Now the world's third largest economy as well as one of the fastest growing, China can no longer be dismissed as a country that just promises great economic potential. Stimulated by over US$38bn of foreign investment since 1980, industrial and consumer spending has grown massively, particularly on foreign goods.
Yet whilst the likes of Japan, USA and Germany have been increasing market penetration, until now British firms have mostly stayed on the periphery. The UK is China's 14th largest trading partner and big export contracts and established joint ventures such as the Pilkington float glass plant in Shanghai are thin on the ground. This reflects a disappointing performance in the whole of Asia.
To underline the point, the UK exported just 4 per cent more goods and services to China in 1992 than it did in 1988. Moreover, an absolute level of ?430m (US$657m) direct trade last year compares unfavourably with the UK's main competitors: Italy and France export twice as much, Germany over four times, whilst the US and Japan belong to a different league altogether.
To make matters worse during a period of flat export levels, imports from China into the UK have shown a remorseless rise. Bilateral trade that was approximately in balance in 1986, plunged to an ?800m (US$1222m) deficit in 1992.
Short-termism is one of the reasons cited for the lack of commitment until recently. Paul Hudson is business development adviser at Yule Catto, the water-based polymer chemicals firm. With a policy of 'going East', Yule Catto is now assessing joint venture partners in China to expand its Asian presence. "British executives have of to realise the opportunities there," Hudson says. "There must be a commitment to the market. It's like water wearing away the stone. You don't see instant results. Too many British companies lose patience or change their team if they don't get results within two years. That is a waste of money."
Criticism
Neither has government support escaped criticism, particularly in export finance where the UK may have lacked competitiveness in the past. Its importance in all projects is reinforced by Clive Palmer, director of GEC Alsthom, the Anglo-French world leader in energy and transport. "If you can't offer finance, you're not at the starting gates," he says. Today, most businessmen agree that the export finance situation has improved greatly over recent months, as has the government's overall recognition of the importance of manufacturing exports.
Tension over talks about the future of Hong Kong is another potential source of concern for British firms. Earlier this year, Willie Purves, chairman of HSBC Holdings warned that foreign investment in China would be harmed if the dispute continued to drag on. More recently, vice premier Li Lanqing, warned that governor Patten's democracy plans in Hong Kong "will inevitably affect economic relations and trade relations between China and Britain".
In reality no such dramas have occurred despite a continued failure to resolve the issue. Trade has not been affected and both sides are anxious to keep business and politics separate. Sir Charles Powell, a director of Jardine Matheson which has 46 joint ventures in China, reflects other successful exporters in saying that "we have no problems with the authorities". For all the rhetoric and the delicate issues that remain, a pragmatic approach is expected to prevail on the Chinese side if only to protect its substantial exporting interests.
So much for the problems. The good news is that British exporters are at last becoming some of the most active in the region. Announcements of joint ventures featuring British companies are becoming commonplace.
Furthermore, the real trading position is not as bleak as the bare statistics imply. By ignoring indirect trade, official figures understate UK exports to China. Given that about 60 per cent of trade is funnelled through Hong Kong, the true export total in 1992 was ?732m (US$1118m) – more respectable but still lagging behind her main EC rivals.
It should also be stressed that the exclusion of invisible trade from bilateral figures means ignoring a significant British success story of recent years. Banking, transport, consultancy and the like are areas in which the UK enjoys a traditional healthy surplus. The big British mission to China last year, with its own invisibles delegation, included a raft of big financial institutions eager to extend their involvement in China. Improved market access in service industries is certain to lead to a growing presence of UK bankers, lawyers, advertising agencies and insurers over coming years.
On the ground, it is evident that British firms are now making a serious move in a market which they could no longer afford to ignore. The export graph is finally beginning to climb, growing by over 80 per cent during the first six months of 1993 compared with the same period last year. Major investment deals are also being struck, paving the way for a sustained improvement in exports.
John Beyer, director of the China-Britain Trade Group (CBTG), is better placed than anyone to sense the improvement ? "Our impression is that the increase in business is across the board." This is reflected in the examples shown on the following page with small and large companies committing themselves to China in all sorts of different areas: from pharmaceuticals (Glaxo) to telecommunications (Cable and Wireless) and advertising (Saatchi and Saatchi); from United Biscuits' operation in Shenzhen in the south to Slumberland in the far north of Harbin.
Outward missions play an important part in the process. Last year's big mission to China in November has so far resulted in orders worth ?8m (US$12.2) and four manufacturing joint ventures. Another multisector trade mission will take place between 31 October and 12 November 1993. Delegates from the export side will visit four industrial cities along the Yangtze: Chengdu, Shanghai, Suzhou and Wuhan. The investment side of this mission will focus on four main centres of heavy and light industry which have new development zones: Tianjin, Shanghai, Guangzhou and Shenzhen.
