International perspective: July 2022

The start of July marked the 25^th anniversary of the handover of Hong Kong by the UK to China. To mark the occasion, Xi Jinping made his first visit out of mainland China in more than two years.

There has been plenty of discussion throughout the month regarding Hong Kong’s ability to attract foreign business. Moreover, it has struggled to regain its position as the premier gateway to China following a disastrous Covid outbreak in the spring and the passing of a draconian National Security Law on 30 June 2020.

Is Hong Kong already ‘just another Chinese city’ or will it bounce back? If the exodus of senior executives (both international and Chinese) to Singapore is anything to go by then it already has plenty of catching up to do.

Indeed, in terms of press freedom, it has also fallen 68 places to 148^th in the world according to Reporters Without Borders. It was in 18^th place just twenty years ago.

Only a week after the Hong Kong anniversary, former Japanese Prime Minister Shinzo Abe was assassinated in the city of Nara whilst out campaigning in advance of local LDP elections.

The shockwaves of this appalling act have reverberated across the region throughout July, as his vision and legacy for Japan as its longest serving post-war Prime Minister and most influential leader will continue to be seen and felt for many years to come.

The CBI China office has developed close ties to Japanese companies who are long-term CBI members as well as with the Keidanren, its sister Japan federation and many departments across the Japanese Foreign and Economic Ministries.

We have reached out to all of them to express our deep shock and revulsion at this tragic event.

Just released economic data shows that the Chinese economy grew by only 0.4% during Q2, largely due to the ruinous zero-policies enacted by the CCP. After a 4.8% increase in Q1 it is hard to see how Beijing will ever hit its 5.5% growth target set for 2022.

Economic activity in Shanghai, the country’s economic powerhouse, dropped by more than 13% during Q2 as a direct consequence of the 60-day lockdown.

Increased costs, supply chain disruption, reduced mobility, youth unemployment close to 20% and a 43% drop in property transactions clearly show that the country’s economy will be facing severe headwinds for the rest of the year.

And whilst the latest outbreak may be under control (albeit temporarily), the ongoing uncertainty surrounding new and more infectious variants (e.g.; B5) will continue to play on the minds of consumers, policymakers and international investors alike.

Indeed, at the time of writing, there are more than 41 cities across the country experiencing either full or partial lockdowns covering 264m people and representing 18.7% of the country’s economic activity.

At the beginning of July, the Czech Republic took over the rotating Presidency of the Council of the EU from France. This means they will be responsible for driving forward the Council’s work, ensuring continuity of the EU agenda and fostering collaboration between Member States.

What can we expect from a Czech Presidency? Faced with managing financial and political support for Ukraine, rising inflation and an energy security crisis, the Presidency will largely be focussed on responding to the current crises, rather than advancing an ambitious legislative agenda.

They have stressed that the question of energy security will be central, and their focus will be on removing dependence on Russian fossil fuels, rather than on a longer-term decarbonisation agenda. On top of this, with a new coalition government having come to power in December last year, the government’s focus seems to be on the domestic agenda rather than on the Presidency in Brussels.

The CBI, as part of BusinessEurope, published its priorities for the Presidency. We call on the Presidency to focus on building a resilient economy, as well as addressing rising energy prices and preparing for further supply disruptions. We also highlight the need to deepen political and economic ties through increased trade and investment flows, with like-minded partners in the EU’s neighbourhood including the UK. Read more here.

As Europe faces record heatwaves, all attention in Brussels is focussed on preparing for the winter. On 20 July, the European Commission proposed its winter preparedness package focussing on preparing for a disruption of Russian supply of gas. The Commission published a European Gas Demand Reduction Plan and a new Council Regulation aiming to coordinate gas demand to anticipate the risk of such a disruption in the upcoming months. The plan would see Member States implement a series of changes to avoid additional forced demand curtailment at a later stage.

The Commission identifies key actions to reduce the use of gas such as fuel switching, prioritising those sectors with better substitution possibilities, stronger coordination and solidarity mechanisms among Member States, and increased savings. The new proposed regulation sets a voluntary reduction of gas demand of 15% from August 2022 to March 2023, which can become binding any time the Commission detects a severe disruption of gas supply.

The Commission believes that such a pre-emptive action could help to reduce the costs of a sudden interruption of the provision of gas, mitigating the effects on the European economy. Member States in the Council will already vote on the Regulation proposal on 26 July, as all efforts are made to prepare for a difficult winter.

Droupadi Murmu, former Governor of Jharkhand, wrote history after defeating opposition presidential candidate Yashwant Sinha to become the first tribal and the second woman to hold the top constitutional post in India.

