United Kingdom and China

Lord Green of Hurstpierpoint Excerpts

Thursday 7th November 2013 Lords Chamber

[The Minister of State, Department for Business, Innovation and Skills & Foreign and Commonwealth Office (Lord Green of Hurstpierpoint) (Con)]

My Lords, I am very grateful to my noble friend Lord Dobbs for tabling today’s debate and for his very informed and insightful comments. Indeed, I thank all noble Lords for their very wide-ranging contributions. I pay especial tribute to my noble friend Lady Neville-Rolfe for her extremely insightful maiden speech, which focused particularly on conditions in China, as did the noble Lord, Lord Stevenson. I also pay tribute to my noble friend Lord Whitby for his insightful comments on what it is like at this end as Chinese investment transforms British economic conditions.

This is an extremely important topic for us all and a very complex one. We have covered a lot of ground in this debate and I will find it something of a challenge to respond to all the questions and summarise all the themes in the allotted time. I like to think that I have come and gone to China over a long time but I am humbled by the fact that the noble Lord, Lord Watson, first went there in 1977 and the noble Lord, Lord Haskel, who first went there in 1978. I am a mere newcomer, having first gone there in 1983. However, I think the thought resonates with all of us that this is a society and an economy that is changing rapidly and profoundly, and will continue to do so. The challenge posed by this enormous, sophisticated and cultured country, and our engagement with it, is of profound importance to British society and the economy.

As China continues to grow, so do our shared interests and responsibilities. Our relationship is broader and deeper now than at any time in our history. As I say, China is changing fast. I could go on at length but one manifestation of that change is that Chinese companies are increasingly going global and are on their way to establishing global brands rather in the way that the Japanese did after the war and South Korea more recently. China will be next.

China is also becoming more sophisticated in its own research and development. It now files the largest number of intellectual property patents of any country in the world. Interestingly, there are more cases of IP theft going through Chinese courts than in any other country in the world—some 84,000 in 2012, only 2% of which involved foreign companies. .In other words, China has got to the stage where IP is an issue for Chinese businesses dealing with Chinese businesses, which I think means that we can take some comfort that the authorities mean what they say and intend to create a robust environment which protects intellectual property and stamps out corruption and fraud.

China is changing in other ways, too. The international role of China is changing profoundly, as my noble friend Lord Howell of Guildford so articulately explained. This is a country that is taking its place on the world stage. We often talk about an emerging power. It is not an emerging power; it is re-emerging, or retaking its place on the world stage. I like to remind my colleagues in business that in 1820 China had the largest economy in the world and, 200 years on, it will be the largest economy in the world again.

China is also a country with a deep cultural past. As the right reverend Prelate the Bishop of Guildford reminded us, and others echoed, this is a country with a long-standing philosophical and religious perspective. I have met some of the characters mentioned by the right reverend Prelate and they are very remarkable people. The authorities are very keen to see a harmonious development of Chinese society and recognise the role that faith groups can play, particularly in an urbanised environment.

That brings me to my next point. China is not merely changing fast but urbanising fast. The figures are enormous. A number of speakers cited figures in relation to aspects of China’s growth. China has the most of almost everything these days, and the challenge posed to it by urbanisation over the next 20 to 30 years will be the biggest for any country, except possibly India. Something like 50% of its population live in cities now, but this will increase to 60% in as little as 20 years’ time. The implications for urban infrastructure, urban planning and the whole economy are profound. The rapid transformation presents enormous challenges for the Chinese authorities. Sometimes I think that the popular impression of China is that the authorities sit in Beijing smiling quietly as more and more Chinese companies invest and take over the world. That could not be further from the truth. The authorities are very conscious of the significant challenges of developing a very complex and large society, and of the need to rebalance. They are well aware that at the moment the Chinese economy is too dependent on investment and exports and needs to rebalance itself.

They are also well aware of the issues in the rural areas: poverty, issues of land ownership, the flow of immigration into the cities, which it is increasingly difficult to control, and so on. Demand for products and services like healthcare and education is expanding very rapidly and will continue to do so for the next generation. On the plus side of these challenges, a middle class is developing with the same sort of appetite for branded goods that we all take for granted. It is, therefore, no surprise that, as has been quoted, Jaguar Land Rover now finds China to be its largest market. Some 80,000 vehicles were sold there last year, and the number is growing rapidly. It is the second largest exporter of cars to China after BMW. So there are lots of challenges and plenty of opportunities, too.

Two important themes have dominated this debate and I will touch on both of them. The first is education and culture. My noble friend Lord Dobbs spoke about Chinese language tuition in schools and universities. I share his view of the importance of increasing the sensitivity of the younger generation in this country to Chinese, which is about both Chinese studies and Chinese languages. I am very pleased to report that my grandson is, almost exactly at this moment, doing a presentation on the warring kingdoms period of Chinese history. So he is being made to learn something about that great country.

