Watch the webinar
This morning’s discussion centered around the lessons we can learn from China’s approach to Covid-19 and the impact of the virus on international trade. The CBI was pleased to host His Excellency Liu Xiaoming, Chinese Ambassador to the UK, who joined us for the webinar alongside Lord Karan Bilimoria, Vice President of CBI and Chairman of Cobra Beer Partnership and Dame Carolyn Fairbairn, Director-General of the CBI.
The discussion was wide ranging and informative. Here are the top five topics:
- An update on the JRS, access to finance and news on trade tariffs
- The impact of Covid-19 on China’s economy
- Lessons from China on managing the restart
- The impact of Covid-19 on international trade
- Relationships between China, the UK and the United States.
An update on the JRS, access to finance and news on trade tariffs
Before we launched into the conversation on China and trade, Carolyn provided updates on the two priorities for business: the partial furlough scheme and the level of employer contributions to the scheme. Carolyn said that we should expect to hear from the Treasury at the end of next week. “We are cautiously hopeful that the news will be positive,” she said, although she expressed reservations about their response to the idea of bringing forward the start date of the partial furlough scheme.
The government has also supplied the numbers on the uptake of the Covid-19 loan schemes:
- The “Bounce Back loans have been “rip roaringly popular,” said Carolyn, with over £14 billion lent and an approval rate of 80%.
- The CBILS is “now moving,” with £7.25 billion lent and a 50% approval rate.
- The CLBILS is “proving trickier,” remarked Carolyn. So far just under 0.6 billion has been lent, with the approval rate remaining low at 17%. The limit on these loans – designed to help out the “stranded middle” – has been raised from £50 million to £200 million “with some strings attached,” including restrictions on dividends, senior pay and share buybacks.
On trade tariffs, “we have had some interesting news” said Carolyn. Yesterday the UK government announced the tariff schedule for goods from countries we don’t have a preferential trading relationship with, to be introduced after we leave the European Union. “Broadly speaking this is a positive development” with a rationalisation of tariffs and the reduction of “friction in the system,” she said.
On the European side, “one of the things that’s coming through very strongly from business is that the biggest priority does remain striking the right deal with European Union,” said Carolyn.
The publication of this tariff schedule and the “ticking clock” on the extension means that Brexit is becoming important for business again. Expect to see more discussion of Brexit on this webinar in coming weeks.
The impact of Covid-19 on China’s economy
Turning to China, Carolyn was pleased to welcome Ambassador Liu to today’s conversation: “As we do cautiously restart the economy, learning these lessons internationally is hugely valuable,” she said.
Asked about the consequences of Covid-19 for China’s economy, the Ambassador remarked that “Covid-19 had a very bad impact,” noting that in the first quarter of 2020, the country had seen the first contraction in GDP since China’s records began in 1992, with a contraction of 6.8%.
However, Ambassador Liu was optimistic about the Chinese economy’s ability to reopen.
“I think the fundamentals of China’s economy remain sound,” he said. Large businesses have opened up again and manufacturing has resumed with production restored by 99% and 95% of staff back to work, according to the Ambassador. “We do have some encouraging signs,” he said.
Lessons from China on managing the restart
Ambassador Liu shared practical information about how China has managed a phased restart across the country. “Right now Covid has been under control. We achieved significant success in containing the virus but we still have to be on the alert,” he said. “We can’t claim final victory yet.”
As the country reopens, the Chinese government has adopted “different layers” of control depending on the situation in different cities and provinces, with some areas subject to stricter measures. While manufacturing has been restarted in many areas, in other places there are still restrictions. Factories are staggering the working hours of their employees and are enforcing social distancing measures and the wearing of masks. Likewise in schools, some have returned but with strict temperature checking and social distancing requirements.
The Ambassador noted that the country’s testing and tracing regime had been “very successful” in stemming the spread of the virus. “Testing is really the answer to containing the virus,” he said.
The impact of Covid-19 on international trade
“What is unique about this crisis is that it is a truly global crisis,” said Lord Karan Bilimoria, Vice President of CBI and Chairman of Cobra Beer Partnership. “The impact of the crisis on international trade is severe,” he said citing a study by the World Trade Organisation released last month that suggested trade would drop between 12 and 32% this year. Sectors with complex value chains such as electronics, automotive manufacturing and service industries that rely on travel and transport will be hardest hit, he explained.
Shortages of raw materials and freight and shipping delays have hit many businesses worldwide. “For many businesses, the reality of economies restarting at different times is adding to these supply chain issues,” he said.
