Prepare For Battle: The UK Aims To Fight Back Against China Trade & Investment In Asia

A recalibration of UK-Asia policy is on the cards after China went for London’s interests in the South Pacific

By Chris Devonshire-Ellis

The United Kingdom’s exit from the European Union (Brexit) has left the country looking for new trade partners. Much of this has centered upon Asia, where the UK maintains relatively strong ties with members of the Commonwealth, namely Bangladesh, Brunei, India, Malaysia, Maldives, Pakistan, Singapore, and Sri Lanka. London has also been concerned about China making recent overtures in the South Pacific, where many smaller nations also have strong UK trade ties.

A question that has arisen is how the United Kingdom can emulate some of the more admirable and politically palatable traits of China’s own expansion into Asia. It should be stressed that having looked into the concerns of ‘China Debt Traps’ extensively, we have found no evidence of this, a position also taken following additional detailed research into the subject by Chatham House. This means that China’s funding into Asia can be seen largely as a positive, with sufficient transparency usually (but not always) in place. That begs the question as to why the UK cannot follow similar a path.

What has become apparent in researching the UK versus China in Asia behaviour is that there are simple, yet profound differences in attitude. China has indeed been a significant investor in infrastructure, as the new issue of AIR will illustrate. What is often not understood however is that in making initial investments, China, together with Asian partners, has often taken these to market, typically via IPOs and have reaping significant rewards in doing so. What is also apparent is that the Chinese approach is not to sell out and take the full capital windfall, they remain involved in order to benefit from the on-going cash-flow annual dividends that subsequently arise via the infrastructure built being used or expanded. A strategically placed bridge for example will increase the use of the surrounding land – creating opportunities for real estate developments, retail, and other services. Chinese companies typically take positions in these.

In short – China isn’t just about the initial infrastructure build – it’s about exploiting that for future cash flow gains, a rather more long-term viewpoint. This runs contra to what appears to be the UK’s position, which tends to be purely to invest, then to exit. This rather more short-term approach may be somewhat dictated by the UK stock market, where profits are expected to be returned to shareholders as quickly as possible. However, this may also represent a systemic failure, which leads UK plc to instead view markets in Asia as purely trade, rather than investment opportunities. That would under many circumstances be enough, and certainly less risky.

However, another finding is that based on a percentage of GDP, China is often investing as a GDP percentage significantly more in Asia than the United Kingdom is. China’s GDP is about 5.3 times more than the UK’s; but equalizing this in terms of dividing the annual trade volume amounts of both China and the UK in each specific country by that factored difference shows significant differences. (We illustrate these in the UK versus China in ASEAN section of the publication). This means that not only does China provide longer term infrastructure investment, it is also out-trading the UK in bilateral import-export development by factors of five to eight times.

The message is that UK exporters need to do a lot more. Perhaps this is an educational factor? Or maybe an Asian-focused new Prime Minister will be able to assist?

Dealing with these differences and opportunities are practical issues yet will require a change in attitude in terms of understanding financial investment risk and longer-term planning for UK policy and investment banks and funds as concerns Asia.

Recalibrating the UK’s status as ‘traders’ to investors once again will also take a shift in mentality. Yet in order to compete in Asia – which Britain can – these soft power changes will need to be discussed and implemented. The upcoming issue of AIR, titled ‘Britain and China’s Competition In Asia’ shows why, provides suitable food for thought, and will be published for complimentary release next Tuesday.

Image Early-bird readers may reserve a complimentary copy here.