China-UK Relations After British PM May’s Visit: Difference between a Pint of Beer and Cup of Tea

by Mev Kat

British Prime Minister Theresa May paid an official visit to China January 31- February 2. The visit comes at a time when Britain is preparing to exit the European Union (EU) and seeking to strengthen its trade ties elsewhere, and when China is looking for more active participation from other countries in its Belt and Road Initiative.

Many interested parties kept a close eye on the visit, wondering how what is often referred to as “Golden era” in China-UK relations will unfold under a new British prime minister, following David Cameron’s departure.

During the three-day official visit, President Xi Jinping received PM Theresa May. She also met with Premier Li Keqiang. The comprehensive talks mainly focused on trade partnerships and the Belt and Road.

As a result of the visit China and Britain signed deals worth over USD13 billion, according to the British government. Although the British media largely focused on domestic political issues, as the country is heavily preoccupied with the Brexit debate, a closer look at the scope and nature of the deals signed during May’s visit helps put it in better context and measure its outcome.

Deals cover wide-ranging areas and constitute new steps into expanded trade arrangements, which the British side in particular hopes will prepare the ground for a future free trade agreement (FTA).

Both sides agreed to follow China’s suggestion and set up a China-UK Entrepreneurs Committee. They have decided to work on restarting exports of British agricultural products to China and a possible lifting of the ban on British beef exports. Interested parties signed a retail deal on e-commerce marketing of British products worth nearly $3 billion.

China and the UK will also set up a fintech city in China’s new economic zone of Xiong’an, near capital city Beijing, and establish an innovation incubator center in the eastern coastal city of Qingdao, Shandong province.

On the energy front, British Petroleum secured a $1 billion deal. Both sides also agreed to accelerate offshore wind power construction projects. They will set up nine partnership programs, including the China-Britain College Alliance on Innovation and Entrepreneurship, and an agreement on football cooperation between Wuhan and Manchester.

All these deals, regardless of their size, are aimed at expanding areas of deeper cooperation and increasing exchanges, in order to dispel any future political mistrust and prepare the ground for free trade. They will also surely depend on each side’s expectations of the other vis-à-vis the future orientation of the relationship.

Deals Agreed on

During British PM Theresa May’s visit to China on Jan. 31- Feb. 2, China and the UK agreed on business and trade agreements worth over $13 billion, which will create about 2,500 jobs in the UK.

The primary beneficiary of the deals will be the education sector. Almost 300 million people in China are currently studying English. Both sides announced a new package of exchange deals, partnerships, and commercial contracts in this field to a total value of more than $775 million, and creating over 800 jobs in the UK.

Other deals involve:

— Securing almost $1.5 billion of deals and market access, as well as 890 jobs, for Britain’s financial services industry.

— Carrying out Hinkley Point C nuclear plant project – in which China General Nuclear Power Corporation (CGNPC) has invested USD2.5 billion so far – as planned.

–Giving momentum to offshore wind power construction projects.

–A $1 billion deal with British Petroleum in the energy field.

–Setting up a China-UK Entrepreneurs’ Committee.

–Setting up a fintech city in China’s new economic zone Xiong’an near capital Beijing, and establishing an innovation incubator center in the eastern coastal city of Qingdao, Shandong province.

–Setting up nine partnership programs, including the China-Britain College Alliance on Innovation and Entrepreneurship, and an agreement on football cooperation between Wuhan and Manchester.

–Work on possible exports of British agricultural products to China and a possible lifting of the ban on British beef exports.

— A retail deal on e-commerce marketing of British products worth nearly USD3 billion.

— Both countries have agreed to expand industrial cooperation, including high-end manufacturing, medical care and food production.

Both countries have agreed to expand industrial cooperation, including high-end manufacturing, medical care and food production.  The automotive industry emerged as a significant beneficiary, with Aston Martin signing a five year $880 million investment plan in China. Some venture capital firms received $US1.3 billion in funding commitments from Chinese investors in biotechnology and medical services, and one British health-tech artificial intelligence firm alone struck a windfall of 15 trade deals with Chinese firms.

Education

A total of 155,000 Chinese students study in Britain, making China Britain’s largest source of overseas students. They contribute an estimated USD7 billion to the British economy annually, says the British Prime Minister’s office, 10 Downing Street. There are also about 9,000 young British students studying and interning in China, a 60 percent jump since 2013.

Both sides agreed on education deals totaling more than $775 million as part of the visit. They include a $105 million export win for the UK’s biggest childcare provider Busy Bees, who will open 20 new nurseries across China along with their Chinese stakeholder, Oriental Cambridge Education Group.

British Prime Minister Theresa May said, “The close ties between the UK and China are reflected in our relationship on education. More than 150,000 Chinese students study at the UK’s world-leading institutions and make a significant contribution to our academic life. The agreements we have signed today will build on that and enable more children and more young people than ever to share their ideas about our two great nations.

“And by teaching children to speak our languages we will ensure that our Golden Era of co-operation will endure for generations to come. Mandarin is the most spoken language in the world, so this partnership will play a crucial role in teaching pupils the knowledge and skills they need to succeed in an increasingly global economy.”

