UK could be model for service economy

The UK with its service-sector dominant economy could benefit as China moves away from its old manufacturing and export model, according to a new report.

Law firm King & Wood Mallesons predicts the UK's FDI asset stock in China is set to rise almost fourfold from 6.67 billion pounds (8.93 billion euros) in 2014 to 25.61 billion pounds in 2020 as China opens up its service sector to foreign investors.

Some of the increase is likely to come in healthcare, clean tech and life sciences.

Rob Day, managing partner of King & Wood Mallesons in London, says the next stage of China's development is likely to benefit the UK.

"With China opening up its services sector, this is a fundamental opportunity for the UK," he says.

China's biggest economic partnership with an EU country since its first stage of development has been with Germany with its strength in engineering. Companies like Siemens first came to China in the 1870s.

According to the report, Germany's investment in China will rise just over three times from 11.67 billion pounds in 2014 to 35.2 billion pounds in 2020, a slower rate than that of the UK.

"If you look in terms of asset stock, Germany is the biggest individual European investor in China. I think the gap, however, may narrow. I think what is implicit is a faster degree of growth from the UK than from Germany," Day says.

France's asset stock will rise more slowly than that of the UK, from 4.33 billion pounds to just 10.27 billion pounds over the same period.

The Netherlands will see its FDI increase from the same level as the UK's in 2014 at 6.67 billion pounds to 16.64 billion pounds in 2020.

Some believe the UK could be a future role model for China. Services made up 46 percent of UK GDP approximately the same as China now - in 1948 but this rose to 78 percent by 2012

The number of people employed in the services sector over the same period has gone up from 44 to 85 percent.

When UK Prime Minister David Cameron visited China in December 2013, visit bringing with him the leaders of some 100 British companies, he talked of a new "growth partnership" between Britain and the world's second-largest economy.

Henry Bell, the first secretary, economic, at the British embassy in Beijing, says there is now strong potential in the Sino-UK relationship.

"It is based on the premise that the UK and China have very complementary strengths. Their (relationship's) comparative advantage is that they don't compete with each other. They complement each other."

He insists the UK is not engaged in some new battle with the Germans.

"I don't think it is a zero sum game. The cake is getting bigger and so everyone stands to benefit from a larger cake but you would expect to see the UK's share of the cake grow faster."

Thomas Luedi, managing partner, Greater China, at AT Kearney, who is based in Shanghai, believes the Sino-German link is more than just a strong trade partnership, and that it will take more than a transitioning economy to break it.

"There is something that is very culturally close between the Germans and the Chinese. If you look at China's state-owned enterprises, they are essentially run by engineers. Much of the government itself is made up of engineers," he says.

Joerg Wuttke, president of the European Chamber of Commerce in China, however, argues the UK would be a model that is difficult for China to emulate.

"I think the economic situation as to where China and the UK is standing is 40 to 50 years apart minimum. I think to take a role model so far ahead of yourself would be inadvisable for China," he says.

One of the major opportunities for UK companies could come from the Shanghai free trade zone, officially opened in September 2013. Others will now be established in Guangdong, Fujian and in Tianjin.

Although some argue there is still a lack of clarity about the rules framework, the zones offer the potential for service businesses, particularly in the financial and healthcare sectors, to operate with fewer restrictions and also greater ease of moving money in and out of the country.

Bell at the British embassy is excited by the opportunities such zones provide.

"The UK is already doing pretty well in China's financial services industry relative to other foreign participants and you would expect us to stay strong."

Kerry Brown, director of the China Studies Centre at Sydney University, is skeptical about any new role for the UK in China.

Like Bell, he is a former first secretary at the British embassy in Beijing and now the author of a new book to be published in March on UK-China relations, What's Wrong With Diplomacy?

"The UK has this mindset that is schizophrenic. On the one hand they are yelling at China over certain value issues and also not doing it in a particularly sophisticated way. On the other hand they just want Chinese money.

"The Germans, however, have tended just to go and do business and not get too complicated about it."

Another who is worried the UK may miss out on the opportunity is Alistair Michie, chief adviser to the China State Administration for Foreign Experts.

"I don't think the UK is looking with a clear focus about what is happening here. They are not looking at the signals. I don't think they full comprehend how UK businesses might benefit from the next stage of China's development."

UK companies trying to engage with China often tend to knock on the wrong doors, he says.

"In the UK there is still a focus on opening up business relations through Chinese government ministries and state-owned enterprises. There is a lack of recognition that 60 percent of China's GDP now comes from the private sector and this is what is going to drive China's service-sector revolution."

andrewmoody@chinadaily.com.cn

( China Daily Africa Weekly 02/06/2015 page7)