China-UK Trade and Investment Ties

This text delves into the UK’s financial ties with China and Hong Kong, spotlighting the import-export sector and bilateral investments.

Within the final decade, China-UK commerce and funding have been steadily rising, permitting cooperation in strategic sectors, reminiscent of well being, science, know-how, and schooling. The seamless growth of the connection was additionally made potential by the handover of Hong Kong in 1997.

Publish-Brexit, the UK is working to occupy a extra impartial position within the international buying and selling system, which can create new alternatives to develop its bilateral enterprise ties with China.

On this article, we examine the UK’s commerce and funding relations with China and the Hong Kong Particular Administrative Area (SAR), outlining main export-import gadgets and areas of investor curiosity.

Mainland China-UK relations

In 2022, Beijing and London celebrated 50 years of their diplomatic relations. The Folks’s Republic of China (PRC) was formally acknowledged by the UK one 12 months after its basis, earlier than most different Western nations. The institution of full diplomatic relations between China and the UK in 1972 paved the best way for elevated collaboration in a wide range of areas, together with commerce, tradition, and economics.

In 2021, China overtook Japan to grow to be the UK’s largest buying and selling companion in Asia, up from a mere US$300 million in bilateral commerce in 1972, reaching practically US$50 billion in bilateral commerce. In the identical 12 months, greater than 800 Chinese language firms created 80,000 jobs within the UK.

London is dwelling to the most important offshore RMB clearance middle on this planet. The Shanghai-London Inventory Join and the foreign money swap program are two examples of profitable monetary exchanges between the 2 international locations. One other development issue for China-UK relations is cooperation within the new vitality trade – creating battery capability, offshore wind vitality, electrical autos, and different inexperienced applied sciences.

Furthermore, a cornerstone of China-UK relations is the people-to-people exchanges and academic collaboration. The UK surpassed the US in 2020 to take the highest spot amongst international locations the place Chinese language college students research overseas. Forty-two p.c of Chinese language college students who selected to check overseas made the UK their vacation spot. Regardless of COVID-19’s destructive results on the stream of worldwide college students, 130,000 pupil visas for the UK had been granted to Chinese language college students in 2021, accounting for one-third of all international college students enrolled in universities there. Because the pandemic eases, we are able to anticipate these tendencies to develop.

Hong Kong-UK relations

Hong Kong was a British colony from 1841 to 1941 and once more from 1945 to 1997 when China was granted sovereignty over the SAR. Along with supporting Hong Kong’s mini-constitution, the Fundamental Legislation, and adhering to China’s coverage of observing “one nation, two techniques,” the UK’s coverage in the direction of Hong Kong is supported by its vital business pursuits. It additionally fulfills its obligation as the opposite signatory of the Sino-British Joint Declaration on the way forward for Hong Kong.

As well as, Hong Kong is dwelling to about 2.9 million British residents, of whom 350,000 have an energetic British passport, making it the third-largest jurisdiction on this planet when it comes to the variety of British passport holders, after america and the Commonwealth nations of the Anglosphere. Thus far, establishments from Hong Kong proceed to carry full and affiliate memberships within the Affiliation of Commonwealth Universities and different related Commonwealth Basis-affiliated our bodies.

Because of these historic and cultural components, the UK continues to have vital enterprise and funding ties with Hong Kong. Tons of of British companies have been energetic in Hong Kong for a few years, a mirrored image of the long-standing historic connections.

Bilateral commerce tendencies

Mainland China-UK bilateral commerce

China was the UK’s third largest buying and selling companion within the 4 quarters to the top of Q1 2022, accounting for six.9 p.c of complete UK commerce. In November 2022, the UK Division of Commerce and Business reported that the full commerce in items and companies (imports plus exports) between the UK and China reached £92.2 billion (US$111.24 billion) within the 4 quarters to the top of Q2, a lower of 1.6 p.c or £1.5 billion (US$1.8 billion) from the identical interval in 2021. Of this worth:

• Complete UK exports to China reached £27.9 billion (US$33.7 billion) within the 4 quarters to the top of Q2 2022, a year-on-year improve of 1.9 p.c or £509 million (US$615.4 million).
• Complete UK imports from China reached £65.0 billion (US$78.5 billion) within the 4 quarters to the top of Q2 2022, a year-on-year lower of three p.c or £2.0 billion (US$2.4 billion).

