Business

China's promised land for UK business

China gridlocked cars
Image caption China has moved at break-neck speed from rural economy to one of the biggest in the world

The UK's top power brokers - led by the prime minister David Cameron and Prince Andrew - are spending the first part of this week with the vice premier of China, Li Keqiang and a host of top Chinese politicians and business bosses.

The most prominent cabinet ministers, including deputy prime minister, Nick Clegg and the Chancellor George Osborne will be at his side.

David Cameron, said of the visit: "Stronger relations with China offer a real opportunity for Britain in terms of trade, jobs, and economic growth. "

Just two months ago he led a visit to China, with about 50 top flight business leaders from the UK in tow. You could call this round two.

Trade gap

China, whose economy is growing at about 10% a year, is seen as a key export market for the UK. But currently the UK exports more to the Republic of Ireland than it does to China, Brazil, Russia and India put together.

At the moment it is not a large customer, with the value of goods exported for the first 10 months of 2010 worth £5.8bn, ninth on the list of countries we export to, according to HMRC.

On the list of importers though, China is the third biggest supplier to the UK, selling us £23.2bn worth of goods, behind Germany (£37bn) and the US (£26bn).

In an effort to drum up more business, David Cameron's November trade mission signed a number of much-needed new deals.

A recent report from analysts Markit and the Chartered Institute of Purchasing and Supply suggested that the UK economy was stagnant at the end of the year, and that expanding sales of UK goods abroad was now vital.

The chief economist of Markit, Chris Williamson, said: "There is a strong indication that UK economic growth is completely reliant upon export sales while domestic demand has wilted."

'Phenomenal' growth

Stephen Dawkins, the chief operating officer and founder of Air Logistics Group, which runs cargo operations for more than 100 airlines, is in the process of setting up the company's first office in mainland China.

He says the pace of growth in the country is breathtaking: "It is fantastic to be working in China. The market is phenomenal. Fifteen years ago when the traffic lights turned green 15,000 bicycles would stream past. Now, it is thousands of cars."

But its systems can make doing business a great deal more challenging than in Europe, some business leaders say.

Michael Johnson, a former official at the UK department of trade, now an independent trade adviser, says it is difficult to know who to apply to to get relevant permissions.

"I was at a lecture by the mayor of Shanghai. Someone asked him how to get through the system. He said 'don't bother about the people in Beijing, come straight to us'. There are different answers given according to where you go."

Image caption Stephen Dawkins' Air Logistics Group is preparing to open up in China

Germany's economy minister on Thursday said conditions for Western firms operating in China were opaque and subject to sudden apparent rule changes.

Quoted in the Handelsblatt newspaper he said: "Foreign firms still complain about a lack of transparency and predictability. On my visit to China, I often heard complaints that important regulations were introduced suddenly and without consulting the economic players involved."

'Challenges'

Andy Scott, the CBI's director of UK and international trade who also sits on the China-Britain Business Council, says doing business there does present challenges for a company.

"It is a very different business environment. There is no familiarity of legal process, of governance but the challenges are not insuperable."

So how realistic is it that the UK could become an important trading partner for China?

Eugene Lim, a partner with Baker & McKenzie in Hong Kong who specialises in international trade, thinks the UK has a perfectly good chance.

"With the economic outlook in North America and Europe, Asia and China will be the engine of growth in the short to medium term.

"As China transforms her economy from an export-oriented to a consumption-oriented economy, most if not all multinationals need to have a strategy to take advantage of this development.

UK companies are no different.

"Given the long history of engagement between the UK and Asia, UK companies are well poised to take advantage and profit from this transformation."

Mr Lim also says that China is keen to see more international trade.

"China is very open. It welcomes investments from UK businesses as well as businesses of all other nationalities."

Fierce competition

The CBI's Andy Scott advises: "Do your prep, do your homework and talk to people who have been there."

Stephen Dawkins says Air Logistics Group was acclimatised because it already had an office in Hong Kong and picked up a lot of useful contacts through that.

Former trade advisor Michael Johnson's number one tip is to specialise: "Don't think you can cover the whole country. Decide precisely what product or service range you're offering and then decide carefully where's the best possible place to be.

"Put your effort into a specific area with a specific product. It is thunkingly obvious."

One company that has done exactly that and is thriving is Dulux Paints, which has been in China since 1984.

Image caption Dulux paints is one business that has cracked China

It is now owned by Akzo Nobel. The company's chief financial officer, Keith Nichols, says he cannot highlight any difficulties working in China that are more major than in any part of Europe.

"You have to deal with strikes and upsets in France all the time," he muses. "There will always be challenges anywhere."

"They are going through their own industrial revolution," he says.

Mr Nicols also has a tip to give: "It is important to have local people running the sites. They make the connection to the customers."

Counterfeit central

A key problem for many firms though is what can happen after they get established. Success in China can bring swift - and fierce - local competition.

Even international giants can come unstuck. Major retailer B&Q closed a third of its stores with a loss of £52m in 2009, saying it had expanded too quickly.

Intellectual property remains an issue - even hotel chains can find themselves with similar-looking properties popping up around them.

China has worked hard to stamp out its image as counterfeit central, but, says Andy Scott, this remains the number one fear for companies.

"A company wanting to do business with China will ask itself the question: 'Do I want to run the risk of building up a business only to see it copied?'

"My advice is to go in with your eyes open. Use the legal process. Three to four years ago you could legitimately ask whether the legal framework was strong enough. It is a lot tougher now."

Image caption The UK is hoping to do more business with the Chinese deputy premier, Li Keqiang

Vice Premier Li Keqiang pledged to go further in an article published in the China Daily last week.

"China will continue to strengthen intellectual property protection and improve the business environment for foreign firms, which are entitled to the same treatment as their Chinese counterparts."

This move from the top of government could be strengthened by the natural growth of Chinese firms themselves.

As UK firms enter China, Chinese firms are expanding out of their home country.

As Andy Scott says, although there is still a question mark over the implementation of the law, as Chinese firms become more international, they themselves are realising the benefits of intellectual property protection.

There are many matters to be learned by companies in both countries in order for trade relations to develop smoothly and profitably.

Meantime, the short-term hopes for the high-profile UK figures meeting the vice premier this week will be for more of the kind of deals that marked November's visit by the UK to China - and the vice premier's trips last week to Spain and Germany.

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