It may remain a sometimes challenging place to do business, but China has welcoming, open arms for British exporters, writes Elliot Wilson
Modern China is often a misunderstood place. British business leaders arrive in Beijing or Shanghai expecting to find either a bureaucratic quagmire or a nation adept at separating you from your cash, even before you step off a plane.
Rarely do these views hold up in reality. Yes, China used to be a great place to lose your shirt. Tim Clissold’s 1990s business memoir Mr China, filled with inventive ways to pour £300 million down the drain in the People’s Republic, attests to that. And this is still a country in thrall to rules and hierarchy. Peter Fleming’s 1930s travelogue News From Tartary remains a useful reference point-cum-cautionary tale for business travellers.
But China is no longer the “Wild East” portrayed by Clissold nor Fleming’s isolationist version. It’s a big, bold, confident nation, creative and aspirational, keen to learn from and trade with the rest of the world. Moreover, it’s a country finally, after a few false starts, falling in love with the “Made in Britain” label. For UK exporters, says Peter Bishop, deputy chief executive at the London Chamber of Commerce and Industry, there has probably “never been a better time” to begin exporting to the world’s second largest economy.
First, a few figures and forecasts. China’s economy has slowed of late, yet it is still on track to grow by 7.4 per cent in 2013, according to the OECD (Organisation for Economic Co-operation and Development), outpacing most other large emerging markets, notably the troubled pair of India and Brazil. Wealth is gushing rather than trickling down. McKinsey tips the number of Chinese earning more than £11,000 to grow from 6 per cent of the population in 2010 to more than 50 per cent by 2050.
And China is changing in other ways as its wealth and confidence rises. Germany and Japan benefited from China’s industrial revolution, lasting for three decades until around 2010. But this process – the need to build factories, cities and infrastructure, benefiting big engineering firms in Tokyo and Munich – is now drawing to an end, allowing a new, “softer” business cycle to begin.
This is where UK plc comes in. British corporates are poor at churning out products that help build nations, but excellent at making the goods and services that fill them.
Take three specific areas of UK expertise, all of which are profiting handsomely from China’s boom. First, luxury goods. From preppy Jack Wills pullovers to Mulberry handbags and from Liz Earle face cream to Molton Brown shampoo, mainlanders have fallen in love with high-end British brands. It’s hard to find a mall that doesn’t contain an Aquascutum or Jaeger outlet.
Burberry, which boasts more than 70 outlets across the country, posted record profits last financial year thanks largely to a 20 per cent rise in mainland sales. “The ‘Made in Britain’ label has huge appeal in China, particularly when it comes to high-end luxury items like clothing,” says Bridget Walsh, head of China business services at Ernst & Young.
It’s a big, bold, confident nation, creative and aspirational, keen to learn from and trade with the rest of the world. Moreover, it’s a country finally, after a few false starts, falling in love with the ‘Made in Britain’ label
And while mainland consumers are “famously price sensitive”, notes Guy Dru Drury, chief representative for the Confederation of British Industry (CBI) in China, they respect the inherent quality of UK brands, whether that means a Mini Cooper car, Speedo sportswear or a Burberry trench coat.
Next, services. From legal and accounting, to urban design and architecture, UK firms are in huge demand. Lord Foster’s soaring third terminal at Beijing Airport is often the first thing visitors see when entering the country. World-class urban design specialists, such as Arup and Atkins, are designing vast new sustainable Chinese cities, housing hundreds of thousands of people.
“British firms are engaged in traffic planning, waste management and designing smart cities. These are sectors where UK firms are considered among the world’s best. Chinese companies are continuously pursuing us to obtain access to the best in British clean-technology goods and services,” adds Ms Walsh.
Then there’s the financial sector, one of Britain’s, and particularly London’s, strongest suits. In HSBC and Standard Chartered, two unalloyed emerging-market giants, the UK has probably the best two foreign lenders operating in China. HSBC recently opened its 150th mainland branch. Furthermore, the relationship between the People’s Bank of China and the Bank of England has in recent years become, to borrow a Mandarin phrase, “as close as lips and teeth”.
Last but not least comes British engineering, so recently written off. The UK will never again be Germany, churning out vast quantities of industrial goods. But does it want to be? British firms specialise not in mid-range manufacturing, which long ago begin shifting out of Western countries, but in high-end goods.
A notably heartening success story has been the revival of the auto sector. Jaguar Land Rover (JLR), Indian-owned but still proudly British in both design and production, has seen revenues soar in China. JLR sees mainland sales rising by 100,000 units, or 28 per cent, in its financial year to the end of March 2014, led by demand for the Range Rover Evoque. Last year China overtook the UK as the firm’s biggest market.
Nor is JLR alone. Morgan recently opened its second mainland outlet, in Beijing. Others, including Bentley and Lotus, are entrenched favourites among China’s wealthier consumers, with Lotus also doing a tidy line in product design and technology sharing. Ernst &Young forecasts that by 2017 UK annual engineering exports to China, currently rising at 12 per cent, will hit £1.5 billion, with auto sales alone worth more than £2.4 billion.
Indeed, British exports are surging wherever you look. Annual biopharma exports to the mainland are set to double to £65 million by 2017, according to Ernst &Young. Publishing is another growth industry, thanks in large part to the omnipotence of the English language. Westminster-based Penguin Books, now part of the Anglo-American group Penguin Random House, is probably the best-known and most successful foreign publisher operating in the mainland.
Penguin has grown steadily for years, treading carefully in a still-highly restricted market. But sales are surging thanks to recent focus on cooking and children’s titles, notably Jamie Oliver, and Charlie and Lola. Jo Lusby, general manager of Penguin North Asia, says readers in the fast-growing Chinese market will “increasingly choose a book because of the strength of the Penguin brand”.
And never write off the benefit of looking classy on the world stage. London’s impeccable hosting of the 2012 Olympics did the “Made in Britain” label no harm at all. “The Olympics had a huge impact on every British exporter,” says Ms Walsh. “It reminded consumers in China and across the world that we are very good at doing things, and so therefore also very good at making things. It made Britain cool again.”
Britain’s re-emergence as a more diversified economy also cuts both ways. Chinese multinationals are increasingly opting to locate their European headquarters in the UK, for several reasons, notably falling taxes, political constancy and a stable (non-euro) currency. Wealthier Chinese are opting to buy London property, invest their personal wealth through UK funds and educate their children at private British schools.
China isn’t for everyone. It remains a tough market to crack and competition in every sector is frighteningly fierce. Exporters need to choose their business partners with care. Beijing’s recent crackdown on specific sectors, including food and pharmaceuticals, has worried some potential investors.
Corruption and intellectual property (IP) theft should be a concern to everyone. The CBI’s Mr Drury warns every incoming enterprise to develop “a sound IP strategy so your brand, products and intellectual knowhow are well protected before the first deal is done”. And while China’s economy looks superficially strong, its big-but-fragile banks, underdeveloped private sector and bubbly property market are all weak links.
Yet the future looks remarkably bright for the right British exporter. As China shifts from an investment to a consumption-led economic model, demand for capital goods will decline at the expense of services and consumer products. As Neil Shearing, emerging markets economist at Capital Economics in London, concludes, these are factors that “all work to the UK’s advantage”.
Britain beating Germany and Japan in the export stakes in China – whoever would have thought it.