The view from China
The ongoing impact of COVID-19 and geopolitical issues
In early April, the CBI was due to accompany 19 UK businesses to China. However, the trip was postponed due to the rapid spread of the Omicron variant. As the events unfolding in Shanghai attest to, domestic travel and business engagement still remains in deep flux for those of us seeking to deepen and develop UK-China business ties. Indeed, at the time of writing there are more than 23 cities – accounting for around 180 million citizens – enduring some form of lockdown.
The economic impact is enormous – with around $46bn being lost each month in output and productivity. Shanghai, China’s financial and commercial hub, accounts for around 3% of the country’s annual GDP. And as the citywide lockdown approaches its third week, it looks like the country’s 2022 GDP target of 5.5% GDP growth will not be met – with some analysts suggesting 3.8% being a more realistic target.
A recent survey by the German Chamber of Commerce in China revealed that 46% of businesses operating on the mainland had been directly impacted by logistics disruptions; 55% were facing problems thanks to skyrocketing commodities and energy prices; 25% were considering offshoring part or all of their business operations; 10% were considering leaving the PRC in the next six months and some 57% stated that geopolitical issues (primarily the invasion of Ukraine by Russia) were directly impacting their longer-term China strategy.
In particular, Shanghai’s protracted lockdown has started to have a direct knock-on effect on the electronics manufacturing hub of Kunshan situated 50km north of the city. Domestic and international supply chains are being affected with subsequent disruptions to global goods supply.
The impact of COVID-19 restrictions on international travel
Last month, we Virgin Airways successfully completed its first direct flight between London Heathrow and Shanghai Pudong. Unfortunately, due to the extended flight route avoiding Russian airspace and protracted health and safety protocols in the PRC, Virgin has decided to suspend the route for the time being.
There have still been some small positive developments over the past month regarding the thorny issue of quarantine and entry protocols. At the time of writing, it would seem that new international arrivals will now have to undergo a 10-day quarantine followed by a 7-day self-isolation period. This is marginally better than the current 14+7 protocol.
Clearly, for those of us resident in China, the clear and present challenge facing us all remains, as it has done for the past two years or so, the relaxation of the zero-covid policy and resumption of direct flights between the UK and China. There are now around 7-8 direct flights to China from Europe per week, whereas at the latest count Emirates is flying some 180 weekly flights between the UAE and India alone.
The broader UK-China relationship
Looking at the broader UK-China bilateral relationship, there is a major focus to get both the JETCO (Joint Economic and Trade Committee) and EFD (Economic and Financial Dialogue) bilateral meetings up and running in the coming months. That has been the mantra since the start of the year and we hope it takes shape soon.
Separately, the UK is developing in-country plans to promote the 50th anniversary of UK-China diplomatic relations through a series of bilateral business, cultural, and people-to-people activities from 13 March 2022 through to 13 March 2023. We’ll aim to share more information in further updates about this initiative and in particular how CBI members and British business can get involved.
The view from Europe
A wave of elections across Europe
Whilst all eyes have been on the French presidential elections, there have been a number of elections taking place across Europe that have the potential to impact the future direction of the EU.
In France, Emmanuel Macron was re-elected President, the first French President to be re-elected since Jacques Chirac in 2002. He secured a strong victory, however far-right candidate Marine Le Pen still secured 40% of the vote. The election served to highlight how the contours of the political landscape have shifted away from a traditional right-left divide in France, with voters identifying more with anti-establishment positions. During his victory speech, he promised to be a President for all, acknowledging the divisions across France.
However, the battle is far from won. All eyes now turn to the legislative elections in June. The president needs a majority in the National Assembly to avoid a “cohabitation” or political gridlock, however this is far from guaranteed. The parliamentary elections represent a chance for a number of voters, who felt compelled to vote for Macron in order to keep the far right out of power, to signal their lack of support and shift the balance. What is more, as he tackles the ongoing energy and cost of living crisis, he risks the return of the ‘gilet jaunes’ protests among other opposition.
The reaction in Brussels
In Brussels there was a sense of relief among many as Macron beat euro-sceptic Le Pen. His victory was broadly welcomed as a win for pro-European politics as well as being a continuation of French foreign policy and a sustained commitment to the green transition. UK PM Boris Johnson congratulated Macron on his re-election, with some talk of a reset of relations between the two countries. However, this will largely be dependant on any decision to trigger article 16.
Elections elsewhere in Europe
Elsewhere in Europe, some of the EU’s most vocal critics faced both electoral defeat and success, yielding the potential to alter political dynamics across the bloc. Whilst the electoral outcomes in Hungary and Serbia saw a landslide consolidation of the incumbent right-wing populist leaders Orbán and Vučić, in Slovenia the environmentalist centre-left Freedom Movement party defeated the populist Janša, who sought to be re-elected for a fourth term.
