China: Investment into the United Kingdom

Lord Davidson of Glen Clova Excerpts

Wednesday 7th May 2014 Grand Committee

[Lord Davidson of Glen Clova (Lab)]

From this side, we certainly welcome this debate. As the noble Lord, Lord Wei, observed, this issue is important for the future of the UK economy. The APPG is to be commended for producing this useful report, but the question is what Her Majesty’s Government will do about its recommendations—a matter that the noble Lord put pointedly to the Minister. The answer is not unimportant.

The report commends a strategic approach but any strategy requires sound content, otherwise it becomes mere public relations. There is much good work in the report but in this intervention I will focus on where more effort is required. That should not be taken in any way as a criticism of this report.

Let me begin with some general observations on the UK’s approach to date. Having, for example, the Prime Minister take an assortment of business people to China is no doubt well intentioned but it is hardly a strategy. If it is ill thought out, with no clear plan of what is to be achieved, it can easily create a wrong impression—an impression that perhaps our Prime Minister is being somewhat transactional. That is not a good outcome.

Furthermore, warm words of welcome to Chinese investors that are matched by an obstructive visa regime can be very unhelpful. The noble Lord, Lord Cotter, has given an example of that. Let me give another one. Last autumn, a Chinese ministerial party—I repeat, a ministerial party—seeking to visit the UK was held up in Beijing. Their flight slipped by while they were waiting for their visas to be produced by the UK Border Agency. If ministerial parties are treated in that way, it is hardly the right message to be sending to investors from China. I immediately accept that there have been some improvements on the past, but compared with France we lag way behind. If anything, there seems to be an unwillingness to match welcoming words with action. This does not go unnoticed by Chinese investors.

Having the UK welcome Chinese infrastructure investment is all very commendable, but unless there is effective follow up, initiatives may run into the sand. If due diligence on prospective investors is not carried out, one runs the risk of embarrassing failures, and there is no point rolling out a red carpet to Chinese investors if we ignore our domestic requirements, such as planning, consultation with potentially affected communities and due process, that can subsequently produce obstacles and upset the project. That can risk creating an impression of insincerity on the UK side. A focus on outcomes is essential to build good relationships. An intelligent focus is even better.

Turning to the report’s recommendations, I offer one caveat. It suggests we should,

“encourage the creation of more NGO trade promotion bodies”.

I respectfully suggest that this should be treated with caution. One criticism that has been voiced on a number of occasions by Chinese interlocutors is that there are already too many UK bodies speaking with too many different agendas in seeking a relationship with China. Focus on clear messages may be a better way forward. That may not require more trade promotion bodies for China, just greater clarity.

The report importantly refers to financial services. It identifies progress by London as an offshore renminbi centre. Renminbi settlement and clearing house developments are clearly positive, although they have not gone the full way as yet. More effort is plainly required. Singapore recently surpassed London in renminbi business. Paris, Frankfurt and Luxembourg all have ambitions to be renminbi centres. Her Majesty’s Government should take the initiative now. They should consider a currency swap—a real one, this time, not simply an emergency backstop—that creates liquidity on the market now. Another initiative might be purchasing renminbi for UK reserves. Her Majesty’s Treasury could do that, and it would be a step forward. The Bank of England says that it is not for it to decide this issue and that it is for the Treasury to decide. If the Treasury wants to make imaginative steps forward in our relationship with China, adding renminbi to the UK reserves would be a very substantial step. I commend that to the Minister, at least for consideration, although possibly it does not fall within his responsibilities. Many good speeches have been made on the theme of London as an offshore renminbi centre and some real progress has been made, but London has to regain its momentum to improve renminbi liquidity in the London market to make London in reality the—not a—major offshore renminbi centre.

The report refers to sector strategies, which is very welcome as it appears to be recognising a need for industrial policy, but there needs to be a certain coherence in it. Chinese equity purchase and M&A in the UK have been referred to. They have been welcomed in the UK. The noble Baroness, Lady Falkner, referred to this as an area where problems might arise, but plainly there is a tremendous opportunity for UK and Chinese business to go into partnership in these areas. However, as the noble Baroness pointed out, we must be astute to the possibility of Pfizer-type issues arising. Ed Miliband and, indeed, the noble Lord, Lord Heseltine, have made useful contributions to this issue and it appears that the Government have been listening to some extent, after something of a false start on this issue. As the noble Baroness pointed out, not every sale of a UK company to an overseas acquirer will be in the UK’s best interests.

The report correctly recognises the importance of sectors in manufacturing and services, and HMG can have a role in dealing with this. The needless damage of putting the UK’s EU membership into play may not be wise. Placing a question mark over the UK’s success in the automotive sector, based, as it is, in the UK as a platform for the EU market, is not constructive. The Minister will no doubt appreciate that the current Government continually making noises about splitting away from the EU is not an attractive invitation for Chinese direct investment in the UK to Chinese automotive manufacturers and others.

China is serious about outgoing investment, and we need to match its seriousness of intent. There are limits to government action, of course, but relations with China are an area par excellence where Her Majesty’s Government should be able to make a real contribution. This is vouched by the success of government efforts by Germany, Sweden, France and others in engaging with China, both politically and economically.