All such educational deals are surely set to “bolster already strong education relationship with China,” 10 Downing Street added.

Retail

British PM May also met with Richard Liu, chairman and CEO of JD.Com Inc, which runs China’s popular e-commerce platform JD.com, at the residence of the British ambassador to Beijing to discuss opportunities to strengthen China-UK retail ties and JD’s plans to help more UK brands reach e-commerce giant’s 266 million customers.

To this end, JD.Com and the UK Department of International Trade (DIT) signed an agreement, which aims to make it easier for British companies to access the China market via JD. Under the deal, the e-commerce trading platform plans to sell £2 billion of UK goods to Chinese consumers in the next three years. Some British products from fashion to beauty and home appliances have gained popularity in China in recent years, noted 10 Downing Street.

“Many British brands recognise the huge potential of China’s enormous e-commerce market,” said Richard Burn, Director-General of DIT China. “JD truly understands what Chinese consumers want and has the resources to help British brands ensure success in the region. We’re looking forward to working with JD to bring more British brands to China in the future.”

The number of UK brands on JD.com has doubled over the last two years, with sales in 2017 growing 100 percent year-on-year. Such British brands as Dyson, Clark’s, Johnnie Walker and Lipton have been popular with JD consumers. Over the past three years, Dyson sales on JD.com have increased by over 60 times.

In order to push sales of British goods, JD will carry out special campaigns for seasonal products to give brands more opportunities to reach Chinese consumers. It will kick off with a 24-hour “Celebrate Britain” sales promotion for UK products this April to introduce them to Chinese customers.

British PM’s visit to China has led to another huge deal for British products entry into the world’s second largest market. TMall, China’s e-commerce giant Alibaba Group Holding Ltd.’s cross-border marketplace, will set up a sourcing center in the UK to help British brands enter the China market.

The platform allows foreign brands and merchants to sell directly in China and will offer help and growth opportunities to small British companies via TMall Global.

The UK was the seventh biggest importer on Tmall in 2017, and there are now 800 brands from the country on the platform.

Automotive

China remains the UK’s third-largest buyer of cars, receiving 7.5 percent of all exports, according to data issued by UK Society of Motor Manufacturers and Traders. UK-made cars export volume to China rose about 20 percent last year.

About 100,000 Chinese car buyers chose British-built brands last year. China is a key market for the UK automotive industry and boasts tremendous growth potential. The automobile manufacturing industry, as one of UK’s key economic pillars, is particularly important for the country and China offers what it needs: a huge market with millions of prospective buyers. Aston Martin’s sales grew 89 percent in China, making it the best-performing market in the world for the company.

China’s luxury car market has grown rapidly as more and more young buyers come into the market, an important driver for premium car brands to build presence in the country.

China’s Geely Automobile Holdings is already pouring millions of dollars into what is knowns as London’s iconic “black cabs” since it has acquired it five years ago and is working on its new hybrid TX5 model.

China and Britain have also huge potential to cooperate in the field of new electric vehicles (NEV) and self-driving cars.

China-UK bilateral trade

China is the UK’s fifth largest trading partner in the world, with trade between the countries worth $84 billion in 2016, according to the British government figures. In the same period the UK exported $23.6 billion of goods and services, making China the UK’s eighth largest export market. British trade with China has increased by 60% since 2010

Total trade in goods and services (that is exports plus imports) between the UK and China in 2016 recorded a 9.4 percent increase from 2015. UK exports to China rose 2.4 percent from 2015.

China’s exports to Britain rose 1.8 percent, and its imports from Britain climbed 19.4 percent last year, said Gao Feng, spokesman for China’s Ministry of Commerce, adding that bilateral trade rose 6.2 percent in 2017. The China-UK Economic Financial Dialogue held in Beijing last December also agreed $2 billion of trade and investment deals.

Britain also exports cars, petroleum products and tourism services to China, while it mainly imports Chinese manufactured goods, clothing and electronics, and telecommunications equipment.

Conclusion

There have been comments, particularly in the British media, suggesting that British PM May’s first official state visit to China has not yielded the desired results. However, those very commentaries on or analyses of the visit fail to state what those desired results were supposed to be.

The visit was far from flashy words or ceremonies. However, important diplomatic deals are not always necessarily accompanied or decorated by such fanfare.

As Theresa May put it, the visit was intended to “intensify the golden era in UK-China relations” under a new PM at 10 Downing Street. Her visit to China was meant to translate words into more agreements, and expand bilateral trade between China and the UK into other areas and sectors, which could pave the way for future free trade talks. In that sense, it has largely accomplished the mission.

The areas both sides don’t see “eye-to-eye” surely need more working and negotiations, including on more active participation in the Belt and Road Initiative.

However, May’s visit has taken further steps in expanding trade partnerships into new areas, with even more areas of possible cooperation such as shared-economy, cashless society, new energy vehicles, fintech and financial regulatory arrangements on cryptocurrencies to offer new avenues for future summits and talks.

A glass of Scotch or shot of baijiu may well follow a pint of beer and cup of tea.

Mev Kat is a long-time journalist, researcher and commentator, also cnmatters’ columnist.

The article reflects the author’s opinion, not necessarily the view of China Matters.