【2010.9.7 BBC】Can trade with China help the UK economy?

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http://www.bbc.co.uk/news/business-11152503

Can China, the country whose economy continues to power ahead, provide the profits to keep western companies who have invested there afloat?

The UK's exports to China increased by 40% in the first six months of the year, according to the UK government, although admittedly from a very low base, less than 2.5% of all UK exports.

On Wednesday the UK will be holding its national day at the Shanghai World Expo, and using it to trumpet the opportunities for two-way trade between the two countries.

But can Beijing be relied on to help keep UK inc in business?
Promoting innovation

The UK Pavilion at the Shanghai World Expo is one of the most popular attractions on the site, thanks to its unusual design.

It is a huge cube built from thousands of translucent rods that shimmer and dance in the late summer breeze.

Alastair Morgan, the diplomat in charge of promoting trade between the UK and China, couldn't be more pleased with the opportunity the Expo's presented to market the UK to the Chinese.

"This is a fantastic means of promoting UK innovation," he says, "and we've worked very hard to build up a programme of well over 100 business events around that, highlighting innovation in all our sectors.

"You name it, we're promoting it!"

The British describe China as an important trading partner, but is it?

Business expansion

The UK exports more to Ireland than it does to China, Brazil, Russia and India put together. But even though the proportion of total exports is tiny, China is still the biggest export market for UK goods outside the US and the EU.

Politicians and business people from western countries salivate over the prospects of selling to a market of 1.3 billion people.

In the centre of Shanghai you find the big names you see on the UK High Street - Marks and Spencer for example - trying to establish a foothold in the market here, but it's not easy.

The British firm Costa Coffee is one of the companies that is seeking to expand in China. Its stores look, feel and even smell like any of their branches back in the UK.

The company is opening new outlets across China as fast as it can, but so far its two joint ventures with local partners are not making a profit. Paul Smith, who runs their operations in Asia, says Costa Coffee is in China "because we are committed to a global expansion of our business".

"If you come here to make money in China you have to remember it will take you some time to do so," he says. "It's a country that you need to invest in in many ways. That's not just money, that's people, that's resources, and you have to understand you need to be necessarily patient in China in every aspect."

Gamble

Companies like Costa Coffee are betting that tomorrow's prospects will be rich enough to compensate for the lack of profits today.

But it is right to characterise this as a gamble, and fair to say that some here are starting to complain the odds are stacked against them.

In recent months there have been complaints from European and US diplomats about protectionism in China.

British diplomat Alastair Morgan believes protectionism results from intense pressure on local officials to develop China's industrial base.

"The commitment to the development of China, does in the minds of some officials, lead them to take what could be seen as protectionist approaches," he says.

"[It's a] very, very clear commitment to developing Chinese capability which doesn't always come through as fair treatment or equal treatment for foreign-owned companies in China."

The UK Foreign Secretary William Hague was welcomed by senior officials in Beijing a few weeks ago on one of his first foreign trips since taking office.

The complaints he heard from British companies here, he raised with the Chinese government.

But such conversations can be difficult.

'Nurturing environment'

Zhang Monan is a researcher for the National Development and Reform Commission, the body that helps plan economic policy for the Chinese government. She says trade frictions and protectionism are "unavoidable".

"China is a developing country. A lot of industry's still in its infancy," she says.

"The state needs to provide a nurturing and fair environment so that companies can grow and compete."

In fact you don't have to look that hard in the shops here, to find Chinese products that are already as good as foreign brands.

The reality is that as well as dealing with protectionism, foreign firms seeking to sell here have to accept the competition is getting tougher.

Costs are increasing too with rising wages further damaging profitability.

What no-one knows for certain is what the prospects will be for foreign firms to make money here in the years ahead.

Will potential consumers want to buy British because of the cachet associated with them, or will they be keener to buy Chinese products once they are perceived to be as good as ones brought here by the foreigners?

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