The UK trade deficit with China has ballooned from £3.8bn to £9.4bn over the past five years. Can anything be done to reverse the trend?
EngagingChina recently interviewed Eugene Chang (pictured), an adviser to the China-Britain Business Council, a government agency that works to promote UK business in China.
Chan has worked in China for 20 years and brings back extensive knowledge from the “coal face”. He thinks a lot can be to done to help British firms engage more with China and he is particularly keen to encourage the country's 4.3m small and medium-sized enterprises (SMEs), few of which have ever though about this market's potential for them.
Big business is already in China but there is still a misconception among SMEs that the market is not sufficiently well developed and that China cannot afford western goods. However, it is stated government policy to encourage technology imports into China from the west and there is a lot of money at the level of Chinese consumers. In real GDP terms, China has already overtaken the UK.”
China recently overtook the UK in terms of total output and will double the proportion of GDP spent on R&D from 1.3% now to 2.5% by 2020. Clearly, UK businesses that still see China as an emerging market risk missing out on the opportunities the immense country offers.
And despite the problems that British businesses face entering the Chinese market, there are plenty of opportunities to be had.
There are more sectors of the Chinese economy open to foreigners now then there have ever been and China wants to import to reduce the political damage caused by its trade imbalance. Today, however, less than one percent of the $800bn annual imports to China come from the UK.”
Chan gives as an example of a British success story Burberry, the upmarket clothing brand, which has managed to get China's middle-class consumers to buy its quintessentially English clothing. “Burberry has done a fantastic marketing job in China,” he says.
Financial services are another area where the “market is really opening up” and China is familiar territory for many UK financial firms because of the historic links with former colony Hong Hong. Nevertheless, that colonial connection can be overplayed, Chang feels, and UK firms that wanted to enter the Chinese market may have to stand in line with German, Spanish or US banks.
There are plenty of other opportunities awaiting British business, but one of the biggest barriers facing SMEs is knowing how to go about exploring them.
The CBBC aims to help British businesses do just that. Over 900 British companies are already members and around one third of those are SMEs. It is the UK government's chosen partner to deliver China business development services and works closely with UK Trade & Investment, the government department responsible for supporting UK businesses trading internationally.
Change says one of the biggest difficulties facing UK-based SMEs is simply knowing where to start, particularly if they do not have any contacts. One of the CBBC's most import at functions is thus to let UK businesses access its network of ready-made contacts in China at affordable rates.
Using CBBC's services, Oxford English, an English language school based in China, was able to meet, negotiate and sign a contract with an agent in Shanghai in just three months.
The big challenge for many UK-based SMEs is the cost of even a short trip to China. Chang says it is thus important to exploit “face time” to the maximum and on a a two-day trip to China it should be possible to schedule three meetings each day. Chinese trade fairs are also good places to meet potential contacts, although Chang warns against deals that seem too good to be true.
Chang has to advise UK businesses about some scams that unscrupulous Chinese businesses like to play on gullible westerners.
One typically trick is for a Chinese company to place a sizable order with a UK firm and then invite the firm to come over to China to sign the contract. When the UK contingent arrives, they are then asked for a sum of money — £20,000 in one case — which they are told is needed to buy “gifts” to accompany the contract signing .
The gullible westerners agree but once the contract has been signed and the executives are safely back home, they discover that the contract is worthless as the company has disappeared.
Despite the occasional horror story, Chang is optimistic that the opportunities for UK businesses in China far outweigh the risks.
Elsewhere on the advice front:
International finance expert, Alfred Ho, who is vice president and director of the China Advisory Service of National City, a US financial holding company, will discuss the opportunities and challenges of doing business in China in an online seminar on Thursday July 26 at 12.00pm EDT. National City set up its advisory service to connect clients with prequalified consultants specialised in understanding the Chinese marketplace. Ho is a native of HK and in the seven years prior to leading the bank's China Advisory Service he was AsiaPac regional manager at National City. Register for the webinar here.