Today we are launching the second in our series of reports on China. Written by Team Members expert in China and China-related affairs, each one gives a different perspective on key areas of China related business. Our latest report comes at a good time for President Xi.
President Xi of China is in a strong political and constitutional position – the recent National Congress of the Communist Party underscored his dominance – so his recent pronouncements should be taken seriously, notably his promise to open the Chinese economy further to international investment, as well as protecting foreign businesses already in operating in the country. Government, administration and diplomacy is geared up to support these ambitions so being aware of the systems and key personnel in Chinese economic policy making and, crucially, delivery is useful.
A more cautionary note comes from the combination of the ensuing trade war between China and the USA; and, ongoing tensions in the South China Sea, notwithstanding this week’s ‘friendly message’ from a Chinese guided-missile destroyer to a Japanese helicopter carrier. Europe is once removed from these two sources of tension but could be affected if either or both escalate.
Famously, China is known for having substantial currency reserves. It comfortably meets three of the four IMF tests, failing only to retain 20% of ordinary money supply (M2). Indeed, in comparison to the USA, reserves have increased but some risk still lurks in the form of credit risk as all banks in China are publicly owned meaning but this would, in essence, be a sovereign risk. On the other hand, China has virtually no debt abroad. Financially, China is sound and can, therefore, continue to flex its muscles.
It is worth keeping watch over the Belt and Road initiative – not particularly well named as the land-based route is the belt and the sea-based route is the road. This is interesting because, by definition, it requires a substantial degree of international cooperation although some schemes have already been challenged for evading, for instance, EU competitive procurement processes. The Chinese response has been to promise more openness and transparency. We can expect more partnerships to develop and increased Chinese familiarity with rule-based deals.
One striking success through Belt and Road is in education where joint-ventures, student/staff exchanges and collaborations with industry and much more have flourished. An emerging characteristic of these developments is the willingness to go ‘regional’ in the often, admittedly, huge provinces.
China is open for business and represents a huge opportunity for the United Kingdom. That’s why PLMR is a member of the China-Britain Business Council and why we invest time and resource in ensuring our clients are fully aware of the opportunities represented by all things China related.
Neil Carmichael, Senior Adviser, PLMR
Neil Carmichael is a former Member of the British Parliament as well as former Select Committee Chair. He currently advises businesses and institutions active in the UK and across the globe.