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Print Edition> World
UPDATED: November 15, 2010 NO. 46 NOVEMBER 18, 2010
Cameron in China
British prime minister's first official visit enhances China-UK ties

HELLO, CHINA!: British Prime Minister David Cameron poses with Chinese students at the Great Wall near Beijing on November 10 during his first visit to China since taking office (XIE HUANCHI)

British Prime Minister David Cameron's first official visit to China in November had two objectives. One was to lead one of the largest trade delegations ever accompanied by a UK prime minister to an increasingly important market. The other was for him to meet, and get to know, the Chinese leadership and key figures in the government.

Cameron traveled to China after announcing some of the deepest cuts in government spending ever seen in the UK. The gap between government spending and revenue is 12 percent, one of the highest in the EU. In October, the government said it would try to make cuts of just under 20 percent across all government departments.

Strengthening business ties

Cameron and his powerful Foreign Secretary, William Hague, have both made it clear they believe the UK's foreign policy should be guided by economics. The UK slipped from the world's sixth major exporter to seventh earlier this year. Its reliance on the financial services sector meant that the global crisis from 2008 onwards particularly affected it.

While unemployment has not risen, as originally feared, to 10 percent, there are many who fear that the cuts announced in October place too much burden on the private sector to create more jobs, and that this rate could rise sharply. Cameron therefore needs to give all the support he can to foreign trade promotion. Like many other Western leaders, he believes the UK can export itself out of at least some of its current problems.

China, India, Brazil and Russia, along with other emerging economies, remain the areas where there is most hope for growth and export opportunities. As the largest economy of these, China is a key target. British investment in the country is not new. Rolls Royce and Shell were investing almost from the foundation of the People's Republic. For the last two decades, the British were the largest investors from the EU, setting up over 6,000 joint ventures and making investment commitments of almost $20 billion. But as Chinese Commerce Minister Chen Deming said in an interview with the BBC, the Chinese public is not very aware of Britain's sectoral strengths, especially compared with German companies, which are held in high regard in China.

Cameron's delegation contained some well-known names—BP, Tesco and Boots. Tesco, in particular, has become a stable presence in China over the last decade. It operates under the "Happy Shopper" brand, and is present not just in the developed coastal areas, but also in the northeast, and now in the western regions. In this way, it is not a typical British company. British business has a thriving presence in Shanghai, Beijing and Guangzhou—where there is a very active British Chamber of Commerce. But in tertiary cities like Xi'an, Kunming, Hefei or even Chongqing—where there is a British consulate—the activity is less visible. The pattern of British activity is also weighted toward a small group of large companies. Small and medium-sized enterprises find it more challenging to come to China from the UK.

For almost all these companies, the great ambition is to find ways to reach China's many new, wealthy consumers. For all the changes in the last two decades, however, China remains a challenging market. While the focus is on helping companies in the hi-tech sector do more business—with Premier Wen Jiabao telling Cameron that companies should be reassured about the protection of intellectual property rights—there are some surprising achievements in other areas. The Financial Times, in its coverage of Cameron's visit, referred to a British company exporting breeding sows to China; it managed to do a multimillion pound deal to supply over 1,000 of them. In the last decade, Cherry Valley Farms has also been exporting ducks and duck products.

Cameron will want companies that went with him on his visit, as well as others, to start looking at China as a market they can operate in, and as part of the global economy, just like the EU and the United States. At the moment, 45 percent of UK exports go to America, and 45 percent to the EU. This is based on historic links, easy logistic chains, as well as well-established sales and marketing networks. But it is becoming clearer that these markets are diminishing. They reached saturation some years ago and real growth now lies elsewhere.

With China, the UK underperforms. The UK exports more to Ireland, with a population under 10 million, than it does to the 1.3 billion people of China. This highlights the problem of the trade deficit. Although this issue is far less politically contentious than in the United States, it still matters, especially when viewed in light of the UK's role in the EU. The EU has been asking for more market access and more opportunities for companies to bid on government procurement contracts.

Cementing political bonds

The role of the EU in trade with China helps remind us that the second function of Cameron's visit was to establish good links with the Chinese leadership. In his speech to students at Peking University, Cameron referred to his time as a student in Hong Kong in 1985. Cameron has visited China several times since, most recently as leader of the opposition in the UK. He is, therefore, more familiar with China than most other British prime ministers before him. He has already met many senior Chinese leaders. His objective this time was to show his willingness to enter into a deeper dialogue about issues of mutual concern. He made it clear that he was not looking to change the policy of mutual engagement that was established under the previous Labor government.

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