Well, if you believe the politicians, the future is rosy. Liam Fox, the UK Government's Secretary of State for International Trade in on record as saying that the UK wants to “to deepen our investment and trade relationship in both directions between Britain and China and Hong Kong.”
So the question is, what does this mean on the ground? Does China actually care? With the U.S. apparently perusing a policy of restrictions when it comes to Chinese trade, is there an opportunity for “U.K Plc” as the U.S. leaves a vacuum?
When listening to the high-level politics, news and views from governments and from the global corporate perspective, it’s easy to overlook the obvious. The benefits to small and medium UK-based firms which a post-Brexit trading with China may offer may be intertwined in a long-term general way with trade deals and government policies, but the immediate short and mid-term opportunity lies elsewhere.
Our UK client base is focused on export to China, so that’s what we’ll consider. One of the key factors to bear in mind lies outside the politics surrounding the issue of Brexit. It’s the currency. Sterling, to be precise.
Peaking at over 9.8 Chinese Yuan (RMB) before Brexit, at the time of writing, the pound is trading at a big discount – around 13%. So for firms looking to China, or for those already there, one thing is clear. UK goods and services are a lot cheaper than they were.
For companies who service China largely from their UK location, this is of huge benefit. Goods and services can now be keenly priced or alternatively, profits can be maximised. Or a line somewhere between the two.
The outlook for Sterling remains unsure. As of writing, economic data had remained resolutely positive until just recently but that confidence is starting to tail away. So, it’s possible Sterling could drop some more. Doom and gloom as far as the UK media is concerned. But for the agile export-focused UK firm, good news!
For those Chinese market first-timers, a policy of one step at a time is beneficial, committing only to local market services which are absolutely necessary whilst keeping what you can at home it the UK. Leveraging the power of the web and avoiding China costs on the ground could be key here.
Many businesses get attracted by the hype of ‘The Launch’. Unless you have the resources and the China brand recognition of Land Rover, forget it. A weaker Sterling is an opportunity, but China is still a market where a step by step approach is wisest for newcomers. Prove the market, take the next step, review the next step, take another step. That way costs in RMB are kept low.
Nevertheless, in terms of Chinese business investing in the UK, that is more of a concern. Slowing of inward investment was always a primary issue for UK business in the Brexit debate. Brexit means Britain has lost its role as the gateway for Chinese companies to enter the EU market.
Our company has been in the presence of Chinese officials who have been heard to say that the UK in Europe was a less attractive partner for business. The ‘UK in the EU’ was the UK’s strength.
But for exporters to China, the threat of slowing inward investment is a nagging thought which can be ignored in the meantime. Politically, post-Brexit, if Britain has skilled negotiators and the will is there, there is a freedom to cut trade deals more quickly. China will be interested in a deal with the UK as the UK is still the 5th largest global economy, despite the loss of the EU hinterland. And the red tape just got a whole lot easier.
So, (discounting increasing costs and inflation at home – which no doubt will have some impact), UK SMEs with a cost base largely in the UK have a huge incentive to export to China. And to the rest of the world, for that matter.
For those with existing operations and overheads overseas, it’s not such good news. Chinese overheads and staff have now become more costly. No longer the low-wage manufacturer for the world, it actually makes sense for companies to reduce operational experience in China. So that could be seen as good news – bringing back more labour and activity home whilst having greater opportunities aboard.
China remains interested in UK consumer goods. The recent trend saw Chinese shopping less for Western goods at home. Expensive due to tax and core RRP costs, those who could, saved up in order to shop on holiday for goods cheaper abroad. This trend may reverse somewhat for UK goods which now enjoy cheaper prices. This is not only due to the core goods price being cheaper but the levied taxes will also, therefore, be less.
It's not only consumer goods with opportunity due to low Sterling values. UK high-tech manufacturing and services are known for their quality. The price advantage due to Sterling falling makes pricing more competitive compared with local companies.
Our company was generally fearful of Brexit. Those who voted for 'Leave' certainly didn’t really have ‘ease of exporting’ at the top of their list when casting their vote. But we are where we are and it’s now obvious that there’s huge opportunity in exporting for ‘UK PLC’ due to the value of the Pound.
China’s growth for 2017 was upgraded to 6.5% by the IMF this month. That’s still growth to die for. So, whatever the mood music in terms of politics and the news, it’s not all bad. Low Sterling combined with low-cost reach of digital operations are a good way to scale right now for China, particularly if most of your costs are in Sterling too.
It goes without saying all our services relating to access the China market via the web are billed in pounds Sterling. Take advantage and get in touch now.