The majority of the UK’s exports to China is crude oil, vehicles, medicinal and pharmaceutical merchandise, non-ferrous metals, and mechanical energy mills, which make up 4 of the highest 5 export merchandise. Exports of crude oil amounted to US$4.7 billion in 2021.

In the meantime, China’s prime exports to the UK are equipment, telecom and sound gear, client manufactures, chemical substances, and clothes, which amounted to US$553.6 million in 2021.

Hong Kong-UK bilateral commerce

The UK (UK and Hong Kong proceed to have an in depth bilateral relationship.

Within the 4 quarters to the top of Q2 2022, the full worth of commerce in items and companies (imports plus exports) between the UK and Hong Kong was £23.4 billion (US$27.9 billion), a slight lower of 0.5 p.c or £120 million (US$143 million) from the earlier 12 months.

As well as, Hong Kong represents a major entrepôt for merchandise commerce between the UK and Mainland China. In 2021, round eight p.c of Mainland China’s exports to the UK (£5.1 billion / US$6 billion) and about 11 p.c of Mainland China’s imports from the UK (£2.1 billion / US$2.5 billion) had been routed by Hong Kong.

In 2021, Hong Kong-origin items exported to the UK accounted for six.6 p.c of its complete exports. Main exported merchandise had been silver and platinum, jewellery, in addition to treasured steel ores and concentrates.

In the meantime, items imported from the UK accounted for 1.2 p.c (US$7.1 billion) of Hong Kong’s complete merchandise imports. Main items included non-electric engines and motors, silver and platinum, but in addition artistic endeavors and collectors’ items and antiques.

Bilateral funding tendencies

Mainland China’s funding within the UK

In 2021, disclosed transactions involving Chinese language funding within the UK totaled £3.59 billion (US$4.29 billion), and 845 Chinese language-owned companies within the nation reported audited income figures for the 2 most up-to-date fiscal years, up from 838 in 2020.

When it comes to UK inbound funding from China, Chinese language companies invested £3.4 billion (US$4 billion) into the UK in 2020, accounting for 0.2 p.c of the full UK inward FDI inventory.

In keeping with the Grant Thornton Tou Ying Tracker, created in cooperation with the China Every day and China Chamber of Commerce within the UK (CCCUK), in 2021, there have been round 30,000 firms that had been a part of a China-owned company group. Shopper companies made up 28 p.c of the businesses, adopted by manufacturing and industrial (22 p.c) and enterprise assist companies (17 p.c).

Non-public healthcare was the best-performing sector when it comes to income and worker development, which skilled a 40 p.c and 14 p.c improve, respectively.

The UK’s funding in China

The most up-to-date figures for outbound funding from the UK into China present investments price £12.9 billion (US$15.4 billion), accounting for 0.8 p.c of the full UK outward FDI inventory in 2020.

These figures are backed up by what Dezan Shira & Associates UK has been saying about UK funding into China – the underlying tendencies stay robust. The agency handles British funding into the PRC and has completed since 1992. Grant Williams within the agency’s Shanghai workplace says, “Opposite to media reviews, British buyers stay welcome in China and there are many sectoral components for them to be concerned with, particularly given China’s big client market. We’re capable of present market analysis amenities, institution, and tax structuring help to UK exporters that require a brand new look in rethinking a China technique.”

Bilateral Hong Kong-UK funding ties

In 2020, the outward inventory of FDI from the UK in Hong Kong was £76 billion (US$90.8 billion), accounting for 4.6 p.c of the full UK outward FDI inventory.

In 2021, Hong Kong recorded 9,049 companies with mother or father firms abroad, and the UK figured because the fourth largest investor, after the Mainland, Japan, and america.

Alternatively, FDI from Hong Kong within the UK reached £7.5 billion (US$8.9 billion), accounting for 1.4 p.c of the full UK inward FDI inventory.

Beneath the British Nationwide (Abroad) visa program, London and the encompassing boroughs of the capital of the UK proceed to be the highest vacation spot for immigrants from Hong Kong, accounting for almost all of dwelling gross sales within the space. In keeping with the UK Workplace of Nationwide Statistics, Hong Kong buyers, together with Chinese language ones, bought London actual property price £7.69 billion (US$9.3 billion) in 2019. This made the British capital some of the sought-after areas worldwide for Chinese language property investments.