Everyone by now says relationships are key in China. The noble Lord, Lord Wei, directly recognises this. A rapid turnover of Ministers with the China portfolio is not a help—unless, of course, the Minister is not up to the job. However, there is also an issue in relation to civil servants. The approach to rotation of officials can be counterproductive: the despatch of personnel without sophisticated language skills to China can be less than ideal and the removal of real experts for personnel policy reasons is actively damaging.

There is a need for Ministers and officials, as well as businesses, to understand the very different Chinese culture. There is a need to build expertise on what may now be the world’s largest economy. Only knowledge and understanding of China will build a fruitful relationship. If the UK does not get serious, we will be an also-ran in what the Prime Minister calls the “global race”. However, if we work at building the relationship, the UK can indeed be, as the report aims for it to be, the favourite place for China to invest.

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

My Lords, I am pleased that we still have some of the Scottish contingent in for the debate. I start by thanking my noble friend Lord Wei for initiating this important debate and for the report from the All-Party Parliamentary Group for East Asian Business. China’s rise is indeed an opportunity, not just for the UK but for China, and I very much believe that this will be the decade of the Asian multinational. Our two Premiers described our two countries as “partners for growth” and we have seen notable progress in Chinese investment into the UK.

The noble and learned Lord, Lord Davidson of Glen Cova, raised a number of questions about the UK’s performance in relation to trade with China. I regret that some of the statements are perhaps a little out of date: our performance has certainly been weak historically but we are now making significant progress. Initial results for 2013-14 show a substantial increase in the level of inward investment from China. As my noble friend Lord Wei said, this is across a number of sectors, from property investment to infrastructure, manufacturing and nuclear, to name but a few. Announcements in press releases indicate commitments of upwards of £8 billion—a very substantial increase on past experience.

This growth reflects the efforts not only of the Government but of many groups and individuals including the APPG. It also reflects the success of government policy in making the UK an attractive place for businesses to establish themselves, to invest and to grow. However, I fully accept that there is clearly still much to do. The report highlights a number of areas, and I would like to address some of the particular points made in it.

The report recommended that we should provide additional regional support for inward Chinese investment. I should stress that the policy we operate, which I think has operated for some time, is based on the UK-first principle, where we try to attract inward investment to the UK and then spend time with the potential investor showing them regions that may be suitable for that type of investment. That said, we are doubling the number of partnership managers to work alongside local enterprise partnerships and enterprise zones to assist them in attracting inward investment. UKTI will continue to work with bodies to improve the local proposition, based around a region’s particular capabilities. We welcome, for instance, initiatives such as the Manchester-China Forum, championed by my noble friend Lord Wei, to promote regional co-operation and relationships.

UKTI does not typically recruit advisers with specific language skills but those with sector skills. However, we have in place sector specialists who are bilingual. In addition, we use the resources of UKTI in individual countries and have a large number of advisers in China as well as, of course, the FCO network. They assist with inward investment opportunities and marketing.

The report also recommends that the Government work together with NGOs to encourage inward investment and market the UK. I take the point that there are a number of these NGOs but the Government certainly work with a wide range of organisations, such as the China-Britain Business Council, the CEC—which was mentioned earlier—the 48 Group Club, UK-China CEO Dialogue and, of course, the APPG. I also recognise and welcome the point made about the diaspora community. As a Government, and as part of our trade effort, we should be seeking to use diaspora communities far more widely, in relation to trade not just with China but with a number of other countries.

Noble Lords, including my noble friend Lord Cotter, also raised issues of immigration policy. I have heard many of the same concerns directly. Although there are definitely issues, some of it is also perception. I will set out a few facts. First, the UK has more visa application centres in China than in any other country and 96% of Chinese visa applications are approved. The UK issued a third more visas to Chinese citizens in 2013 than we did in 2012, so we are making progress. There was a 9% increase in the number of study-related visas.

[Lord Davidson of Glen Clova]

I wonder whether the Minister could focus not so much on the numbers of visas, but on the problems that the visa process creates: delay and complexity. That is what sends the message that you, the Chinese investor, are not welcome.

[Lord Livingston of Parkhead]

My very next words were going to be that the average time to process a visa is seven working days. Of course, there will be more difficult cases, but we also have a three-day to five-day priority service available. The Prime Minister, during his well thought through trip to China, announced that we would be trialling a 24-hour service this year. That received a standing ovation in the room he was in.

[Lord Davidson of Glen Clova]

The Minister did say that I was out of date, but possibly he did not necessarily mean that in relation to visas. Only last week I had a party of Chinese investors saying that they were having considerable problems with delays in getting visas. These are people who wish to invest in the United Kingdom but are experiencing delays. Perhaps the information that the Minister is obtaining is out of date.

[Lord Livingston of Parkhead]

I am sure that if the noble Lord would provide me with some details of that particular party, we can look into what their challenges were. We are trying hard to make the process of applying for a UK visa easier. We have a pilot scheme allowing selected travel agents to make offline applications for tour groups using the same forms that are used for Schengen—with a small additional form—so that people do not have to enter the same information twice. We also have a select business scheme to provide key businesses wanting to invest in the UK with special services. There are currently around 140 members. The Home Secretary has announced the launch of the GREAT Club, an invitation-only account management service for the very highest-level investors.

