China-UK trade is thriving like never before, boosting Hong Kong’s central role

Lord Sassoon considers how the city can capitalise on the surge of business links between the two countries, as their appetite for trade appears undimmed by Brexit fears

PUBLISHED : Monday, 31 October, 2016, 5:43pm
UPDATED : Tuesday, 01 November, 2016, 6:18pm

British business finds itself in uncertain times after the Brexit referendum. However, all the evidence shows that if there is one thing it can rely on, it is unwavering Chinese enthusiasm to invest in, and with, British companies. This enthusiasm is reciprocated. And Hong Kong’s role in the UK-China business flow only looks set to grow.

We have never seen higher levels of business engagement between the UK and China. Short-term opportunities presented by the weak pound are obvious. Investment projects which had been put on hold are being pursued with renewed vigour. Chinese tourist numbers into the UK are at record levels.

Whether it is the takeover of Premier League West Bromwich Albion by a Chinese investment group, telecoms giant Huawei’s renewed commitment to invest £1.3 billion (HK$12.3 billion) in the UK or reported Chinese interest in the UK’s gas infrastructure, activity is picking up after a pause in the run-up to the referendum. The speed with which the UK government approved Japan’s SoftBank acquiring ARM Holdings has been noted in China as a clear signal that the UK is still very much open for business.

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China sees the UK as a great source of hi-tech and creative expertise to help it drive its own manufacturing industry up the value chain. Chinese are not generally looking to set up large manufacturing operations in the UK so they are not affected like, say, US corporations, by concerns about the UK’s trading arrangements with the EU after Britain leaves the union.

Some have questioned whether the “golden era” heralded by David Cameron and President Xi Jinping (習近平) on Xi’s triumphant visit to the UK last year would survive the transition to Prime Minister Theresa May. And it is not surprising that people worried about the impact of the delayed signing of the Hinkley Point nuclear power station deal, but China seemed to accept that this was an understandable review by a new prime minister. The political relationship has come through that review in good shape, with the fundamentals unchanged, even if some of the surface tone may change, reflecting a more general shift in style by the new UK government.

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October saw the annual meeting between the political parties of China and the UK. They were the most open, informal discussions I have known in the years I have been involved in such talks, with even the most sensitive topics discussed quite freely between friends.

In late July, I co-chaired, with new chancellor Philip Hammond, a China-UK financial services roundtable in Beijing. The message was clear: China still sees London as the global financial centre on which it will continue to focus its investments. That said, the chancellor was put on the spot in a direct, hard-nosed and proper way about what the new arrangements for the City of London with the EU will be.

We are already preparing the ground for a possible future UK-China free trade and investment agreement

I expect the positive tone and substance of the political and business relationship to be reflected in the annual Economic and Financial Dialogue between Vice-Premier Ma Kai (馬凱) and Hammond in London in two weeks’ time, with plenty of concrete output.

We are already preparing the ground for a possible future UK-China free trade and investment agreement. Any such agreement won’t be easy, with UK firms pressing for greater access to invest, for example, in China’s growing services markets. And an FTA won’t be some sort of panacea, but we are encouraged by the experience of those countries which have already implemented such agreements with China. We will be encouraging both governments to prioritise work on an FTA.

Meanwhile, we are expecting our 2016 annual China Outbound conference, in Shanghai this week, to be our most successful yet in terms of attracting and initiating new business.

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In Shanghai, we will also be discussing the opportunities for UK professional services businesses to partner with China on its Belt and Road projects in third countries. A China-Britain Business Council and Tsinghua University report, launched in Bejing in May, highlighted UK and Chinese partnerships already under way on US$27 billion worth of Belt and Road projects in countries ranging from Eastern Europe through Asia and in Africa. So, for the UK, the Belt and Road initiative is already real, significant business.

China’s ‘One Belt, One Road’ is the perfect stage for Hong Kong to showcase its strengths

And this is a key area where the UK-Hong Kong link is of central importance. Whether it is financing a Chinese-built power station in Bangladesh, insuring the construction risk of a Chinese road through Pakistan or trading commodities across the length of the Belt and Road, it is UK and Hong Kong professional services firms working with combined London and Hong Kong teams to partner with China. British legal, accountancy, engineering and architecture firms are also already linking Hong Kong and London on projects in progress.

And you only have to walk around Central to see how Hong Kong has become the focus of so much China outbound investment activity for Chinese companies and funds – outbound investment for which the UK has become China’s preferred destination in Europe.

So whether it is Hong Kong as a super-connector, an outbound China investment conduit, a renminbi trading centre, fintech hub or platform for UK companies operating in mainland China, Hong Kong will have a central role in what will be growing UK-China trading and investment links, moving beyond the current uncertainties to a post-Brexit world.

Lord Sassoon is chairman of the China-Britain Business Council