Rate of growth and the sheer size of the market mean that China presents a huge opportunity for UK manufacturers. The Manufacturer Editor, Joe Bush, speaks to Andrew Seaton, Chief Executive, China-Britain Business Council (CBBC), to find out more.
Established in the 1950s, the CBBC is the UK’s national business network promoting trade and investment with China; engaging across both countries, in every sector and region, helping to shape bilateral relations between the UK and China through links to UK government and the devolved administrations; the Chinese government at national, provincial and municipal level; and the British and Chinese embassies.
In this interview the CBBC’s Chief Executive, Andrew Seaton, outlines the importance of the Chinese market and the opportunity it presents to UK manufacturers, and the role the CBBC can play in providing clarity, help and advice for any company entering the market, from large organisations to SMEs.
What opportunities does the Chinese market offer UK manufacturers?
AS: The Chinese economy and the business opportunities that China presents is of huge importance to UK businesses and manufacturers. It’s difficult to get a sense of scale but in macro terms, China is currently around a $15tn economy, which is soon to become the biggest in the world. In economic terms, if that grows at just five percent per year, it’s the equivalent of creating another Turkey or Switzerland.
The Department for International Trade published its Global Trade Outlook Report last year, which highlighted that the biggest opportunity for UK companies over the next two decades, will essentially be the growth of the Asian middle class.
Over the next few decades, the global middle class is going to increase by about 600 million people, of which China represents 400 million; meaning it will double in size by 2030, and triple by 2050. The wealth and consumption power generated off the back of this will have a knock-on effect for suppliers from the UK manufacturing sector and UK industry more widely.
It is a critical opportunity and UK companies need to do everything they can to grasp it with both hands. In addition, we often tend to think of China as a formidable exporter, which it undoubtedly is. But as part of the economic transformation that we’re seeing, China will become the biggest importer in the world over that same period.
We’re seeing a switch in the Chinese economy. It is still a major manufacturer, but it’s changing into a more consumption led market. Growth and wealth levels are increasing and that translates into opportunities for UK businesses, both large and small. We are the leading UK-China business body, and we help UK businesses of all sizes to meet their business objectives in China and help them access the opportunity that China represents.
We do that through a network of offices and sector specialists, both here and on the ground in China, who know their sectors, the businesses, and can help UK companies navigate into that.
How important is the Chinese market to UK manufacturing?
The picture around wealth and growth is going to be extraordinarily important over the next few decades, with the Chinese market shifting from a predominantly export driven manufacturing economy, with a lot of emphasis on low value added, quite basic manufacturing exports.
Many of the lower value ends of the manufacturing chain, for example, clothing, textiles, and so on, have migrated out of China. So, the country is moving up the manufacturing value chain, which firstly opens doors for UK companies as the market changes and develops. But also offers opportunities for collaboration between UK and Chinese manufacturers.
Currently, the UK does over £90bn worth of trade with China each year; in 2021 approximately £26bn of that was in exports, of which around 75-80% were goods. So manufactured exports are a very important part of the overall growing exports from the UK to China.
How can UK manufacturers take advantage of the opportunities?
Firstly, it should be said that many UK manufacturers already are. If you look at the large sectors of UK exports to China, number one is road vehicles; Jaguar Land Rover (JLR) and others have a sizeable long-term commitment to the market, are already well embedded, and are doing extremely well.
Looking down the list of top UK exports, there is mechanical machinery, pharmaceutical products, electrical machinery, scientific instruments, miscellaneous electrical goods, mechanical power generation machinery – all very significant parts of manufacturing exports. There’s plenty of examples of companies, from the biggest to the smallest who, once they have established themselves in the market, have found it transformational for their businesses.
China is far less complex than it used to be. However, it is not entirely straightforward and remains a market that deserves to be taken seriously because of its size and potential; failure to do so can create a real barrier. So, do your homework and research, figure out your strategy, and then move forward. We are there to provide platforms, advice, concrete help and introductions, and off the back of that, many British companies have found a very successful route into the marketplace.
As I said, there are elements that have become simpler, such as intellectual property (IP). There used to be major concerns about IP issues in relation to doing business in China; and frankly those were very well-founded.
However, the regime has developed an awful lot in recent years. Companies do need to make sure they position themselves correctly around issues like patent registration etc, but if you take the right steps, the protection for your IP which is present in the country now, has changed fundamentally compared to 10-15 years ago.