Different engagements between China and the UK

UK-China strategic plan for monetary companies

There’s unmatched cooperation in monetary companies between China and the UK – the highest offshore RMB middle on this planet. By means of the UK-China Strategic Plan for Monetary Companies, each events unveiled their imaginative and prescient for bilateral cooperation within the years to return as a way to assist the continued internationalization of China’s monetary markets and foreign money in addition to the UK’s place as the highest monetary middle on this planet. This might be achieved by elevated information trade, expanded market entry, and the promotion of competitiveness for each home and international corporations in China and the UK.

The plan consists of the creation of a brand new UK-China Monetary Companies Summit led by senior leaders from each international locations’ monetary companies sectors. The summit informs the annual UK-China Financial and Monetary Dialogue to:

• Enhance alternatives to diversify Chinese language funding by permitting larger market entry for UK asset managers in China and develop alternatives for Chinese language asset managers to ascertain within the UK and put money into international
• Set up nearer ties between the capital markets of the UK and China, which is able to enhance the effectivity and liquidity of the Chinese language capital markets.
• Promote reciprocal market entry to the banking sectors of each nations to help in boosting range, market effectiveness, and monetary inclusion. Enhance cooperation to help infrastructure co-financing within the UK, China, and different markets, particularly these alongside the Belt and Street Initiative (BRI).
• Help the expansion of the non-public pensions sector in China, together with the creation of nationwide financial savings autos, and develop the chance for UK firms to supply non-public pensions companies.
• Enhance Fintech cooperation to assist the entry and development of Chinese language and UK companies in one another’s markets, in addition to to assist enhance monetary infrastructures, develop firm entry to capital, and advance monetary inclusion.
• Additional develop the UK-China Strategic Inexperienced Finance Partnership.

Power and surroundings

In 2015, the UK authorities introduced a take care of China to place British firms as companions of selection for low-carbon vitality. The timing of the deal coincided with President Xi Jinping’s official go to to the UK in October of the identical 12 months.

The settlement promotes collaboration in low-carbon vitality analysis and enterprise, and it’s anticipated that it’ll spur extra funding in inexperienced applied sciences in each nations.

In keeping with a press release from the Division of Power and Local weather Change (DECC), the deal would “strengthen the UK’s place because the companion of selection for China in low carbon vitality and assist to pave the trail for efficient vitality relations between the 2 nations,”

and “UK companies within the low-carbon trade can have higher entry to the world’s largest vitality market, permitting them to share their technological and modern know-how and win new enterprise.”

By 2015, China had already made investments within the UK’s offshore wind and electrical car markets in addition to trade and analysis partnerships in marine vitality and inexperienced buildings as a part of the partnership.

Some investments embody the participation of state-owned China Three Gorges (CTG) energy firm within the Moray offshore wind undertaking in Scotland and the Chinese language manufacturing of two,000 electrical buses for the UK market.

Probably the most related a part of the DECC stays the involvement of China’s state-owned China Normal Nuclear Energy Group within the Hinkley Level nuclear energy station, during which the corporate holds a 33.5 p.c curiosity.

Main commerce and funding agreements

Mainland China-UK

Bilateral funding treaty

China and the UK signed a bilateral funding treaty (BIT) in 1986 to make sure that buyers from each contractual nations can have their investments within the different contracting nation protected.

Traders lined by the BIT embody:

• Residents of the PRC and the UK; and
• Corporations legally established inside the territories of the PRC and the UK.

Beneath the China-UK BIT, “investments” which are protected embody (however aren’t restricted to):

• Movable, immovable property and different property rights reminiscent of mortgages and pledges;
• Shares, inventory, and every other form of participation in firms;
• Claims to cash or to every other efficiency having an financial worth;
• Copyrights, industrial property rights, know-how, and technological course of; and
• Concessions conferred by regulation, together with concessions to seek for or exploit pure sources.

The BIT additionally ensures buyers from each international locations the proper to switch earnings derived within the different contracting get together’s territory again to their dwelling nation. This consists of the switch of earnings, dividends, pursuits, and different revenue, cash from partial liquidation of funding, payables pursuant to mortgage agreements associated to investments, and royalties.