Relationships between China, the UK and the United States
In the final portion of the webinar, the Ambassador and Lord Bilimoria spoke about the relationship between China and the UK going forward, with particular emphasis on universities.
Before touching on universities, Ambassador Liu spoke about China’s continued “confidence” in the UK business sector in the medium to long term. He pointed out that the UK is “the destination for the largest Chinese investment in Europe” and noted that the Chinese had come to the UK at the “height” of their own Covid crisis in March to complete the acquisition of British Steel by the Jingye Group, signalling their commitment to their UK business relationships.
When asked about Chinese students in the UK, Ambassador Liu said he had worked to reassure the 20,000 Chinese students still living in the UK that the country would take care of them and to allay their concerns about the very different approach to testing and treatment of the virus that the UK government was taking in comparison to China. While Lord Bilimoria, who serves as the Chancellor of Birmingham University, stressed the importance of the 100,000 Chinese students that study here to the UK’s universities.
To round off the discussion, Ambassador Liu commented on the relationship between China and the US: “I always believe that China and the United States will gain from cooperation and lose from confrontation. We want to build a stronger relationship based on mutual respect, cooperation and coordination, but you need two to tango.”
Key questions we answered:
- Ambassador Liu, to what extent is business back online in China and what’s the wider update on the country’s coronavirus response?
- Covid-19 has had a very negative impact on the Chinese economy.
- There’s been a 6.8% contraction in Chinese GDP in the first quarter of 2020.
- However, the fundamentals of our economy remain sound and unchanged. China is a huge market, so we expect the economy to rebound. According to the IMF’s forecast, our economy will rebound 9.1% this year.
- In April, large businesses have restored their production by 99%. 95% of their staff have returned to work.
- The Chinese Purchasing Manager's Index (PMI) was above the threshold in both March and April, reaching 50.8% in April. So, there are encouraging signs despite the initial hit.
- Ambassador Liu, what do you think the UK can learn from China about the economic restart?
- We managed to contain the virus. But we still have to remain alert because the virus has not been eliminated.
- We currently have less than 100 confirmed cases in China, and we haven’t had any deaths for the past 35 days. Our main concern now is imported cases.
- There are still strict measures imposed in some areas of the country. Different cities have different measures. Some have a lower level of restrictions, so production and the economy have resumed to a high percentage. In some areas, the restrictions are stricter.
- Some schools have opened with strict prevention measures, including temperature checks and social distancing.
- In factories, measures include staggered work hours. Businesses provide shuttles to transport employees to and from work, and people have to wear facemasks all the time.
- Ambassador Liu, how important have temperature checks, testing and tracing been to China’s reopening?
- They turned out to be very successful. China have managed to keep the death count low because we adopted very comprehensive and thorough measures to contain the virus.
- People had to wear facemasks from early on, and testing is a very effective way to contain the virus.
- Many people are asymptomatic, so there is a period where people do not know whether they are infected or not, so testing is important.
- Ambassador Liu, there is a worry that international business and trade will be blocked by non-tariff barriers. Businesses are experiencing challenges regarding payments to Chinese suppliers as Chinese banks are using fraud controls to delay or prevent payments. What are you doing to try and ensure that trading and business relationship resumes?
- We understand there is a demand for British businesses to work with China.
- We have created, in partnership with the British government, what we call a ‘fast-track green channel’.
- We have adopted very flexible and yet restrictive measures to contain imported cases. Before you are allowed to board a flight to China, you must have been tested and posses a ‘green card’ to show you have no symptoms.
- When you get to China, you have to be temperature-tested. If you are healthy, you have a short quarantine period of less than 14 days.
- Lord Bilimoria, based on both your personal experience running a company with strong international links and, more widely, as CBI Vice President, can you tell us what the experience of businesses trading globally is right now?
- The impact of this crisis on international trade has been severe. A WTO study from April estimated trade was set to drop by up to as much as 32% this year.
- The picture in Europe and US is tougher than in other areas. For example, Germany’s IFO business survey saw export expectations in March fall to their weakest since 2009.
- The CBI’s latest quarterly Industrial Trends Survey showed export sentiment plunging at the fastest pace since the start of the survey in 1961.
- 44% of manufacturers reported shortages of raw materials/imports, and 49% flagged shipping delays for raw materials/inputs.
- For many businesses, economies restarting at different times is adding to these issues.