The Government are committed to the learning of languages, including Chinese, in schools and universities. We undoubtedly start from a low base in the case of Chinese, but in 2013 the number of students entering for a GCSE in Chinese increased by 20% compared to the previous year and there were more than 3,000 A-level entries. It is a low base, but at least the direction of travel is right. In higher education, language study is about choice. We have seen some shifts towards languages that will better support employment outcomes in growth economies, including Chinese. In 2011-12 the number of students at UK higher education institutions taking Chinese studies was 1,870: a small number, again, but the direction of travel is good. It is important to note that there are many students not studying Chinese who increasingly get a component of Chinese studies as part of more multidisciplinary programmes. There are Chinese centres at Sheffield and Nottingham, to name but two.

There is plenty of work to do. My noble friend Lord Lexden and others, including the noble Baroness, Lady Dean, also pointed out the importance of education, not just at university but at school level. We recognise the importance of schools introducing children to Chinese at a young age and also the importance of being open to Chinese students wanting to come here at secondary and tertiary level. Another aspect of this is the importance of the engagement of British universities and other colleges in China. The noble Baroness, Lady Dean, referred to the work of Nottingham Ningbo. There are a number of other British colleges and universities: Dulwich College in Shanghai is just one of them. There are now some 230 research partnerships between British educational institutions and Chinese ones. We cannot be complacent about this. The noble Lord, Lord Stevenson, reminded us that the Chinese are rapidly upping their game and the old-fashioned notion that we have all the expertise and they have all the need is, frankly, behind us. We should recognise these as joint experiences: partnerships where we learn together about matters of importance to both our economies and societies.

There is plenty of competition in the English-speaking world. As the noble Baroness, Lady Warwick, said, the Australians have learnt the lessons of some of their mistakes. We must make sure we have a supportive approach to letting Chinese students, and others, into the British education system. We need to minimise the impact of immigration rules on universities. I have been asked in this House before whether I would take up the question of excluding students from the immigration numbers. In response to that suggestion, I have taken it up and am happy to have another go.

Another theme that came up repeatedly, not entirely unrelated to education, is visas. The noble Baroness, Lady Valentine, and others, drew attention to the ease with which you can get a Schengen visa. There is some mythology around the numbers of these visas and where people actually go. In his opening speech, my noble friend Lord Dobbs said that seven times as many Chinese visitors go to France as to Britain. This is actually quite difficult to verify. One hard figure we do have is the number of visas issued. In 2012, the French issued 277,000 visit visas and we issued 210,000. So they issued one-third more than us rather than seven times more.

Chinese exit data on first destinations for Chinese travelling abroad show that the UK was the top European destination in 2010 and second to Italy in 2011. My general point is not that we should be complacent but that the numbers are quite hard to pin down. It is plain that we need to expect more and more Chinese visit visas over the coming years, both for tourism and for business and educational purposes. Specifically, we expect the number of visa applications to top 1 million by 2017. To facilitate that, and the processing of this very large increase in the number of applications, we introduced a number of measures.

Last month, in Beijing, the Chancellor of the Exchequer announced measures to streamline and simplify the visa process for Chinese nationals who want to visit the UK for business, study or pleasure. This includes plans to open a 24-hour visa service and streamlining the UK and Schengen visa application process. As the noble Baroness, Lady Valentine, pointed out, the Schengen process itself is moving—or so they claim—to biometrics, which will level the playing-field. I hope that we will increasingly be able to provide, in effect, a one-stop-shop service for Schengen and UK visas. We will, of course, always be left with the greater flexibility of Schengen. I suspect there is no one in this House who would argue for us joining the Schengen accord at the moment.

We will do our best on visas and I assure noble Lords that the Government recognise the importance of ensuring that the process works as seamlessly as possible. The forms are now in Mandarin, which was a good start. We now have more offices around China: more than the Schengen area does. Progress is being made in discussions with Schengen about how to converge the two processes as much as possible. I noted comments from a number of noble Lords on the importance of ensuring that the visa entry rules for both students and business are as business-friendly and education-friendly as we can make them. I am always happy—and so is UK Trade and Investment, the office which I oversee—to discuss any problems that specific institutions or firms have with getting people in, within the context of the overall policy. We are plainly not going to throw the whole policy up in the air but we need to make sure that, in practice, it works for business as seamlessly as possible.

I turn to inward investment, which is a very important topic for the economy in general. It is a great and long-standing competitive strength of this country that we are open for inward investment from all countries in the world. It is very difficult to imagine a number of our obvious competitors being as sanguine as we are about investment in, for example, the water supply of the national capital. Some 9% of Thames Water is owned by the Chinese sovereign wealth fund, as is 10% of Heathrow. We welcome these investments. We also welcome the deal announced by EDF in respect of Hinkley Point C, which is a good deal for this country. The entire nuclear industry, irrespective of who is investing in it and who is building it, needs to be properly regulated, for all the obvious reasons, but we are committed to the importance of nuclear as part of the energy mix. We have to invest substantially over the next 10 to 20 years in nuclear rebuild and we should welcome the involvement of foreign direct investment—including from China—so long as it is properly regulated and overseen.