The BIT consists of articles on dispute mechanisms, together with litigation in a impartial worldwide tribunal or a tribunal established underneath a particular settlement between each events. The treaty additionally ensures that buyers from each nations have the proper to switch their investments again to their dwelling international locations. Apart from that, it forbids each contracting international locations from seizing or expropriating a international firm’s belongings which are underneath their management, except there are excessive home wants for it, and it’s completed in opposition to honest compensation.

For extra info on how buyers can profit from China’s BITs, see our article right here.

Settlement on Cooperation and Mutual Administrative Help in Customs Issues

The UK-China Settlement on Cooperation and Mutual Administrative Help in Customs Issues (CMAA) entered into power on January 1, 2021. The doc represents each events’ dedication to the facilitation of products trade and the trade of data and experience on measures to enhance customs strategies and procedures and on computerized techniques which may be helpful to it.

The CMAA settlement outlines that technical cooperation could also be offered when mutually helpful to customs issues, within the type of:

• Change of personnel and consultants, for the needs of selling the mutual understanding of one another’s customs regulation, procedures, and strategies;
• Coaching, significantly creating specialised expertise of their customs officers;
• Change {of professional}, scientific, and technical information regarding customs regulation and procedures;
• Methods and improved strategies of processing passengers and cargo; and
• Every other normal administrative issues that will once in a while require joint actions by their customs administrations.

The scope of the settlement between the 2 international locations consists of:

• Establishing and sustaining channels of communication between their customs authorities to facilitate and safe the fast trade of data;
• Facilitating efficient coordination between their customs authorities;
• Selling facilitation of bilateral and international commerce; and
• Every other administrative issues associated to the CMMA that will once in a while require their joint motion.

The CMAA settlement additionally covers the kind of help exchanged between the UK and China on the matter of customs administration, whether or not that’s spontaneous or requested – during which case, it ought to comply with particular clauses.

Lastly, the CMAA settlement specifies the shape during which info must be communicated, confidentiality measures, help bills, and exceptions to the duty to offer help.

Hong Kong-UK engagements

Funding Promotion and Safety Settlement

Hong Kong and the UK signed an Funding Promotion and Safety Settlement (IPPA) in 1998 to advertise favorable situations for larger funding from each side.

Traders lined by the IPPA embody:

• Residents of the SAR and the UK; and
• Corporations legally established inside the territories of the SAR and the UK.

Beneath the Settlement, “investments” which are protected embody (however aren’t restricted to):

• Movable and immovable property and every other property rights reminiscent of mortgages, liens or pledges;
• Shares in and inventory and debentures of an organization and every other type of participation in an organization;
• Claims to cash or to any efficiency underneath contract having a monetary worth;
• Mental property rights, goodwill, technical processes, and know-how; and
• Enterprise concessions conferred by regulation or underneath contract, together with concessions to seek for, domesticate, extract or exploit pure sources.

The IPPA ensures buyers from each international locations the proper to switch earnings derived within the different contracting get together’s territory again to their dwelling nation. This consists of the switch of earnings, dividends, pursuits, and different revenue, cash from partial liquidation of funding, payables pursuant to mortgage agreements associated to investments, and royalties.

Beneath the Settlement, funding disputes which haven’t been resolved amicably must be settled by particular procedures agreed upon inside a interval of three months.

Complete Avoidance of Double Taxation Settlement

In 2010, the UK and Hong Kong signed a Complete Avoidance of Double Taxation Settlement (CDTA). The CDTA outlines intimately the division of taxing authority between the 2 jurisdictions in addition to the discount in tax charges for numerous types of passive revenue. It promotes nearer financial and commerce ties between the 2 nations, assists buyers in higher estimating their potential tax liabilities from cross-border financial actions, and affords extra incentives for UK-based companies to conduct enterprise or make investments in Hong Kong and vice versa.

Hong Kong “residents” lined by the CDTA embody:

• Any particular person who ordinarily resides within the Hong Kong Particular Administrative Area;
• Any particular person who stays within the Hong Kong SAR for greater than 180 days throughout a 12 months of evaluation or for greater than 300 days in two consecutive years of evaluation considered one of which is the related 12 months of evaluation;
• An organization integrated in Hong Kong or, if integrated outdoors, being centrally managed and managed within the SAR;
• Every other particular person constituted underneath the legal guidelines of the Hong Kong SAR of, if constituted outdoors, being centrally managed and managed within the SAR.