She was sworn in as India’s 15th President on 25 July, 2022. At 64, Ms Murmu is both the youngest and India’s first president to be born after independence.

Droupadi Murmu got 64% of the total vote value after three rounds of counting. She said getting a primary education was a dream for her and added that she would focus on the welfare of the marginalised.

The National Institution for Transforming India (NITI Aayog) and the COP26 President, Alok Sharma, recently launched the Accelerated e-Mobility Revolution for India’s Transportation (E-AMRIT) mobile application to raise awareness about electric mobility in India.

E-Amrit is a one-stop destination for all information on electric vehicles – busting myths around the adoption of EVs, their purchase, investment opportunities, policies, subsidies, etc. The portal has been developed and hosted by NITI Aayog under a collaborative knowledge exchange programme with the UK government, and as part of the UK–India Joint Roadmap 2030, signed by the Prime Ministers of the two countries.

In the recent past, India has taken many initiatives to accelerate the decarbonisation of transport and adoption of electric mobility in the country. Schemes such as FAME and PLI are especially important in creating an ecosystem for the early adoption of EVs.

India is among 42 leaders to back the Glasgow Breakthrough agenda launched at the COP26 climate summit, which aims to make clean technologies and sustainable solutions affordable and attractive. India is also a co-convener of the Glasgow Breakthrough on Road Transport along with the United Kingdom and the United States. The Breakthrough on Road Transport aims to make zero-emission vehicles (ZEVs), including two and three-wheelers, cars, vans, and heavy-duty vehicles more affordable, accessible, and sustainable by 2030.

To bolster this low-carbon infrastructure, NITI Aayog is collaborating with the UK government on e-vehicles, charging infrastructure, and battery storage. The CBI is working with CII to explore ways of how businesses can proactively take steps to bilaterally benefit in the race to zero emissions and increase awareness.

On 21 July 2022, the UK and India signed an agreement to recognise each other’s higher education qualifications in a move welcomed by British universities. According to DIT, this agreement is likely to attract more international university students to UK – each estimated by industry to be worth more than £100,000 to the economy.

The MoU, part of the UK-India Enhanced Trade Partnership (ETP) agreed by Prime Minister Boris Johnson and Prime Minister Narendra Modi last year, means A-levels and their equivalents, undergraduate and postgraduate degrees will now be recognised in India. It will allow Indian students who graduate from British universities to apply for postgraduate qualifications, or embark on government careers that require university qualifications, wh­en they return home.

The UK and India are already important destinations for each other’s students – in 2020/2021 the UK welcomed 84,555 Indian students to the UK. India is also a popular destination for UK students to study abroad as part of the Turing Scheme international education programme.

This has been a long-standing CBI ask of the government. This has been positively received, but members hope that the scope is widened to other professional qualifications.

Tony Danker visited Washington, D.C. from 19-22 July for his first official overseas visit since taking over as Director-General of the CBI. He spent time engaging with cabinet-level officials in the Biden administration, Members of the U.S. Congress, sister business organisations, and major think tank scholars to discuss supply chain security and the future of globalisation in an increasingly-sceptical global political climate.

He also spent time engaging on how the Northern Ireland Protocol and the UK’s global reputation are currently being perceived in the United States. For more information on his trip, please see Tony’s personal reflections on LinkedIn and a recent interview with The Times recapping the visit.

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. The fourth and final edition is now published, focusing exclusively on advanced manufacturing and the changes sparking from the Fourth Industrial Revolution. Experts from Brazil, Colombia, and Mexico showcase the main opportunities for investment in their respective markets. You can listen here.

The CBI continues to engage with members and government officials on UK trade negotiations with Canada and Mexico. The team recently hosted a member dinner in Ottawa for Charlotte Heyes, the chief negotiator for both deals, to discuss opportunities and challenges for UK firms operating in Canada, and where an FTA could help ease long term economic challenges such as skilled labour shortages and supply chain resiliance. If your business has concerns about operating within either market and would like to engage witht these negotiations, please contact John Bleed.

On 20 July, the UK Department for International Trade (DIT) signed a memorandum of understanding (MOU) with the US state of North Carolina. The agreement promises that the UK will build aveneues for cooperation in clean energy industries, increase bilateral investment ties, and build out research and development ties in one of the most innovative markets in the US. The CBI, having called for a renewed focus on US state level engagement in its 2020 report A Roaring Trade applauds this measure and continues to work with DIT on liberalising trade in services barriers with state governments. For more information please click here.