The noble Lord, Lord Haskel, mentioned Chinese banks in London. The fact that we offered to allow them to operate through branches, as opposed to subsidiaries, does not mean that we are not going to regulate them, although they are, of course, regulated by the authorities in Beijing—not in Shanghai, incidentally—which would be the case whether or not they were subsidiaries or branches. They will also be regulated by the Prudential Regulatory Authority, whether they are subsidiaries or branches, according to the highest standards that the PRA thinks fit. I am very happy to assure the noble Lord on that point.

Huawei has already been discussed and I am not sure that I have anything useful to add to the exchange that has already taken place. I know the managers of that company, both here and in Shenzhen. I believe that they are committed to doing good business in this country and are certainly investing and building up the skill base in the way that my noble friend Lady Wheatcroft mentioned. All Members of the House will be aware of the security arrangements that are in place and are currently subject to review, following the report from the Intelligence and Security Select Committee.

I turn to exports, which are the other side of the coin. Every speaker has referred to the fact that we have a long way to go on this. We start from a low base and market share. I have always found completely unacceptable the notion of being behind not merely Germany, which is possibly understandable, but France and Italy. The good news is that we have now overtaken Italy. The good news is also that we have grown faster than all three of those countries for the past three years, but this is a long journey and we have to keep at it.

The importance of building relationships and making long-term commitments is something that everyone has underscored. It is true everywhere but it is certainly true in a country like China. Businesses need to spend time and need help. When it comes to small businesses, which were referred to by a number of noble Lords, it is important for the British Government to ensure that the role of UK Trade and Investment, working in partnership with the China-Britain Business Council, is as effective as possible in supporting those who make that journey by de-risking the decision for them and helping them to attend trade fairs. I am pleased to report that we have increased the number of resources we have on the ground in China, not merely in Beijing but around the country. We have increased the amount of money available for attendance at trade fairs and, by the way, we have increased the number of trade advisers in this country.

In respect of finance, we have substantially revamped UK Export Finance; it is not now the case that as few companies have been able to access UKEF as the noble Lord, Lord Stevenson, referred to. Indeed, its business is growing rapidly and I have asked it to triple its book over the next two or three years. I am afraid that I shall not be in office to see this happen but will be cheering from the sidelines. UKEF is now on the way and the momentum is clearly there. It now has more than £1 billion of support for small businesses, compared with almost nothing three years ago. So the direction of travel is there. We need to keep at this. It is a long journey, and we need to keep investing. I have mentioned UKTI and UK Export Finance.

In response to the noble Lord, Lord Wilson, I should like also to refer to the capabilities in the Foreign Office. We have 60 new staff working across the network in China, a third of them focused on less well known provinces and second-tier cities. I was recently in Wuhan, a city that we the British have neglected; the French are the dominant foreign presence there and we need to put that right. What is true of Wuhan will, frankly, be true of dozens of other cities. We have a long way to go. We have been investing in language training in the Foreign Office. I have some numbers somewhere that I cannot find, so I will write to the noble Lord, Lord Wilson, with the details. We have substantially increased the amount of Mandarin training in the Foreign Office because we fully endorse the notion that its officials are at their most effective if they can speak the language.

I will respond explicitly to some of the points made by the noble Lord, Lord Stevenson. I do not have the time to discuss Britain’s industrial strategy, except to say for the record that we the coalition believe that it is a coherent strategy that is bearing fruit, and we need to stick at it. We need to invest in the skills that equip the next generation to succeed in a competitive world. There is no turning back from this globalisation. There is no turning back from the challenge of ensuring that education and apprenticeship systems work correctly, that we connect up research and development at university level with businesses and that we invest in appropriate partnerships in key sectors. The sectors involved for the British economy are very wide—all the way from advanced manufacturing and aerospace, through IT, the creative industries and practically every sector in between.

Perhaps I may conclude with just 30 seconds on Hong Kong, as my time is up. Hong Kong remains extremely important to the British relationship with China generally, as well as being important in its own right. I had the great honour of living in Hong Kong when the noble Lord, Lord Wilson, was governor there, and I have seen it change rapidly over the years. The closer economic partnership agreement is in place between Hong Kong and the mainland, which means that a company operating in Hong Kong can do business in the mainland without further restrictions, and several hundred British companies in Hong Kong have the opportunity of building their business in the mainland through the Hong Kong gateway. It is a very important asset in terms of the competitiveness of British businesses in China, when compared with that of our European counterparts and others.

Finally, I come back to the importance of this debate. No country is strategically more important to us than China. This is a long journey forwards in the relationship. It is a complex country and there are massive opportunities. Of course there are many political and economic challenges on the way through. The dialogue needs to be open, honest and continuous. Given that two or three of your Lordships quoted Mao’s saying that the longest journey begins with a single step, I should like to add another: this journey is a marathon, not a sprint.