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How important is China to the UK economy?

In 2013, China's share of the World's GDP was 12.2%

The prominence of China in the global economy has changed markedly over the last 20 years; with GDP growing by around 10.0% a year between 1993 and 2013. Comparing this with annual global economic growth of 2.8% over the same period, China has become the world’s second largest economy as a proportion of global GDP, behind America. Between 1993 and 2013, Chinese GDP (current US$) increased from $0.44 trillion to $9.24 trillion, with its share of the global GDP rising from 1.7% to 12.2%. In contrast, the share of the global economy accounted for by the UK’s traditional trading partners, Europe and America, fell over the same period. During this period of rapid economic growth in China, an important question has arisen; to what extent has China become a key trade and investment partner of the UK?

Figure 1: Proportion of global gross domestic product by selected country, 2004-2013

Figure 1: Proportion of global gross domestic product by selected country, 2004-2013

Notes:

  1. Source: World Bank

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The importance of China to the UK economy as a trading partner has increased consistently since 2004, with both imports and exports increasing. Following a growth of imports from £11.4 billion to £37.6 billion in 2014, China has become the UK’s second largest import partner behind America, accounting for 7.0% of UK imports in 2014 compared with 3.3% in 2004. Compared with the rise in imports, exports to China have risen at a more subdued rate over the same period, from £4.0 billion to £16.7 billion in 2014 and now accounting for 3.2% of goods UK exports. Trade in goods dominates UK trade with China, which has accounted for over 80% of all UK trade with China per year since 2004. Due to imports growing at faster rate than exports, the UK’s goods trade deficit with China has also grown, standing at £22.1 billion in 2014, the second highest behind Germany. This is 6.9% larger than in 2013 and more than 6 times larger than in 2000. This compares with a surplus in services of £2.7 billion. This is shown in Figure 2.

Figure 2: Exports, imports and trade balance with China, 2004 to 2014

Figure 2: Exports, imports and trade balance with China, 2004 to 2014
Source: Office for National Statistics

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The emergence of the BRIC (Brazil, Russia, India, and China) economies over the last 20 years has contributed to the changing composition the world’s economy, with the share of the global economy accounted by these countries increasing from 6.2% in 1993 to 20.4% in 2013. This change has mainly been driven by China, whose share increased from 1.7% to 12.2%. Among the BRIC’s China is the only economy to have a notable impact on UK exports and imports, as shown by table 1 which has a breakdown of the UK’s main goods export and import partners. In addition to China, this is heavily dominated by the United States and a range of European countries, where the UK has always had strong political and geographical links.

Table 1: Selected UK export and import partners, 2014

  Exports (£m) % of UK total exports Rank of export partners Imports (£m) % of UK total imports Rank of import partners
USA 37,350 12.8 1 28,193 6.8 4
Germany 31,078 10.6 2 61,735 14.9 1
Netherlands 23,022 7.9 3 32,223 7.8 3
France 18,846 6.4 4 25,003 6.0 5
Irish Republic 18,333 6.3 5 12,106 2.9 10
China 14,075 4.8 6 36,130 8.7 2
Belgium & Luxembourg 12,554 4.3 7 21,650 5.2 6
Spain 9,047 3.1 9 13,504 3.3 9
Italy 8,892 3.0 10 17,021 4.1 8

Table source: Office for National Statistics

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Foreign direct investment (FDI) with China has also followed a broadly similar trend to trade; the stock of investment held by Chinese citizens in the UK has grown from £119 million in 2004 to £950 million in 2013, when the stock of investment produced earnings of £176 million. Following a dissimilar pattern to trade, China is a relatively more important investment destination; UK citizens held £6.0 billion of FDI assets in China in 2013, growing from £1.9 billion in 2004. However, China is less important to UK FDI than trade. In 2013, China only accounted for 0.1% and 0.6% of total UK inward and outward FDI respectively, small compared with Europe and the USA which, in combination, accounted for 74.4% of the UK’s outward investment and 83.1% of the UK’s inward investment position. 

Outward Foreign Affiliate Statistics (OFATS) measure the turnover and employment of UK owned businesses abroad. FATS have a similar composition to that of FDI, with far more UK businesses operating abroad than Chinese businesses in the UK. In 2012, there were 61 Chinese owned businesses operating in the UK, compared with 654 UK owned businesses operating in China. These UK owned businesses employed 148,822 people and had a turnover of £13.4 billion; of this, £6.0 billion came from manufacturing and £6.7 billion from services, of which £3.9 billion was financial and insurance activities. This accounts for 2.8% of UK owned enterprises abroad, 1.1% of the turnover of these businesses, and 3.0% of the employment.

Categories: Business and Energy, Businesses, Locations of Businesses, Economy
Content from the Office for National Statistics.
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