Embracing the Snake: The China-Britain Trade Relationship

Michael Young

Picture: David Cameron met with Xi Jinping in 2007

David Cameron met with Xi Jinping in 2007.

In their own unique way of celebrating Chinese New Year, Number 10 last month uploaded a video to their YouTube channel featuring an enthusiastic David Cameron wishing the nation well, and calling for even better trade relations between China and the UK in the coming years. The Prime Minister stresses the bond that London shares with Beijing and, in an attempt to highlight this cultural empathy, finishes by uttering the words ‘xin nian kuai le’ (Happy New Year) in very ropey Mandarin. Alas, the video has only just about notched up over 9,000 views on YouTube – and a mere 83 on the site of its Chinese counterpart (YouKu), so has hardly gone viral.

This is a continuation of the pleasant, annual gesture which I’m sure the leadership in Beijing welcome warmly. Yet the mind still boggles as to why the UK still puts most of its effort into maintaining good trade relations with the Eurozone and the US, when the government is now – in reality – almost completely reliant on trade with China for the little economic growth that we can just about currently muster.

Trade with China – according to the Prime Minister – has just seen its best year yet, and is up 7% on the previous year. Mainly because it’s not any more all about the containers stacked high in Southampton docks after travelling their thousands of miles from Guangzhou (quite probably full of commemorative dinnerware to mark the forthcoming Royal Baby.) There is a growing trend in China to buy British – in fact, recent statistics show that since January 2012, China has risen from 9th place to 7th place in the UK’s most important export markets by value – rising above both Spain and Italy. The expansion over the last ten years of the likes of Tesco and Marks and Spencer’s into the previously state-planned business environment is also testament to this. Our media here enjoy reminding us  that the gap between the rich and the poor in China is widening, but the fact is that as the Chinese middle class expands, a taste for foreign goods develop. This inevitably fuels the amount that the UK exports to the Middle Kingdom. Even when Chinese tourists visit London the result is the same – it is thought that the average Chinese customer will spend £1,300 in the West End on a normal day.

China is also increasingly developing a taste for UK services, as well as goods. London has been a hub for the financial service industry since the Industrial Revolution, but Chinese companies have only recently been keen to tap into the range of consultancy and banking packages on offer in the city, meaning that the likes of British-based Standard Chartered (for example) have been able to flourish in the country. There has also been talk for a few years now of making the Chinese currency (the Yuan/Renminbi) a key trading currency in London. This would make the capital the only foreign city (after Hong Kong) to become a powerhouse for the currency.

In return, the UK is pumping billions of pounds into cities from Harbin down to Kunming, from Hangzhou right across to Urumqi. At the end of 2011, the UK was the largest EU investor to China, with a cumulated actual direct investment value of £11.70 billion. The favour isn’t even returned; when it comes to investment, the UK often invests almost five times more into China than China does into the UK. Yet perhaps the favour is returned in terms of the amount of Chinese students enrolled at universities across the country, which now totals over 100,000. Their tuition fees alone are astronomical, yet this coupled with the disposable income that they fly with equals a significant extra stimulus to struggling local economies.

Even still, the fact remains that the UK is reliant upon being able to import products from China. If that privilege was taken away, the British consumer would be feeling the pinch. The relationship is, therefore, in China’s hands – and probably always will be. What the government needs to do is make more of an effort to embrace the snake.

This ultimately means that the government needs to avoid offending the regime – we cannot be picky in our trading partners. Whereas Beijing can look to alternative, more compliant states across Europe to trade with should it feel the need to do so, the situation is rather different for London. Casual chats with the Dalai Lama like this one should probably cease, whilst accusations of cyber-spying by the Chinese government should also be kept to a minimum. The country is entering a new political era with the conclusion of the once-in-a-decade power transition this month that has seen Xi Jinping formally take over from his predecessor Hu Jintao. David Cameron highlights in the above video that him and Xi have been in contact and that they ‘share the same dream’. I doubt this is the case, as for China the dream will simply be to continue its remarkable economic growth. For the UK it is more to at least try and achieve some growth-and China will be our only trading partner paramount in our quest to achieve this in the coming years.

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