Consequently, the recent electoral outcomes are indicative of the intensifying divergence across Europe, which may potentially translate to reduced EU-wide consensus on certain matters such as the retaliation to Russia’s aggression on Ukraine and energy decoupling from Russia. The success of Orbán’s Fidesz party in Hungary paves the way for a continuation of clashes over the EU’s core values. Given the EU is considering an energy embargo on Russia, Orbán – President Putin’s closest EU ally – would be likely to oppose this too, as he has reiterated that Hungary will not decouple its energy reliance on Russia.
The view from India
Boris Johnson visits India to keep up the momentum of the UK-India relationship
Prime Minister Boris Johnson embarked on his long-delayed trip to India in a bid to strengthen trade and security ties. The first Prime Ministerial visit to India since Theresa May in November 2016 demonstrated the deeper economic ties and the government’s wider foreign policy kept positive momentum in the bilateral relationship. See the joint statement here.
The visit steered clear of the geo-political issues and was packed with bilateral deliverables including £1bn investments, 11,000 new jobs and expansion in defence collaboration with joint production and co-development of fighter jets and next-generation jet engine technology. Both Prime Ministers further pushed for FTA negotiations to conclude by an ambitious timeframe of Diwali (October 2022).
For India, the visit also comes at an opportune moment, as it has paused its FTA negotiations in previous years and stayed out of the Regional Comprehensive Economic Partnership (RCEP). Since the beginning of this year, it has signed a trade agreement with the UAE, an interim trade deal with Australia, and is trying to fast-track trade and investment agreements with the UK, the EU and Canada. India seeks improved access to financial markets, relaxed immigration and visa rules and better access for India’s agri-exports in the UK deal.
The economic roadmap launched by both Prime Ministers in May 2021 aims to remove trade barriers between the two countries, with an ambitious target of more than doubling UK–India trade by 2030, including the consideration of an Interim Trade Agreement to deliver an ‘early harvest’ of economic wins.
For the UK, the key areas of focus remain - reducing barriers for UK services and professionals, market access for digital economy, reducing tariffs on UK goods including scotch whisky, cars, and green technology. The third round of the FTA negotiations begin this week in New Delhi.
CBI-DIT interaction with Indian Commerce and Industry Minister Piyush Goyal
CBI India participated at the third edition of the UK investors’ business meeting with Piyush Goyal, Minister of Commerce and Industry, on 12 April 2022. The delegation, led by British High Commissioner to India Alex Ellis, included key CBI members such as HSBC, Smith & Nephew, Shell, BAE Systems, Pearson, Rolls-Royce, GSK.
The Indian Commerce Minister pushed to move faster on the UK-India FTA negotiations and expressed intent on resolving market access issues. The Indian government is also keen that India emerges as the manufacturing base for global firms under the ‘self-reliant’ campaign.
Members highlighted a range of issues, including the importance of energy transition and sustainability. The financial services sector also expressed concern over the disparity in taxation in India between domestic and foreign bank branches. Also, the need for the FTA to include a robust dispute resolution mechanism between the UK and India was discussed.
CBI member delegation to the Bengal Global Business Summit
The Bengal Global Business Summit (BGBS) — West Bengal’s annual marquee event to woo investors from across the globe – was held on 19-21 April 2022. With the aim to increase the UK’s portfolio of investments and partnerships in the state, the summit had the largest UK delegation of 49 senior figures in attendance – from a wide range of businesses, institutions, and universities.
The key sectors were education, research, creative economy and sustainable tourism. CBI members interacted with other businesses and the state government to explore areas of collaboration, especially in infrastructure development.
West Bengal has received investment proposals worth billions during the two-day business summit – the Adani Group announced that it will invest £1bn in the state over the next decade, and the JSW Group announced that they will develop a 900 MW pumped storage hydel power project.
The view from the USA
The CBI’s Executive Leadership Program returns to Washington
The CBI Washington office was pleased to organise the return of the CBI’s Executive Leadership Program to Washington, D.C. at the end of April. The group had three days of meetings with sister US business associations, think tank experts, UK diplomats, and members of the Washington political community.
Areas of discussion focused on the major issues facing business on both sides of the Atlantic, including workforce development and skills gaps, trade and investment relations in the wake of the launch of the US-UK Trade Forum, as well as the current geopolitical environment.
Shaping the environment for foreign investment in Minnesota
State and local governments are crucial stakeholders when it comes to shaping the environment for foreign investment in the United States. They do their own part to influence trade flows, as issues like the mutual recognition of professional services qualifications, workforce skill development, and procurement rules are determined not in Washington but in state capitols.
CBI Washington recently spent time with local business and government stakeholders in Minnesota to highlight these opportunities for members. Learn what was discussed.
Highlighting opportunities for UK businesses in Latin America
Over the past few months, the CBI Washington office has partnered with its network in the Latin American business and government community to launch a podcast series on trade and investment opportunities for UK firms in Latin America. Produced exclusively for CBI members, this series looks to educate and inform members about how they can take advantage of the enormous potential that these markets present in the 21st century economy. Listen to the first series.
The team is also launching a second and third podcast series on opportunities for UK investment in infrastructure and advanced manufacturing in Latin America later this month – stay tuned.