How can manufacturers navigate current supply chain issues?
Supply chains are certainly an issue and in fact there’s a bit of pull from both sides. From China there’s been an agenda towards greater Chinese self-reliance in regards to reducing their dependence on overseas suppliers for what they regard as strategic goods; semiconductors being a prime example.
And, of course, partly for political reasons, there’s also been a pullback from a number of western countries, including the UK, who want to be less reliant on supply chains which involve Chinese suppliers.
At the same time, due to the COVID pandemic, we’ve seen a much greater focus on the resilience of supply chains and concerns about their fragility, and this is only going to be heightened because of the Ukraine crisis.
However, talking to our members, we are not seeing any significant trend towards moving production capacity back to the UK. We conducted a survey of our members in 2020, and the overall conclusions were pretty positive and, despite the geopolitics and the pandemic, around four fifths of UK companies operating in China continue to have high confidence in the country’s long-term development and the opportunities that will it offer.
In addition, because the Chinese market is growing so quickly, it is quite possible to be both secure in your supply chains, while at the same time take advantage of the opportunities provided by the size of that market.
Another point around the supply chain, offshoring, outsourcing debate, is that it’s sometimes seen in terms of preserving UK jobs. That’s an area where it’s really important to look at the opportunities in relation to China. The number of UK jobs supported by trade with China is enormous. We conducted a survey in 2019 with Cambridge Econometrics, which showed around 100,000 UK jobs across UK regions were dependent on trade with China.
CBBC member Cydon, a skincare company based in Wales, has increased its workforce from around 90 to over 400 in less than five years; 90% of that has been driven by exports, and 90% of those go to China.
Another favourite of mine is a company called Sound Leisure, who make high quality, old-fashioned, retro jukeboxes – all manufactured in the UK. Quite a niche product, obviously, but they got picked up by a Chinese distributor and their MD, Chris Black, told me that they haven’t been able to keep up with demand since. It’s been really transformational for them. So, we need to see China as an opportunity to actually drive jobs and prosperity for the UK.
At a time when there’s a lot of negativity around China, these are interesting examples of where you can see a direct relationship between a UK company getting a slice of that China market, and what that means for jobs and opportunities for young people. We mustn’t lose sight of that.
What impact does China have on the big issues facing manufacturers – digital transformation/sustainability etc?
The two issues of digital transformation and low carbon development are right at the top of Chinese policymakers’ agendas. China is itself going through an industrial transformation and is trying to upgrade its manufacturing. It also has its own zero carbon targets, so we see these two challenges as really key drivers of manufacturing and industrial development in the country.
We published a Green Manufacturing Report a few years ago and the overriding conclusion was that there remains huge potential for cooperation between UK and Chinese manufacturers in the low carbon manufacturing space.
If you look at product lifecycles, the strengths of UK manufacturing tend to be in the early stages (R&D, design technology), and at the latter end of the process (servitisation, end of life innovation, repurposing, high value manufacturing). On the other hand, China’s strengths are aligned more towards the middle of the lifecycle (large scale, low cost production, distribution).
And so you can clearly see a very productive relationship, and a number of CBBC manufacturing members are working in partnership with Chinese companies on routes through the low carbon development pathway.
The narrative in the UK press seems to give the impression that this is all about Chinese companies trying to suck away UK R&D and IP etc. However, if you look at what’s going on in parts of Chinese industry and its manufacturing sector, there’s some very advanced work taking place. So, if done properly, this can be an entirely beneficial two-way process.
What barriers to entry currently exist and how can they be mitigated?
Barriers to entry tend to be sector specific, for example, there is an ongoing issue around UK food exports to China. The role of government and regulation in some (though not all) sectors of Chinese business continues to be quite significant, so as part of your strategy you will need to consider government relations and regulatory frameworks etc, and we at the CBBC can help with that.
More broadly China remains a complex market, and of course, it’s the size of a continent. So, there will be issues at a national level, regulations etc, but there will also be local nuances in terms of business establishment. Setting up a company in China is a lot more straightforward than it used to be, but it can still be long process.
Whereas a UK SME might be able to set up a company in Hong Kong in a matter of days, in China it can take weeks, maybe even months. However, it can be done, and done very successfully, it just needs to be worked through and companies need to tap into all the sources of advice and help available.