Ministerial participation
Regular follow-ups are crucial in determining a mission's success. Organising seven missions this autumn alone and with a busy programme next year, the CBTG is clearly gearing up to satisfying this requirement. Frequent visitors will no doubt welcome the introduction of weekly non-stop flights between London and Beijing that have just been introduced by British Airways.
Another necessity is high-level ministerial participation in order to open doors. Richard Needham, UK minister of trade, is tireless in his work for British companies in China and elsewhere in southeast Asia. "His presence was invaluable," commented Paul Hudson, "but he is an unusual politician. He has a business mind ? we need more such politicians".
Even established companies in China often need a helping hand from government. "There is a political element to commerce in China," comments Clive Palmer. This is hardly a surprising attitude, especially given the fact that Lord Prior is chairman of GEC. He is able to boast a wide network of Chinese connections that includes executive vice premier, Zhu Rongji. Hence also the importance GEC places on CBTG membership and their participation in missions. GEC Alsthom has been one of the top exporters to China and will maintain its commitment into the future, hoping to satisfy the country's great need for power, urban transport and long-distance rail transport.
Britain's emergence from recession earlier than other EC countries may be one factor accounting for the increased activity. However, while planning processes can take up to several years to complete, more likely reasons include an increasingly compelling economic argument, a now well-trodden path by pioneering Western companies in China and a better defined investment climate. "Most of the problems have been gone through ? people don't have to learn it from square one any more", adds Beyer. "China has also adjusted the investment position. This speeds up the timetable. The other aspect that makes it less of a risky place is that companies can commission people to do proper market surveys."
Another factor which bodes well in the longer-term is the strength of British companies in more developed and specialised markets. The erosion of Britain's manufacturing base, particularly over the past 20 years, has created a shortage of world-leading companies capable of responding to China's demand for foreign technology and goods in sectors such as heavy industry and construction, textiles and motor manufacture. Even so, over half of Britain's exports to China in 1992 were in machinery and transport equipment. This will continue in the future, but as the economy develops so will demand in areas such as pharmaceuticals, scientific instruments, food and drinks, and financial services – industries in which Britain has world leading companies. If they can demonstrate a similar dedication to the market as shown by the likes of GEC, the UK will be well placed to service the second and third 'waves' of demand in China. *
China-Britain Trade Group
Merged in 1991 from two bodies, The China Britain Trade Group has the simple remit of increasing UK trade in China. Half funded by the UK government and half by its members, the body is expanding to meet a fast growth in demand for its services. Membership rose from 100 in 1991 to 160 in 1993, reflecting a growing China interest and a successful publicity campaign. During this autumn alone it is helping to organise seven missions.
In addition to its London headquarters, the CBTG has offices in Beijing, Shanghai and Guangdong. It strives to help companies by organising seminars and conferences, and by providing information through its magazine, library and research facilities. One of CBTGs latest innovations is a pilot scheme in Shanghai whereby members can rent part of its office space and take advantage of its facilities. At just ?2,500 a year this is a most cost-effective way for companies looking to gain a foothold in China. So far, four companies have taken up the offer.
Some recent investments
* Having traded with China for 14 years, duck producer Cherry Valley Farms has sinned a joint venture with the Mianyang Poultry and Egg Production Company in Sichuan.
* Consulting engineers Babtie Shaw and Morton, 'which has carried out several water infrastructure projects, has just won a contract to train Chinese executives and engineers in Western business practice.
* In 1988 United Biscuits established a joint venture factory in the Shekou part of Shenzhen, and is now planning further expansion in China.
* P&O, which has been trading with China since 1854, is increasing its significant commitment in areas as diverse as land and sea transport, real estate and construction.
* Rothmans has been exporting to what is the world's biggest tobacco market since 1979. Last year it opened a factory in Jinan, just the second tobacco joint venture allowed so far. Production of Rothmans King Size and local brand 'Horseman' is expected to grow to around 500m cigarettes a year to 2.5bn in 1996.
* In June BTR announced a ?128m (US$195.5) investment in bottling plants in Shanghai and Guangdong, the largest UK investment so far. The company is expected to expand into other areas over coming years.
* Unilever set up an ice cream factory for Wall's (Beijing) Co Ltd and in Shanghai the Unilever Shanghai Co Ltd business has been established. The company's combined investment of US$60m is "likely to be doubled in the near future".
* With a number of technology and other agreements in place and a 30-40-year history in China, GEC Alsthom established a switchgear company in Suzhou, Jiangsu province in 1989. One of the largest offices of the company's sales and marketing division is located in China, underlining the importance of this market.
H Morgan Crucible, the materials technologists, formed a company to make electrical and mechanical monolithic refractory concretes in Dalian.