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British Business (China)

May I first refer to my entry in the Register of Members' Interests? I am delighted that my hon. Friend the Member for Nuneaton (Mr. Olner) has secured the debate. As chairman of the all-party China group, I was delighted to join him in leading the delegation and contributing to it. The all-party China group has nearly 500 members, and it is vastly important that all parliamentarians and not only members of the group are aware of the scale, speed and nature of change in China. There is simply insufficient knowledge on China, not only among the general public, but among parliamentarians. I try to take a delegation of around 10 Members to China each year, but even assuming the group's membership of 500 did not change, it would take me 50 years to get through the list, so I will lose no opportunity to get hon. Members to see and believe what is happening in China, and particularly in Shanghai. It is also particularly important that visits are as focused as ours was on the specific issue of British business in China. I congratulate the staff of the IPT on their work and initiative. I would like to join the other members of the delegation who have already spoken in thanking all those who received us and helped us on both the British and Chinese sides. We have not yet mentioned Virgin, which was helpful, not only in getting us to China, but in briefing us on the issues that it and other companies face there. Overall, we could scarcely have received a more rounded view of the issues and opportunities of the business environment. When I first went to China in 1986 as commercial counsellor, it was a very different place from the China we see now. It was a country of Mao suits and bicycles, and doing business was pioneering and difficult. Commercial practice and law was not as we know it, negotiations were a special art form and intellectual property issues were problematic at best. However, many of the companies we saw in Shanghai in May were in China before I went in 1986, which is a fulsome demonstration of their commitment to the market. For many years China was the biggest potential market in the world. It took a number of years for the actuality to arrive, but now that it has we can see that in rounded terms the Chinese economy has grown at about 10 per cent. per annum since 1978. My maths is not so good, but I know that that is a lot of growth. It is a phenomenon that has changed the shape of the world. It is clear that an organisation that is in business in any serious way needs to be part of what is happening there. The perception of China has been changing ambiguously over the years, from booming market to challenging competitor. For many years it was regarded as an exporter of deflation, but more recently it has been regarded not only as a good place to do business, but as an exporter of inflation and a voracious consumer of raw materials and other goods for which the rest of the world has a need. Attention has long been focused on China's human rights record, pollution, its role in Africa and its challenge in other markets. Despite the image at the time of the Olympic torch, the prevailing image of China is of an economic powerhouse, as exemplified in Shanghai, and the nation that produced the most sensational and successful Olympic games. China has for some years been an attractor of foreign direct investment and is increasingly an outward investor. Of course, China is not standing alone. If one looks at the east, one is looking at India, Vietnam, the Asian dragons and tigers and the old economies of Korea and Japan. The sum of that is that the world is becoming oriental rather than occidental. It means that the economic centre of gravity is moving eastwards, and the political centre of gravity with it. That has profound implications for all that we do in relation to China. China has been the pac-man effect in action, and becoming part of it has been an imperative and not an option. Whether the biggest challenge for us would be China's continuing success and growth or its relative slowing-down and failure—not that one can look at it in those terms—has long been an interesting question. As we saw in May, any reference to China as the workshop of the world simply fails to capture the incredible and rapid changes taking place within its borders and limits the nature of Sino-British partnership. We would be unwise to ignore, for example, the implications of a vast and growing Chinese middle class that would potentially consist of more than 500 million consumers by 2025. As we have said, British industry is very much aware of those opportunities. As science and technology take centre stage within the Chinese Government's strategy for sustainable development, so a space has opened for expertise and experience in that area. Perhaps a prime example of that is Arup's involvement in the Dongtan eco-city close to Shanghai. The build-up to the Beijing games gave us many opportunities, and British firms were able to play a part in many sectors, such as the provision of temporary power for Olympic facilities, the design of the ““Bird's Nest”” stadium, representing the British Olympics organising committee and the design of the magnificent terminal 3 building at Beijing airport. Those are but a few examples. It would be impossible in the time available to represent the range and diversity of opportunities and the successes that we have achieved in recent years. Although we can celebrate the strength of the Sino-British economic partnership, we must be careful to avoid complacency. We are told that the UK is Europe's largest investor in China, but we should be aware, echoing the point made by the hon. Member for Hertford and Stortford (Mr. Prisk), that in 2006 the net investment in China by British businesses fell compared with 2005. Furthermore, we should remember that that investment is dominated by a few companies, notably the oil companies. If we are to maintain an upward trajectory, and continue to capitalise on Chinese economic expansion, we must think about China with even greater interest and commitment than that which we have previously reserved for the US and Europe. Our trade deficit in Chinese goods, again reflecting the point made by the hon. Member for Hertford and Stortford, was £12 billion in 2006, and it continues to grow. At the same time, China was our 13th most important destination for goods, and 20th on the list for our services. That simply is not good enough when we consider that China is positioned to become the world's largest economy within two decades. It is a courageous man who will speculate how China is affected by the current global economic crisis, and on present form it is not clear. On the latest statistics, our trade continues to grow, but it will certainly be affected, as will China's growth—still between 9 and 10 per cent.—as it is hit by what is happening in the wider global economy. There is a minimum economic growth level that China must maintain in order to maintain social cohesion, given the absence of a sophisticated social security net, growing aspiration among the Chinese people and, notwithstanding the one-child-per-family policy, population growth. At this stage, while China sees economic turmoil as principally a western phenomenon, its exposure to problem assets cannot be assessed. Some factories are affected and some are closing. Basic production in steel, for example, is being cut. China is making its contribution to a global solution and, like the west, is cutting interest rates. While having a relatively closed financial market, the Chinese economy will be affected. However, the supertanker effect—I am sorry to be so corny—is in play, as is the level of technological development, so the effect will probably be relative and China will remain in global terms an attractive place to do business. This is not a time to switch resources or attention from our business with China. The second question I want to deal with, which has not been raised as much since stock markets started to rise again, is whether China will use its massive foreign exchange reserves and sovereign funds to buy up our assets at knock-down prices, and whether that would be a good thing. China has been an increasingly responsible global and regional player, both financially and politically. It played an extremely important leadership role in the Asian financial crisis and it will do so now. Thus far, to the best of my knowledge, it has used its sovereign funds in equity investment and in banks, which hon. Members might be surprised to learn, among other things. China also recognises its responsibilities and its lack of knowledge in running business. We have long sought Chinese investment and in the current climate we will want more. After all, it was a Chinese company that relaunched auto production at Longbridge. The role of British business in China is crucial, but the Government are always central to achieving its aims, and the resources that they devote to this end must reflect both the scale of the challenge and the aspirations of industry. Our trade and investment team total 91 full-time equivalent staff in China to promote the interests of British goods and services there. That has increased by a quarter since 2005, which is obviously a step in the right direction. I pay tribute to the China-Britain Business Council, which does excellent work in China for British companies, and to its current and past chairmen. As a nation, however, despite our task forces, prime ministerial and high-level visits, we still have not sufficiently moved on from an ““us and them”” relationship to one of greater partnership. We still treat China as if it was just another country, albeit an important one, but the fact is that the world has changed and we need to take account of that. We have not sufficiently changed our institutions or our attitudes to take account of the new global centre of gravity and the historic shift. We must do more.