I recognise that there are issues in relation to graduates. All graduates have a four-month period in which to apply for a graduate-level job, which allows skilled, well paid graduates to stay in the UK. I accept that the situation is not perfect. Significantly, we talk with the Home Office about how we can improve perception and what we can do around both policy and process. However, the situation has improved significantly. From talking to Chinese businessmen, which I do regularly, I know that they recognise some of that improvement. However, there is still more work to do.

I now turn to taxation. A competitive and clear tax regime has a role to play in attracting inward investment and is seen as a UK strength. I know the policy recommendation was that HMRC should translate its guidance into Mandarin, but it is not HMRC’s policy to translate tax returns into foreign languages, partly due to costs but also for reasons of equality of treatment. Having been a tax accountant in the long-distant past, I can confirm that nuances of languages can be very difficult at times, although there is of course an opportunity for professional services to advise on these issues. I will pass the comments regarding foreign languages on to HMRC, but it is not an issue that I have had raised directly by inward investors.

I welcome the comments from noble Lords on the importance of setting up as an offshore RMB centre. Over the past few years, we have made a lot of progress in changing some of the regulations and policy and in giving encouragement. We can debate whether London is a leading offshore RMB centre, but many would say it is the leading centre. We have certainly seen progress, but we know that there is more to do and we will be looking for further—

[Lord Davidson of Glen Clova]

The Minister indicated I was out of date. He was perhaps not referring to the surpassing of London by Singapore as an RMB trading centre, which was noted at the end of February. Perhaps he would care to comment on that.

[Lord Livingston of Parkhead]

In currency trading, there are different time zones. I was a spot trader once upon a time in my life and used to take over from Singapore. We shall see how the figures on RMB trading come out for the full year. The UK has established a very strong presence in RMB, which is as a result of the Government’s policies and the changes they have made.

UKTI has created a number of sector organisations focusing on increased investment in areas such as automotive, life sciences, financial services, offshore wind, regeneration and innovation. They will help individual sectors and investment, not just from China but from other countries. They are not aimed just at China, but we think these sectors are important to show expertise in individual areas. In addition, we have a specialised group aimed at regeneration opportunities: RIO. This has been particularly attractive to Chinese investors and provides a pan-UK list of opportunities for regeneration in every region around the UK. RIO not only presents a playbook of opportunities but will guide potential investors through some of the barriers rightly raised by the noble and learned Lord, Lord Davidson.

This Government has a strong focus on building relationships with China. There have been numerous trade and ministerial visits, which are well thought out and well appreciated by the Chinese hosts. The highlight was the Prime Minister’s visit with the biggest business delegation ever assembled. More than half the companies that went on that were small companies. One of the important agreements signed during that visit was with the National Development and Reform Commission, to enhance trade and investment between the UK and China. As a result, and with the support of the British embassy in Beijing, the NDRC has launched the Chinese Enterprises Investment Guide to the UK, which is the first guide that it has published written for Chinese companies looking to invest in another country.

I shall pick up some points raised by the noble Baroness, Lady Falkner. The UK is proud of its position as an open economy, which we think has benefited the UK. It has created millions of jobs. When we talk about overseas investment, we have to look at JLR as an example of an acquisition that has helped the UK immensely and created value added and jobs. It is far less about the nationality of the company involved than its quality. We have public interest tests, particularly related to security, a key area which the noble Baroness raised, and areas such as media plurality. It is important that we look at the context of how much we have benefited. The UK will continue to position itself as open and to consider some of the challenges. I remind noble Lords that when we talk about AstraZeneca, Astra was a Swedish company; when we talk about GlaxoSmithKline, Smith, Kline & Co. was from Philadelphia. When we talk about openness, we have to remember that it is a two-way street.

The noble Baroness referred to diversifying into China too much. The challenge we have today is that we are not diversified enough. The EU has 45% of our trade and the US is our largest single market. It is this Government’s aim that the fast-growing markets should represent a larger proportion of our trade. The EU-China trade talks are just one of many trade talks. There are trade agreements being made and discussions going on with Japan, India, Singapore and the USA. We have recently concluded talks at the political level with Canada and we are discussing EPAs with many countries around the world. There is of course the Bali WTO agreement. This country is championing free trade around the world and will continue to do that on a plurilateral and multilateral basis, as well as on a WTO basis.

In conclusion, the UK has been very successful at attracting inward investment—we must remember that we are the number one in Europe for inward investment. It is the aim of this Government to improve our position in gaining inward investment from high-growth economies where historically we have not been successful, and of course China is number one in that list. We made significant progress in 2013 with multibillion pound investment across a range of sectors. We agree with the report that there is more to do, and we will do more. I thank all noble Lords who have spoken today for attending and for their interest in this subject. We have considered the report in detail and will continue to look at its recommendations. We will continue to engage strongly with government and non-government organisations in the UK and in China to make further progress and to make the UK the most attractive and successful investment destination for China in Europe.