30 September 2003
Trade & Investment Opportuniites with China & Taiwan
Publication of Report
The Trade and Industry Committee today published its Report on trade and investment opportunities with China and Taiwan.
"China is a market of 1.3 billion people; British businesses cannot afford not to be there." This statement is at the heart of many reports on trade opportunities for UK businesses. The Trade and Industry Committee made a pioneering visit to China in 1985 to explore the potential for developing trade with the People's Republic. The Committee decided that it was time to look at it again in the light of the accession of China and Taiwan to the World Trade Organisation in December 2001.
At present, as far as the UK is concerned, mainland China is principally known as the source of cheap imports with which companies in Britain are finding it difficult to compete. Newspapers frequently report suggestions that British-based manufacturers are considering moving production to China. However, still cheaper manufacturing bases such as Vietnam and Laos are emerging. Also, mainland China is beginning to move into higher value, higher cost manufacturing as costs in the main manufacturing areas rise and as a result of Chinese Government policy.
Increasingly, foreign companies manufacturing in China are looking to the domestic market, but to succeed such companies have to be prepared to tackle a wide range of problems. A number of American and German companies are already well established in mainland China, and more companies from these two countries are keen to begin trading in China. Britain, by contrast, is said to be falling behind in activity, despite the advantages given by her long relationship with Hong Kong.
Mainland China has a daunting reputation as a market for foreigners. When China first began to open up her economy, there was an initial enthusiastic rush by multinationals, which made massive investments, and then suffered considerable losses. The "unique" nature of China as a place to do business, emphasised by most of those whom the Committee met, arises from a combination of factors: the size and diversity (ethnic, linguistic, religious and in terms of wealth) of the country, the difficult logistics, the impossibility of competing with local companies on price, the constantly changing business conditions (including the rapidly evolving bureaucratic requirements), the different business culture, and difficulties over Intellectual Property rights. Balanced against all this is the fact that China has a rising middle class with increasing amounts of disposable wealth, and that many companies believe that it is vital to get a foothold there now, not so much in the hope of imminent profits but to build future market share.
Despite the difficulties, a number of British companies are trading successfully in mainland China and in Taiwan. The Report outlines some of the strategies adopted by such companies, and highlights a number of sectors where British companies would be well placed to compete. The Committee also concludes that for some companies, it would be advantageous to approach mainland China via Hong Kong, or after gaining experience and confidence by trading with Taiwan.
Commenting on the Report, Martin O'Neill MP, Chairman of the Committee, said: "Although it is not yet possible to predict how fast and how far mainland China will open up to foreign trade as a result of her accession to the WTO, it is clear that this is a period of great opportunity for foreign countries. China is a very difficult market to penetrate, but the difficulties are easing and the UK's trading competitors - especially the USA and Germany, but also France and Italy - are eagerly exploiting the opportunities that already exist and readying themselves for expansion. It would be in the national interest for British companies to take advantage of the economic liberalisation of China.
However, we should not underestimate the difficulties that still remain. We welcome the significant progress made by the Chinese Government in dismantling restrictions; but foreign companies are still experiencing problems from bureaucracy which in some cases constitute major non-tariff barriers to trade. There are also grounds for doubting whether the central government's determination to liberalise the Chinese economy is shared at provincial and local level. We therefore urge on the Chinese Government the need to demonstrate openness not only in legislation but in action.
"We are particularly concerned about the difficulties over protection of Intellectual Property. We would urge the Chinese Government to continue the pressure to improve the implementation of the legislation to protect intellectual property in China. Without such practical protection, foreign companies will continue to be reluctant to share their technological know-how with their Chinese partners; and without such sharing China will find it more difficult to fulfil her aspiration of developing higher value manufacturing and service sectors.
Copies of the Fourteenth Report of Session 2002-03 can be downloaded from our website: (www.parliament.uk/commons/selcom/t&ihome.htm)