United Kingdom and China

Lord Stevenson of Balmacara Excerpts

Thursday 7th November 2013 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I thank the noble Lord, Lord Dobbs, for securing this debate and for his wonderful introductory speech in which he managed to give us a sense of focus. He led us in what the right reverend Prelate the Bishop of Guildford called “an exchange of gifts”. I thought that was a very apposite phrase. Who can complain about a debate in which there is poetry—if you can say that limericks are poetry. The noble Baroness, Lady Valentine, was kind enough to share her thoughts, an aperçu, about some of the problems that the Government have faced in relation to tourism and trade.

I also pay tribute to the two excellent maiden speeches that have graced this debate. Interestingly, they managed to reach the heart of the debate, possibly in an unscripted way, but we benefitted from that. The noble Baroness, Lady Neville-Rolfe, spoke about her experiences in China and the lessons we could learn from the way in which trade is done there. The noble Lord, Lord Whitby, spoke about work that is happening in Birmingham—how investment changes things in a locality—that is the reverse of the coin. These were both influential and helpful to our understanding of this debate.

I add my congratulations to the Minister for a happy birthday. We have not had enough of the noble Lord in this House and are sorry to lose him so quickly. Ironically, as well as today’s debate, we are meeting again next week in another debate, so we are going out in a rush together. As many noble Lords have said, we are sorry that the Minister will not be with us as we go forward into the New Year.

There seems to be common ground that, in addition to a wider understanding and perspective on China, the key to the present relationship is in improving our exports. That is desirable, possible and even necessary. The UK currently exports $474.6 billion a year. We are roughly the 10th largest exporter in the world. However, we are dwarfed by the amount that China exports, which is more than $2 trillion, significantly more than the United States which exports $1.5 trillion. UK exports to China have grown in the past decade from $0.5 billion to nearly $3 billion. This is welcome, but it is from a very low base. In the first two decades of China’s move towards economic openness, the truth is that we have lagged very far behind Germany and France in penetrating Chinese markets. According to a recent article in the Economist, we export only about 50% of the amount that France does and 30% of what Germany does. Our exports to China are only just surpassing our exports to Italy. The graphs crossed in 2011. As my noble friend Lady Dean said, we still export more to Ireland.

There are no major political differences in our wish to improve our export performance, including to China. As part of this debate, we need to examine and address the reason for our continuing poor export performance. Noble Lords are aware that the National Audit Office published a report recently on how we support exporters overseas. It makes for interesting reading. It says that exports need to grow by 10% a year, every single year, to meet the Government’s target of doubling our exports to £1 trillion by 2020. It goes on to say that there seems to be no credible plan or measurement of progress to reach that target. Obviously, UKTI has a key role but it supports too few exporting British firms, according to the NAO. That is not good enough. We have to help more firms to export. Government cannot bridge this gap by itself; it is the firms that do it. We have to help those that already do to export more.

Finance is important in underwriting that. As Daniel Kawczynski, a Conservative MP who has written a report into UKTI performance, has said, over the past 18 months, just 18 small companies have used government export guarantee products which are aimed specifically at them. If we do not deliver more from that route, we are not going to be successful overall. To address this weakness requires an overall system-wide approach within the UK to guide us forward—a rethink of our industrial strategy over the recent period. Whether we pursue this successfully will matter far more in the long run to our economic relationship with China than anything else.

Labour has a credible agenda which the coalition seems to lack. This includes financing innovation, building skills, developing our regions and reforming our banks to ensure that they support the real economy. The economic recovery seems finally to be getting going again after a long and protracted period of stagnation, and that return to growth is something to celebrate and nurture. However, with business investment still on hold, bank lending to SMEs still contracting, youth unemployment still very high and living standards still falling for millions in this country, for most people, there is so far no recovery at all. This is no time for complacency.

In a recent speech the Shadow Chancellor said to the CBI:

“Britain has always succeeded, and can only succeed in the future, as an open and internationalist and outward-facing trading nation, with enterprise, risk and innovation valued and rewarded. Backing entrepreneurs and wealth creation, generating the profits to finance investment and winning the confidence of investors from round the world … That is why we believe it is so vital that government works closely with all businesses—large and small: to promote open markets, competition and long-term wealth creation; and to reform our economy so that, by using and investing in the talents of all, we can deliver rising living standards not just for a few but for everyone in every part of the country”.