It should be said that China is recognising this and in recent years has set up several new free trade zones which offer special arrangements for companies setting up, easier rules around bringing in foreign staff and more flexibility around moving capital in or out of China. These special trade zones provide an easier landing pad for new UK companies setting up in China.
Something else to bear in mind for manufacturers is that selling into China without ever going there is a lot easier than it used to be. There’s been a massive development of cross border internet platforms and numerous examples of UK producers of consumer and other goods selling very successfully onto those, without actually setting up any sort of operation in China itself.
You have to get your IP right, ensure you are working with the right distribution channels, and you need the correct marketing message. What works for European or North American customers will probably not work in China. There’s a very strong consumer culture, which is very distinct in terms of how companies can sell to customers. But all of that is navigable with help and it means there are now channels available for companies to be selling into the Chinese market that did not exist just a few years ago.
What about reshoring?
There are broader, non-China specific secular trends toward supply chain resilience, security and diversity, and wider reasons why there may be a trend towards reshoring. China has been a critical player in millions of international supply chains and companies may, in some instances, be wanting to revisit that or look at alternatives.
However, coming back to the growth of the Chinese domestic market, the country grew extraordinarily rich off the back of massively developing its exports. That was a real driver of Chinese economic growth for two decades; it’s not the driver now.
The Chinese economy has got to such a size the whole narrative of economic policy is more around talking about domestic investment, using Chinese consumer power etc. And so there is a sense of companies looking to China, perhaps as part of their manufacturing supply chain, but increasingly as a source of business.
What has been the impact of COVID/Brexit?
I would need a crystal ball to talk about COVID and we’re not at the end of that particular story in China by any means. There is a lockdown in Shanghai at the moment, which is unfortunately providing a very clear illustration of the importance of China’s positioning in global supply chains. It’s currently having an impact on both the ability of companies shipping into China, but for companies wanting to take product from China.
At its most simple level, if part of the narrative or rationale for Brexit was that UK businesses needed to be increasingly looking outside Europe, to high growth markets elsewhere in the world for their future success in the coming decades, then to put it bluntly, China has to be part of that picture. It’s going to be the world’s biggest economy by 2030, and the world’s biggest importer. If UK businesses aren’t getting their fair share of that opportunity, alongside their competitors, then that global trade strategy is going to be missing a really important chunk.
UK exports to the EU since Brexit have dropped across the board by about 15-16%, and there have been the well-publicised difficulties that UK manufacturers have had supplying the European market. Therefore, the relative importance of the Chinese market is only going to increase.
Last year, goods exports to China grew. That’s quite a sharp contrast to what was going on in relation to exports to the EU. The Food and Drink Federation announced that in 2021, food exports to China increased over 12%. And the UK is now exporting pretty much the same quantity of food and drink to China as it is to Germany. So, the balance is shifting, not only because of the Chinese economy, but also due to the relative importance of China visa vie what has happened in important European markets.
What opportunities does China’s advanced engineering, manufacturing and transport (AMT) sector represent for UK manufacturers?
China has an ambition for its own industries to move up the value chain; moving away from being a volume producer to become more a part of a global supply chain for higher value added, more sophisticated products. There are specific sectors where they want to improve across several areas, including innovation, efficiency, low carbon, and so on. And these include the automotive sector, where they’re very focused on new energy vehicles.
For UK companies that have products, services and technology, in relation to those areas, getting a foothold as the Chinese automotive industry moves down that path to greener, more intelligent vehicles, could be a major opportunity; you’re dealing with the biggest car market in the world after all. For a UK company to get even a niche part of that market can be really transformational – the opportunities are just enormous.
Find out more by visiting the China-Britain Business Council (CBBC) at: www.cbbc.org.
Prior to joining CBBC, Andrew Seaton was Executive Director of the British Chamber of Commerce in Hong Kong from 2015-2020, and also served as an Independent Non Executive Director for Wharf REIC Ltd during this time. He was formerly a member of the UK Diplomatic Service spending much of his career working on UK-China relations, including postings to the Embassy in Beijing, as Head of the China Department in the FCO, and as British Consul General to Hong Kong and Macao. Andrew was educated at the University of Leeds and Beijing University.
• China will be the world’s biggest economy by 2030
• China is undergoing economic transition which will see it become one of the world’s biggest importers
• It is still a complex market to enter but help is available
• Do your homework and research
• The market represents a huge opportunity for UK manufacturers
