Br-entry and not Brexit

More challenges to address before Business as Usual

Celebrating the mid-Autumn festival, the China Investors Club opened its Autumn series of roundtable discussions by addressing the issue of post-Brexit Britain which was also referred to as ‘Br-entry’, Britain’s entry to the world. Delegates from both the Chinese and UK business communities joined our three experts to focus on the key issues for business. What was impressive was the resilience of those attending given the changes forced on them by the decision to leave the EU and how they were already identifying ways in which to take their respective businesses into new directions. There was little re-hashing of the political rhetoric prior to the vote in June and even less relating to the current political vacuum. In fact most emphasis was to identify the key areas that would make a substantive contribution to continued trade with Europe and China.

4 key points

The key points addressed from the perspective of China/UK trade were:

·        Is the UK a more attractive location than Europe for investment?

·        Is the Golden era over?

·        What happens when GBP appreciates?

·        Can the UK still be seen as an access point to Europe

From the speakers and delegate contribution we summarised as follows:

• UK outside of Europe is at best on a par with Europe as an investment location but potentially worse off. Competing locations such as Dublin for financial services and Amsterdam for trading goods work equally well for Chinese firms given that English language is common to both. Progressive actions by both locations to attract new investment, whether through attractive tax systems or investment into infrastructure such as Schiphol airport are getting noticed by the business communities in China. The UK needs to make its own ‘pitch’ that much more attractive and noticeable.
• While Gold does not tarnish, it can be devalued. The blunt political communication about delays to Hinkley Point caused a justifiable rebuttal from China. While subsequent communiques were more measured, Theresa May needs to find trusted advisors such as Richard Graham MP – Chair of the All Party Parliamentary China Group - to help her craft a longer-term sustainable message to China that we remain open to investment even if it is not going to be something as sensitive as nuclear power.
• The question regarding Sterling appreciating caused some humour among delegates with few believing that the current rally was sustainable through to Q1 2017. When Article 50 is signed early 2017 then the depth and breadth of the instigating new bi-lateral trade agreements including seeking membership of the WTO will become apparent and cause further weakness. Consensus for time to achieve these new agreements was 8 years which does not compare favourably to the 2 years that Article 50 gives.
• Whether the UK could still be seen as an access point for Europe was less clear. In the end it was felt by the Chinese business community that this depended on whether the business was a localised SME just trading in the UK, medium sized and needed freer access to a larger European market or international. SME’s would continue to come to the UK but medium sized firms would now be actively looking at other European locations (see above). International firms had a wider range of options and could still use the UK as a Head Office for the time-zone but would be more proactive about opening European offices.

Key actions to protect UK industry

Top of this discussion was passporting UK financial services into Europe. This was the key-stone to whether the next decade would see growth in UK GDP. Negotiating a solution to this issue ahead of Article 50 is critical as any material weakening in the financial services sector would cascade through to the tech community, housing markets, tax revenues and ultimately social infrastructure such as health and transport. Our tech-expert speaker showcased one example of how the strength of the UK’s financial services sector had supported development of blockchain and cyber-security technology and how this remained attractive to international investors. Without effective passporting of financial services then it was questioned whether the same advances could be supported through the rest of the decade.

Immigration came a close second as an issue to solve with strong support for ‘freedom of movement for workers’ rather than the broader ‘freedom of movement’. This could be the compromise that Germany and France could accept and potentially address the concerns of Brexiteers regarding immigration. With regards to China, the China Investors Club stance is that those Chinese students undertaking advanced education in the UK should be contracted to remain in the UK for between 2-5 years so that their skill, knowledge and hard work ethics contribute to our GDP. A win-win for all concerned.

Business has a unique opportunity

This is the first time in 40 years that the UK’s regulatory environment has been up for wholesale change and it is not an opportunity to be missed. With no political guidance as to how the UK will position itself on the international business stage, one of our speakers provided invaluable insight into how business could influence the current political agenda. With a top-10 checklist for firms to follow, his key point was to have a clear message to give to politicians to follow. While some of the large consulting firms were already being contracted to provide ‘expert’ advice to civil servants, it was vital that industry groups positioned themselves clearly over the coming months to make sure their opinions were factored in to future decisions.

In summary, all those attending the event were seeing short term business activity picking up. They also recognised that without a clear political strategy from Theresa May that 2017 could be more challenging. If they could choose just one thing to focus on then that was passporting of financial services into Europe. To keep China on side post Hinkley Point would require clear political support with the offering of access to other infrastructure investment projects essential. However with careful management, the Golden Era should continue with the same vigour as enjoyed so far.