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Cover Story: Partners for Growth, Analysis of China-UK Relations
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Partners for Growth

Analysis of China-UK Relations

An Exclusive Interview with the British Embassy's Chief Economist Henry Bell

By Malaka Yattigala


The week, on which the new British government took office, the UK Ambassador to China was in Tianjin addressing an audience at Nankai University and the Chief Economist at the UK Embassy in Beijing Henry Bell was speaking at Wellington College International, Tianjin. He discussed recent trends in China's economy and likely future prospects. He also emphasized that the three main characteristics of the Chinese economy are: rebalance, regionalization and reform. Mr. Bell studied History at London University before his current position he worked at Her Majesty's Treasury in London. He spoke with Business Tianjin about the Chinese economy and its future prospects while highlighting China-UK economic relations.


BT 201506 37 Cover story 97A1874Tell us a bit about your experience during your time at Tsinghua University?
It was a great experience. It was very interesting to see how a big traditional Chinese organization operates. I also met a lot of very diverse people both from mainland China and from around the world and it was really exciting to move from London to Beijing.


Prime Minister Cameron led one of the largest British delegations into China in the final quarter of 2013, what were the key achievements of that visit?
UK's economic relationship with China has changed beyond recognition in the last five years and that visit by the prime minister was very much part of that. UK exports to China have more than doubled and we see Chinese investment to the UK increase almost exponentially. Five years ago there was no real Chinese investment to the UK whereas now the UK is China's most popular European destination. Chinese investment is present in almost every sector of the UK economy, including areas like telecommunication from companies like Huawei, to nuclear power generation from companies like CGN, to many sovereign wealth fund investments from companies like CIC and SAFE and the list is increasing. I remember when I joined the embassy, if there was a Chinese investment to the UK it was a really big deal and everyone was very excited. Whereas now there are so many you can't keep track of them.


The Bank of China recently signed an aircraft financing deal with British Airways worth 1.7 billion USD. How will the UK handle Chinese investment into Britain?
The UK has always had an extremely liberal attitude for foreign investment. It's always been the open developed economy in the world. We are not bothered about the origin of its investment because we believe that domestic regulation is more important than the country where the investment comes from. So our policy is basically one of no obstacles and no special favours and so it's as easy for a Chinese firm to invest in the UK as it is for a British firm. In terms of policy we don't offer concessionary policies to attract Chinese investment. We basically say to come to the UK and invest in the UK and that's quite an attractive proposition. Because they face different types of treatment around the world and that's why we've seen this very large increase; a lot of investment in sectors that might be considered sensitive like telecoms. National infrastructure as far as the UK government is concerned is a very good development that we constantly look to encourage more Chinese companies to invest in.


In terms of China's attempt to transform its economy into knowledge-based economy, what do you see as the key areas? What are your recommendations for encouraging innovation?
BT 201506 41 Cover story 97A1903There is a discussion about the Chinese economy and innovation and how innovative the Chinese economy is. I've always been of the view that the Chinese economy is already innovative and innovation takes many forms. There is product innovation like 'Apple' through the iPhone and there are fewer examples of Chinese firms doing that type of innovation. But there is a huge amount of procedural innovation which is about producing a similar product a lot cheaper. That's as valuable in terms of productivity and benefits to the economy where China has been doing that for years. Having said that there is also the product side of things. While you could say Wechat is just a Chinese version of Whatsapp, it's actually a much more multi-faceted platform. So it has taken an existing proposition and carried it further, which is pretty important. I think going forward the sort of interesting question about the Chinese economy is what happens in terms of the education system and educational reforms because in the UK we always think that our universities are an extremely important part of why we are a successful and creative economy. Chinese universities like Nankai and Tsinghua are certainly rising very rapidly through the global league tables. A huge amount of investment is going into the universities, it will be interesting to see where that ends up. At some point in the future you'll be looking at the top 10 global universities and see Chinese universities in that list.



What can you tell us about organizational innovation?

BT 201506 38 Cover story 97A1848One of the reasons why I am relatively optimistic that China won't succumb to the so called middle income trap is that, organizationally it's just a very sophisticated economy. China invented bureaucracy and it's incredibly effective at steering the economy. What we've basically seen since 1978 is the government gradually stepping back from the economy and allowing competitive forces more space to operate. And that's absolutely essential for future economic growth. The experiments on the free trade zones and Prime Minister Li Keqiang talking in terms of cutting red tape are very much the next step in reforming the administrative side. According to the macro data the government releases we already see some signs of progress as business registrations increased very sharply last year and that's because they've simplified the process. That sort of thing is very encouraging but it definitely needs to be sustained in order to manage the economy in the future.


Considering the strong services sector in Britain, how and what could China gain from closer business ties with the UK?
The UK and China are partners for growth and this was a term the Chinese prime minister used when he was in the UK in 2013. Our economies are very complimentary and we don't really compete in that many areas. Britain specializes in very high value added services, and China is becoming more services dominated but it's still very much a manufacturing economy. Certainly the big Chinese companies, aside from the tech sector, are more manufacturing. I think the economies are complement each other and both sides stand to gain. We could see this a lot in terms of state owned enterprises going overseas where they'll often be doing it in a consortium that involves a bunch of UK professional services companies that advises them on legal aspects or the accounting aspects or the business strategy aspects. That complementarity has seen much investment to the UK, and also in terms of acquisitions by Chinese companies.


The discussions of an EU-China trade deal has been on the table for some time. Do you think it would be a win-win situation if it takes off?
Trade barriers are on the whole a bad thing and the liberal trade system on the whole is a good thing. So the British prime minister has been a very strong proponent of an EU-China trade deal and will continue to do so because we think there is a lot of potential.


BT 201506 40 Cover story 97A1956Please share your thoughts about living in China and what you enjoy most during your free time?
I've been in Beijing for five years and I think that Beijing is a bit like an iphone6, its functionality grows the more familiar you are with it and so when you arrive you enjoy things like going to Tiananmen Square or the Forbidden City or the Temple of Heaven. And then as you get more familiar with the place you discover other bits and bobs where you would find little restaurants down Hutongs that are really cool or new bars. You discover Beijing's proximity to the countryside. I've spent a lot of time in the hills outside Beijing with my family, which is really lovely because you live in a city of twenty million people but within an hour and half you can be in a very rural setting that feels like you kind of went back three centuries, I really enjoy that.


Any final comments to anyone considering of living, studying or working in China?
I think it's a great experience. It is not easy, there are easier places to live and work and study in the world. Of course Chinese culture and British culture are very different and it requires quite a lot of adjustment. So you often need to be quite patient and persistent. But I think like any endeavor, the more effort you put in the more rewards you reap. So if you're up for a bit of a challenge and a bit of an adventure and you have an open mind, then I strongly encourage anyone to come and live and work and study in China.


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