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Friday, November 15, 2019, 15:03
China trade deal questions asked amid Brexit extension
By Andrew Moody
Friday, November 15, 2019, 15:03 By Andrew Moody

Business community voices mixed views on issue

(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 doyen of the British business community in China, having been in the country since the 1980s.

He is the founder and chairman of Vermilion Partners, a strategic advisory company which has offered advice on some major Chinese acquisitions in the UK, including that of the soccer club West Bromwich Albion 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 in the week when 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 believes 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 Liam Fox (the former UK international trade secretary) 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 a new enhanced engagement with countries such as 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.

It is now the UK's sixth-largest export market compared to its 26th in 1999, and its fourth-largest source of imports, compared to its 15th two decades ago. Overall, the UK had a trade deficit of E23.1 billion (US$29.8 billion) with China, but aE3.1 billion surplus in services.

With the UK being the largest exporter of services after the US, many expect these to be the centerpiece of any trade deal between London and Beijing, particularly in view of China's recent 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 the UK and China, said there is a tremendous opportunity for boosting trade in services between the UK and China after any Brexit.

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

"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 coming 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 is 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 the technology company Xeros China, who is based in Shanghai and, like Batey, has been in China since the 1980s, wonders how much scope the UK will have to negotiate a trade deal with China.

"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 also is that the UK is quite a small trading partner for China, less individually than Australia, Vietnam, South Korea and Malaysia," he said.

However, Russell Brown, managing partner of the accountancy company Lehman Brown and former chairman of the British Chamber of Commerce in China, believes there is scope for the UK to have an easier trade relationship with China outside of the EU.

He said the UK is a nation built around trade and has been an advocate of free trade, whereas the EU as a trading bloc has different priorities and is less inclined toward free global trade.

"The UK has a great opportunity upon leaving to focus on its strengths in its relationships with other countries around the world, and in particular China."

There have been concerns that Brexit could negatively impact London's role as the leading clearing center for the yuan outside of China - it overtook Singapore in 2016. The UK capital is also home to many Chinese banks, including Bank of China's European headquarters.

But Yang, at Hampton, believes such fears 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 CEBR, believes that London might become an even more attractive financial center to countries in Asia, including China, after Brexit.

"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 such as healthcare and biotechnology.

Some believe the UK could become a major partner for China's strategy that is aimed at moving the economy into new high-end sectors, and its aim to become a global technology leader by 2035.

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 decisions on hold for now.

However, Yang believes that 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


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