UK “residents” lined by the CDTA embody any one who, underneath the legal guidelines of the UK, is liable to tax therein by motive of his domicile, residence, place of administration, place of incorporation or every other criterion of the same nature. This time period, nevertheless, doesn’t embody any one who is liable to tax within the UK in respect solely of revenue from sources within the nation.

Furthermore, the Settlement covers taxation of the governments, political subdivisions, and native authorities of each international locations.

The doc additionally illustrates the case of a person being a “resident” entity in each international locations, during which case:

• They are going to be deemed to be a resident solely of the Social gathering during which they’ve a everlasting dwelling obtainable;
• If they’ve a house in each international locations, then they are going to be thought of “residents” of the nation the place they’ve nearer private and financial relations (that’s, “centre of significant pursuits”);
• In case the centre of significant pursuits can’t be decided, they are going to be deemed to be resident the place they’ve a recurring abode. If this situation can’t be glad, then the competent authorities of the Contracting Events shall settle the query by mutual settlement.

Within the case of Hong Kong, taxes lined by the CDTA embody:

• Income tax;
• Salaries tax; and
• Property tax;

Whereas, within the case of the UK, they embody:

• Revenue tax;
• Company tax; and
• Capital good points tax.

See our China nation portal for an outline of Chinese language taxes and rules on residence and incorporation.

Multilateral treaties

China, Hong Kong, and the UK are all WTO members, which by extension means they’re events to a spread of multilateral agreements on commerce and funding. These treaties embody:

• The Settlement on Commerce-Associated Points of Mental Property Rights (TRIPS) requires WTO members to increase mental property (IP) rights to the IP homeowners in any member state or area. It features a most-favored-nation (MFN) clause, guaranteeing equal remedy for IP rights safety for all member international locations and areas, and affords dispute decision and compensation mechanisms.
• Settlement on Commerce-Associated Funding Measures (TRIMs), which prohibits members from implementing funding measures which have the impact of limiting commerce with different members, reminiscent of native content material necessities (necessities for a corporation to make use of locally-produced items or native companies as a way to function out there).
• Normal Settlement on Commerce in Companies (GATS), which ensures MFN standing to service suppliers of any WTO member (besides governmental companies reminiscent of social safety schemes, public well being, schooling, and companies associated to air transport).

Outlook

The latest resumption of direct flights between China and the UK beginning August 2022 ought to allow face-to-face interactions between individuals on a person, enterprise, and diplomatic ranges. The British Chamber of Commerce in China anticipates these formal financial interactions, reminiscent of by the Joint Financial and Commerce Fee (JETCO) and the Financial and Monetary Dialogue, will resume within the close to future as journey between the 2 nations turns into extra handy.

Elevated exchanges and communication will facilitate Chinese language companies to take part extra confidently within the UK financial system on the one hand, whereas additionally aiding British enterprises in overcoming obstacles within the Chinese language market and regulatory surroundings on the opposite.

Regarding Hong Kong, along with being its second-largest buying and selling companion in Europe, the UK additionally serves because the SAR’s main supply and recipient of FDI. The longer term financial development and prosperity of the UK will even rely upon how efficiently the nation will reshape its connections, funding, and commerce with Hong Kong within the Brexit period. British firms have already began to hunt non-EU nations for export and funding alternatives. A latest report revealed that 35 p.c of UK firms intend to extend their investments in Asia’s rising economies as their prime precedence. The advantages of large-scale growth initiatives just like the Belt and Street Initiative (BRI) and the Guangdong, Hong Kong, and Macau Higher Bay Space, will certainly appeal to this class.

Whereas China’s COVID-zero coverage, which has led to lockdowns and suspended operations for factories and companies, stays a problem for international buyers, Beijing has additionally proven alerts of stress-free measures and gradual opening. One concrete step on this route is the reopening of a number of flight routes between China and the UK, in addition to fewer necessities on arrival – reminiscent of a decreased quarantine interval.

To be updated with China’s journey updates, seek advice from our article right here.

All in all, in 2022, each the Chinese language and the British economies will expertise a slowdown, amid a world recession and post-pandemic restoration. It stays to be seen how the governments will reply to such financial headwinds, and the way these would possibly reshape their mutual commerce and funding relations.