELLO, CHINA!: British Prim e M inister David Cam eron poses w ith Chinese students at the Great Wa ll near Beijing on Novem ber 10 during his first visit to China since taking o ffice

B ritish Prim e M inister David Cameron’s first official visit to China in November had two objectives.One was to lead one of the largest trade delegations ever accompanied by a UK prime m inister to an increasingly important market. The other was for him to meet, and get to know, the Chinese leadership and key figures in the government.

Cameron traveled to China after announcing some of the deepest cuts in government spending ever seen in the UK.The gap between government spending and revenue is 12 percent, one of the highest inthe EU. In October, the government said it would try to make cuts of just under 20 percent across all government departments.

Strengthening business ties

Cameron and his pow erful Foreign Secretary, W illiam Hague, have both made it clear they believe the UK’s foreign policy should be guided by econom ics. The UK slipped from the world’s sixth major exporter to seventh earlier this year. Its reliance on the financial services sector meant that the global crisis from 2008 onwards particularly affected it.

While unemployment has not risen, as originally feared, to 10 percent, there are many who fear that the cuts announced in October place too much burden on the private sector to create more jobs, and that this rate could rise sharply.Cameron therefore needs to give all the support he can to foreign trade promotion. Like many other Western leaders, he believes the UK can export itself out of at least some of its current problems.

China, India, Brazil and Russia, along with other emerging econom ies, remain the areas where there is most hope for grow th and export opportunities. As the largest economy of these,China is a key target. British investment in the country is not new. Rolls Royce and Shell were investing almost from the foundation of the People’s Republic. For the last two decades, the British were the largest investors from the EU,setting up over 6,000 joint ventures and making investment comm itments of almost $20 billion. But as Chinese Commerce M inister Chen Deming said in an interview with the BBC, the Chinese public is not very aware of Britain’s sectoral strengths, especially compared w ith German companies, which are held in high regard in China.

Cameron’s delegation contained some well-known names—BP, Tesco and Boots.Tesco, in particular, has become a stable presence in China over the last decade. It operates under the “Happy Shopper” brand,and is present not just in the developed coastal areas, but also in the northeast, and now in the western regions. In this way, it is not a typical British company. British business has a thriving presence in Shanghai, Beijing and Guangzhou—where there is a very active British Chamber of Commerce. But in tertiary cities like Xi’an, Kunm ing, Hefei or even Chongqing—where there is a British consulate—the activity is less visible. The pattern of British activity is also weighted toward a small group of large companies. Small and medium-sized enterprises find it more challenging to come to China from the UK.

For almost all these companies, the great ambition is to find ways to reach China’s many new, wealthy consumers. For all the changes in the last two decades, however,China remains a challenging market. While the focus is on helping companies in the hitech sector do more business—with Premier Wen Jiabao telling Cameron that companies should be reassured about the protection of intellectual property rights—there are some surprising achievements in other areas.The Financial Times, in its coverage of Cameron’s visit, referred to a British company exporting breeding sows to China;it managed to do a multimillion pound deal to supply over 1,000 of them. In the last decade, Cherry Valley Farms has also been exporting ducks and duck products.

Cameron w ill want companies that went w ith him on his visit, as well as others, to start looking at China as a market they can operate in, and as part of the global economy, just like the EU and the United States.At the moment, 45 percent of UK exports go to America, and 45 percent to the EU. This is based on historic links, easy logistic chains,as well as well-established sales and marketing networks. But it is becoming clearer that these markets are dim inishing. They reached saturation some years ago and real grow th now lies elsewhere.

W ith China, the UK underperforms. The UK exports more to Ireland, with a population under 10 m illion, than it does to the 1.3 billion people of China. This highlights the problem of the trade deficit. Although this issue is far less politically contentious than in the United States, it still matters, especially when viewed in light of the UK’s role in the EU. The EU has been asking for more market access and more opportunities for companies to bid on government procurement contracts.

Cem enting po litical bonds

The role of the EU in trade w ith China helps rem ind us that the second function of Cameron’s visit was to establish good links w ith the Chinese leadership. In his speech to students at Peking University, Cameron referred to his time as a student in Hong Kong in 1985. Cameron has visited China several times since, most recently as leader of the opposition in the UK. He is, therefore, more fam iliar w ith China than most other British prime m inisters before him. He has already met many senior Chinese leaders. His objective this time was to show his w illingness to enter into a deeper dialogue about issues of mutual concern. He made it clear that he was not looking to change the policy of mutual engagement that was established under the previous Labor government.

The UK has to think hard about how it engages w ith China. In quite a short period of time—not more than a decade—China has leapt from being a m id-ranking economic power to the second largest economy in the world. In a range of other areas, China plays a crucial role—from energy use, to the environment, to global governance, regional security and exchange rate decisions.

Britain is a far smaller force in the world than it was even 20 years ago. Even so, there are key areas where the UK can be China’s preferred partner. On technology transfer for environmental sciences, on education and on the promotion of the UK as a model know ledge economy Chinese leaders need to know what the UK has to offer. There are some areas where the UK w ill work best as a member of the EU. At other times, it w ill work along w ith other powers like the United States, or Australia. But in some areas, the UK w ill want to act bilaterally.

Other things that the UK is doing may also appeal to the Chinese Government’s own reform agenda. The attempts to create a smaller, slimmed down government, for instance, and to encourage more nongovernmental groups to supply social services traditionally supplied by government departments m ight be one area. The attempt, too,to scale back state expenditures and create a stronger role for private enterprises is also of interest to China. Finally, the UK’s continuing attempts to reform educational and medical services is of potential interest.

Over the last decade, the UK and China have made a number of attempts to set up structures that enable all interested parties—from government and civil society to universities and enterprises—to talk to each other and identify common interests.

As Cam eron visited China, U.S.President Barack Obama was also on a formal visit to India. It seemed symbolic that two leaders of developed countries were visiting Asia at the same time. Both made trade a focus of their visits, w ith Obama signing deals which, it was claimed, would help create 50,000 jobs in the United States.

The one thing that Cameron’s tour in China underlined was the great importance of Asian countries in today’s world.Although he did not refer to a power shift in his talks in Beijing, Cameron declared that any attempts to talk about global trade w ithout bringing in China were nonsense.

(Viewpoints in this article do not necessarily represent those ofBeijing Review)

The author is a senior fellow w ith Chatham House,London