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Rumours of cooling growth won’t stop the dynamic global ambitions of China’s manufacturing sector – and there are opportunities for UK manufacturers to benefit.

Earlier this year, when the Chinese National Bureau of Statistics released the official manufacturing Purchasing Managers’ Index (PMI), it prompted some observers to predict that China may face an economic slowdown. The PMI fell to 50.3 in February, down from 51.3 in January, with some analysts predicting contracting growth in the world’s second biggest economy, with consequences felt worldwide.

At first glance, news such as this may seem to put at risk one of Prime Minister Theresa May’s aims of her recent visit to Wuhan, Beijing and Shanghai: the UK securing a post-Brexit free trade agreement with China once no longer subject to full EU regulation.

However, on closer analysis, this is unnecessarily pessimistic and there is no reason to suppose that a negative prognosis should apply across much of the manufacturing sector in China.

Planning for the future

Amidst increased international protectionism, regulation and anti-pollution measures which may affect China’s ability to export to the world, China’s State Council’s ‘Made in China 2025’ plan is aimed at upgrading the country’s manufacturing industry. Central to the plan is a focus on not only better infrastructure, but an increased concentration on high-tech industries, and the use of automation and artificial intelligence in existing manufacturing industries.

Examples include:

  • Following the news of Geely taking a $9m stake in Daimler AG, the Chinese carmaker became the top shareholder in a business which has ambitions to take advantage of the shift to electric and self-drive vehicles. As a result, Bloomberg News speculate that China’s automakers and government are committed to establishing the country as the world’s foremost provider of new energy vehicles.
  • At the same time, the Chinese government’s Belt and Road initiative has launched the $480m BMC Europe Investment Fund, which seeks to acquire stakes in UK and European manufacturing companies in the tech-driven medical, chemical and environmental protection sectors.
  • At the end of February, Chinese solar manufacturer LONGi Solar Technology Co. Limited, the world’s leading producer of monocrystalline passivated emitter rear contact solar cells, announced that it had achieved a record 23.6% conversion efficiency.

These examples demonstrate a clear ambition on behalf of Chinese manufacturing to dynamically adapt in order to maintain its position in the global marketplace.

While the European Commission is proposing a framework to allow EU member states to restrict such investment on the security grounds, a post-Brexit UK may adopt a different stance. A more accommodating UK position might lead to increased opportunities for UK manufacturers to benefit from both Chinese investment in their businesses and greater market access in China for their high-tech components and goods.

Building bridges

Many in the UK are supportive of greater partnering between British and Chinese businesses. The Vice-Chancellor of the University of Sheffield, Professor Sir Keith Burnett, writing in the Yorkshire Post, lauded the “high-tech research and the latest AI simulations,” which contributed to the UK’s development of the Industry 4.0 process in high-value manufacturing. Reflecting on a recent trip to China, he said: “China is transforming its economy away from a dependence on polluting inefficient factories towards high-tech innovation.” Drawing on the obvious confluence of UK and Chinese interests in that regard, he urged Yorkshire (and no doubt the UK generally) to seize the opportunity to partner with (rather than rally against) one of the great economic forces of the world. He added “the combination of British innovation and Chinese dynamism is a global winner.”

The UK export market to China is now a road trodden profitably, particularly by the food manufacturing sector. According to data published by the Department for Environment, Food and Rural Affairs on 11 February 2018, Chinese consumers bought more than £560m of UK food and drink last year. The Office of National Statistics also noted that UK goods exports to China rose by 34.9% in 2017. This strong demand is also borne out by findings of a February 2018 survey compiled by IHS Markit; whilst figures showed growth in UK manufacturing production hit its slowest pace for nearly a year (falling to a low of 55.2%), this was not due to a slow in demand but rather manufacturers being unable to keep up with demand as they were let down by their suppliers.

Reducing risk

As with any export market, trading with China involves a degree of risk. Many of the legal principles with which UK business people are familiar also form part of the law in China, but there are major differences (for example the doctrine of ‘consideration’ is not part of Chinese contract law), and these can lead to problems. It’s important that exporters take advice and ensure that they will not be exposed to more risk than is acceptable.

Whether you’re involved in trade with China, have the opportunity to benefit from Chinese investment, or wish to grow your business in China, Irwin Mitchell can help you grow your business safely,

Key Contact

Laurence  Gavin