We have heard today from several noble Lords that they are optimistic that the UK economic relationship with China will improve as China makes the inevitable transition from being the workshop of the world to being a knowledge and service economy. As this occurs, the argument goes, the Chinese will demand more of our excellent services in areas such as finance, the wider professions, health and higher education. As the noble Lord, Lord Haskel, warned us, we must be careful. In recent years, British universities have congratulated themselves on the large numbers of Chinese who have chosen to study in the UK. They have been welcomed here, and they have also become necessary to the survival of many of our departments and courses. There are various reasons why these students choose the UK, but an important one has been the lack of appropriate courses at home. However, that is fast becoming an obsolete reason, as Chinese higher education develops. The traditional elite universities have taken stock of international examples, welcomed new staff out of foreign postgraduate training, recruited foreign lecturers, started to reform teaching and curricula and developed new courses. Some 1,300 private universities have been established, usually with flexible, practical and very work-oriented courses and modules.

So China presents three challenges to the model we have of us being the experts, giving them UK higher education. First, China will not for long be a source of overseas students if its own universities overtake ours. Secondly, Chinese higher education clearly intends to offer its services in the world education market. Thirdly, in China there are, at present, 16 million students in higher education, with plans for 20% of secondary school leavers to be in higher education by 2010 and 50%—a familiar figure—by 2050. Even if a small proportion of these have a first-rate education and can use English, they will be competing with our graduates in virtually every field, unless, again, we can provide something very special from within the United Kingdom. Does the Minister agree that it is important to learn the lessons of Chinese education, both positive and negative, and apply them to our own institutions?

We have heard that the Government are desperate to secure Chinese investment in the UK. The tough regulatory approach to banking that was introduced after 2008 has been relaxed to promote trading in the Chinese currency in the City. Guaranteed electricity prices—double the present level—have been offered to secure Chinese investment in the EDF nuclear station at Hinkley. We are not against these measures per se, but we would like to see a much more serious debate about their justification and the implications that will flow from them, so perhaps the Minister will comment on that when he responds.

According to a recent article in the Economist in June this year, perhaps the single most disappointing aspect of the British economy in recent years has been its export performance, about which I have been talking. Against that background we have to remember that sterling is 25% cheaper on a trade-weighted basis than it was in 2008, and yet the trade deficit was still a stubborn £36 billion last year—more than 2% of GDP. Of course, as many noble Lords have pointed out, this is partly the result of a fundamental economic mismatch. Britain’s strength is in services; China’s hunger currently is for raw materials and machine tools. China seized 80% of the world’s metals supply last year, boosting exports from Australia in the process. The odd British firm, such as Rio Tinto, has cashed in, but countries such as Germany, whose firms sell kit used in Chinese factories, have done so very much better.

The prospects for British cultural exports are much brighter. However, as has been raised, there are real concerns about IP protection in China. In 2011, Britain’s global exports of TV formats—exciting programmes such as “Strictly Come Dancing” and “MasterChef”—were worth £1.5 billion. I hope that these figures will begin to attract more attention from UKTI, particularly in relation to developing economies and China.

However, the truth is that other countries appear to be taking better advantage of the shifts in China’s economy. I shall end with some questions for the Minister. As many noble Lords have mentioned, Britain seems to have gone out of its way to establish a reputation as a country hostile to business visitors, tourists and students. Visa processing is still slower than for the rest of the EU. As a result, London loses out to Paris as the place where wealthy Chinese like to go to shop. Visa restrictions hold back exports in more subtle ways, too. The Economist points out that Britain’s architectural practices, for example, often want to hire staff from the countries where they plan to bid for work, but this is almost impossible.

In 2011, the Prime Minister said that he wanted to double trade with China by 2015, but the gains that have been made are small. A much touted 2011 trade pact with China covered some 3% of the existing commerce between the two countries. Germany and China, for example, recently agreed on a deal which was 10 times bigger. Is the target set in 2011 still the one for which he is aiming?

My noble friend Lord Haskel mentioned that the warm public welcome for the Dalai Lama’s visit last year, which was largely arranged through No. 10, has not helped relations between the two countries. Like the noble Lord, Lord Watson, I would be grateful if the Minister would comment on that, particularly in the light of the rather underwhelming reception accorded to the Chancellor and the Mayor of London when they visited China recently.

Human rights concerns still affect our relationship with China. It is not just the regular house arrests but the lack of press freedom, the oppression of minorities and the fact that religious dissidents continue to be locked up. What representations have been made? What has the noble Lord said to his Chinese counterparts when he has led delegations to China? It would be interesting to reflect on that.

A continuous theme running through our discussions is that of language. How do we deal with that? How do we get people to speak Chinese? The Economist notes that whereas there is a network of trade envoys covering emerging and developing economies including Azerbaijan, Indonesia and Mexico, there is still no envoy for China. Is that the case? Will the Minister also comment on a long-promised agriculture attaché who apparently has still not been appointed?