Ian Pearson MP

CHINA AND BRITAIN - WHERE NEXT?

As you will know, last week I accompanied the Prime Minister and the Secretary of State to China. The aim of the visit was to build upon decades of successful, but predominantly economic, co-operation, by expanding the agenda of engagement. We were accompanied by a business delegation of 30 senior people from primarily British companies – the most senior delegation of its kind to visit China for many years.

China is a major foreign policy priority for Britain and the EU. It presents a huge challenge – politically and economically. And at the same time a tremendous opportunity.

Over the last few years, there has been a steady stream of statistics illustrating the changes that are taking place in China.

China makes 25% of the world's washing machines, 50% of the world's cameras and 90% of the world's toys.

China has lifted two thirds of its people out of poverty since 1978.

And in the last decade, China has built enough roads to loop around the Equator 16 times!

I'm sure you could add further examples from your own experiences of China. However, we need to look ahead to see what might happen if current trends continue. We could see:

China's economy quadrupling in size between 2000 and 2020.

China becoming the world's largest exporter and manufacturer by 2020.

And China's exports moving up the value chain, with high technology products forming an increasing share of its output.
So China's impact on our interests is large and growing. And the potential for the development of bilateral relations is correspondingly large. Since Premier Wen's visit to London in May 2004 we have enhanced our mutual understanding and co-operation on a number of important issues: trade, tourism, illegal immigration, international peacekeeping, the environment and climate change, science & technology, human rights and rule of law, and education.

Last week we took this agenda forward and we re-affirmed our commitment to greater discussion on a range of global challenges.

Sharing our creativity with China in an ever-broader range of areas is very important.

That's why one of the initiatives we launched was a renewed cultural partnership, which I formally signed on behalf of the UK.

We believe that a reinforced cultural partnership will underpin our wider relationship based on trust, mutual respect, and mutual benefit.

Ambitious and imaginative activities involving government, civil society, and business organisations can take our relations to a new level and everyone has an important part to play.

As Minister for Trade, and the Foreign Office Minister responsible for China, I am keen to ensure that the political co-operation between China and UK enhances the prospect of our trading partnership and our economic growth.

All these strands add up to more than the sum of their parts. Deepened political co-operation supports deeper economic co-operation, and vice-versa.

Foremost in my mind is the objective 'to secure maximum benefit from the global opportunity of China's emergence to guarantee our long-term future.'

Let me offer some thoughts on how our trade policy fits in, particularly given the context of the recent EU-China agreement on textiles following what our colourful press referred to as the ‘Bra Wars'.

The first thing to say is that the UK and China will continue to work hard to make substantial progress on the Doha Development Agenda, and maximise the benefits that trade liberalisation offers as a route out of poverty for millions.

We all know how crucial the Doha Agenda is. An ambitious outcome could help increase world trade, producing benefits of between $250 billion and $600 billion each year. At the same time it could help us reduce by 144 million the number of people in our world living on less than two dollars a day.

Reducing barriers to international trade and strengthening trading links between all countries is crucial to enhancing world economic growth, tackling global poverty and strengthening security.

WTO members have a unique opportunity, this year, to give millions of people across the world the chance to begin the slow climb out of poverty towards lasting prosperity.

When Alan Johnson and I met Bo Xilai last week, we agreed on the need to push ahead with the Doha Agenda as far as possible in advance of the WTO Ministerial in Hong Kong this December.

The UK wants to see a successful conclusion to the Round next year. We are instinctively an open trading nation. We don't believe in protectionism. As Sir Digby Jones said recently when talking about Globalisation, Britain is the one country that really gets it. We do and that puts us in a strong position to meet the challenges and seize the opportunities that the rise of China is creating.

Our bilateral trade with China is growing rapidly.

In 2004, we exported over £2.3 billion of goods to China – an increase of twenty three percent over that for the previous year.

The UK's exports of services to China exceeded £1 billion for the first time in 2004.

The UK is the top EU investor in China and Hong Kong combined, with over 4,000 British invested projects in China alone.

Our future prospects are strong.

As China's economy continues to develop, we can expect to see growth in sectors such as communications, high technology and financial services and retailing. The UK, with its strong financial and professional services sector and world class science and engineering base and strong retailing sector, is well placed to benefit. In addition, China's economic growth is creating problems where the UK has the expertise to help.

For example:
Environmental technologies developed in the UK are already being used to address the widespread environmental damage caused by China's rapid industrialisation.

We also have among the world's best mining safety expertise, which could be used in improving working conditions in Chinese mines.

And China is working with the UK to learn from our experience in water privatisation with a view to applying the lessons learned to its own privatisation programme.

The Government is playing an active role helping the UK business community to trade and invest with China. We are tackling the tough issues. When Alan Johnson, Sir Digby Jones and myself met Minister of Commerce Bo Xilai, we raised issues of continuing concern to business such as intellectual property rights, the limits on foreign direct investment, planning procedures and China's regulatory framework.

We are implementing a business-led programme across five key sectors - financial services, energy, information and communications technology, healthcare and water.

And we are working on the Chancellor's Asia Task Force initiative to identify the problems that British companies face across the region with a view to tackling barriers where possible and helping business overcome those that remain.

We are also helping UK SMEs to do business with China through an active programme of over 100 UK Trade and Investment supported missions, seminars and trade shows in the current financial year as well as running a proactive programme of awareness-raising roadshows across the UK. And we work closely with the China-Britain Business Council in providing advice and expertise to British companies looking to do business with China.

Last year we secured nearly 40 inward investments from China, making it the seventh largest source of new projects for UK Trade & Investment's Inward Investment Group.

Many of these start off as small sales, marketing, technical support centres, but perhaps the Huawei story illustrates what can be achieved: since opening an office in Basingstoke in 2001, it has grown its UK workforce to over 300 people, just acquired a lease to accommodate 300 more over the next 2 years, won a substantial part of BT's 21st Century development contract and joined UK's premium research organisation - the Mobile Virtual Centre of excellence.

Huawei were one of 9 companies from 6 industrial centres in China who met the Prime Minister over a breakfast briefing in Beijing last week. 4 had already invested in the UK, 5 are considering. Their businesses ranged from telecom equipment, telecom services, opto-electronics and consumer electronics.

The message from these existing investors was clear - the value they were getting from the UK investments was helping them develop technology and brand equity that would be crucial to their European strategies.

They conceded that the depth and accessibility of skills in the UK had exceeded their expectations. They rated the UK's financial and other business support services very highly.

The pace of development is such that, I expect if we will see many more quality companies from China setting up here over the next few years, and China will become increasingly a focus for UKTI’s inward investment activities.

Did we achieve our aim of building upon the decades of successful, but predominantly economic, co-operation, by expanding the agenda of engagement? I believe we did.

The new expanded agenda of our relationship deals with global political and security issues; enhanced dialogue on human rights, science and technology, migration, social affairs, and cultural and sporting links as well as trade issues and economics.

In terms of trade and investment, we also moved forward. We strengthened links with our opposite numbers in Beijing and raised issues of concern to business, as well as highlighting the UK as a destination for Chinese direct investment. The business delegation accompanying us also had some notable successes including Standard Charter's acquisition of a 19.9% equity stake in Bohai Bank and China Southern Airlines' purchase of ten A330 planes from Airbus.

But of course, there is still much more to do. We need to continue to work to strengthen areas of mutual co-operation. I'm keen to hear more of your suggestions on what the government can do to support your efforts. We want the UK to be best positioned to respond to the global opportunity of China's emergence, as an economic superpower. Getting this relationship right will produce benefits for both our countries.