- We’re also seeing businesses hit by reduced freight availability and higher costs. For example, we heard from an automotive company last week who told us the cost of shipping a car to the US had increased from £6k to £25k.
- This is in addition to the pressures caused by stretched warehousing capacity, and wider restrictions on global travel for staff.
- Lord Bilimoria, you are also Chancellor of the University of Birmingham, and President of the UK Council for International Students Affairs. What are some of the challenges universities are facing right now, in terms of attracting students from overseas?
- We know international students bring a richness of culture and diversity of thought to our education sector. They also provide a huge competitive advantage for UK businesses, who benefit from the skills, ideas and talents universities invested in.
- The UK is one of the most popular destinations in the world for international students – with around 450,000 students each year.
- Travel restrictions globally mean many international students are choosing to defer courses, with serious impacts on future cash flows.
- Some research activities and high-cost STEM provision may also be at risk. This will hit UK research capacity.
- In response, universities may seek to mitigate their loss by recruiting additional UK students, increasing competition and financial pressures.
- To help, the government announced £100 million of public research funding will be brought forward to this academic year, alongside £2.6 billion of tuition fee payments.
- A Research Sustainability Taskforce has also been set up to consider how best to respond to universities’ research challenges.
- Ambassador Liu, a number of businesses are writing to us to say that it is very difficult to export to China, how much of this are you hearing and are you worried about this?
- In the period from January to April, trade between our countries decreased by 19.3%. China is the third biggest export market for the UK. And the UK’s exports to China in that period decreased by 13.1%, while China’s exports to the UK decreased by 21.8%.
- However, we saw some encouraging signs in April, with the decline beginning to slow down.
- So, I would say that over the medium to long term we should be optimistic, given that our two economies are very complementary to each other, and business confidence is still there.
- The UK is the largest destination for Chinese investment in Europe. In the past three to five years, Chinese investment in the UK was greater than the previous 30 years combined.
- We have to remain committed to free trade. We also have to ensure the UK is still a business-friendly country to Chinese businesses.
- We have to urge caution to some of the rhetoric being used by some politicians, as it is very harmful.
- I believe the UK welcomes foreign businesses, including Chinese businesses. In this time of great difficulty, we need to stand together to fight against this community.
- Ambassador Liu, when you speak to Chinese businesses operating in the UK, are they worried about global hostility to China and Chinese businesses?
- Different businesses have different concerns. Some are more concerned about supply and demand following this crisis. But some are concerned about the political landscape in the UK.
- The concern arose when they heard there would be a security review of the UK’s relationship with China.
- Everybody is watching how Huawei will be handled. We were encouraged by the decision of the British government to give Huawei the 5G deal, but we have always heard noises and rhetoric against it.
- We remain committed to a free market and free trade. China and the UK are now the flag bearers for free trade, and we both have an enormous common interest to keep the global economy free and open.
- Ambassador Liu, should Chinese students, who have been a significant part of British university life, come back? What is your advice to Chinese students studying or due to study in the UK?
- My advice to them is to stay put and stay safe.
- I have spoken to many Chinese students who are concerned about the situation in the UK. The way the UK has handled the virus is quite different to how their relatives have been treated in China.
- I wrote letters to the Vice Chancellors of 150 UK universities to ask them to take good care of Chinese students. I also reiterated our commitment to strengthening education cooperation and exchange between the UK and China.
- There are currently 200,000 Chinese students studying here. This makes the UK the second largest Chinese student destination overseas. Only the USA has more Chinese students.
- At the embassy, we are providing updates to Chinese applicants who want to come and study in the UK. Many still do, despite these concerns.
- Ambassador Liu, there is real concern about what is happening around the world, particularly the US-China relationship. How do you think this pandemic began?
- China was the first to report a case, but we cannot say it originated from China. We’ve heard a lot of reports of cases being discovered much earlier than the first case reported in China.
- China has been transparent, responsible, and swift in terms of reporting the disease. We then adopted very strict measures to contain the virus.
- We shared our experiences with the international community in terms of how to contain and prevent cases.
- Ultimately, it is up to the scientists to decide where the virus originated.
- Ambassador Liu, what will China do to ensure the development and distribution of a vaccine is global and fair?
- Our President committed that China will make a vaccine available once it can be used.
- China is advanced in terms of research on a vaccine. We are at the fourth phase of the process and we want to make this available to the world.
- We want the vaccine to be available and accessible to poorer and less developed countries.
- We always believed that Covid-19 has brought the world together, and we believe in a shared future for mankind.