As reports say Brexit will officially happen by the end of March 2017. While reaching a positive partnership with the EU is an immediate priority for the UK, as China is one of the UK’s biggest trade partners, the prospect of a free trade agreement with China is becoming more and more of an issue.

The last British government aimed to foster a good relationship with Beijing, but the conservative attitude of the present government – displayed by Prime Minister Theresa May’s protectionist stance on Chinese investment in ‘sensitive’ infrastructure projects – poses a threat to the so-called ‘golden decade’, enthusiastically evoked by former prime minister David Cameron.

Impact of Brexit

London was viewed as a gateway to the EU market, and China’s interest in the city was shown when China issued its first overseas sovereign RMB bond there. But when the UK departs from the EU, London’s status as a gateway will vanish, with the city providing access to a market of 65 million as opposed to 500 million.

As the UK’s economy deteriorates, so will the value of China’s investments made in past years. There are many more significant trading partners on China’s list than the UK, particularly as the UK will not be a feasible option as a ‘back door’ to the EU for China. Further, the EU will most likely enforce rules of origin to stop Chinese imports entering through the UK.

Trade prospects

Despite this negative outlook, there is still hope for the UK’s trade prospects with China. China – EU trade has lagged in the past few years, and with the UK depending more and more on China in the future, this will present a new opportunity for trade. Furthermore, China sees the UK as a political partner and a leading voice for granting China market economy status.

According to the UK Balance of Payments 2015 Pink Book, China is the UK’s seventh largest export market, accounting for 3.6 percent of the UK’s overall exports. Services and goods are largely unbalanced, with a surplus of the former, and deficit of the latter.

Meanwhile, China is the UK’s third largest source of imports, accounting for seven percent of imports. Overall, the UK had a trade deficit of around £19.6 billion with China in 2015. The following table details China-UK trade volume over the last 10 years.

As a country with the world’s largest population and fastest growing consumer market due to increasing disposable income, China represents a key market for British exports. Trade volume has been rising at a steady pace, and though there has been a dip in the recent years, if there is a trade agreement reached between the two countries in the future, this growth is sure to continue.

The UK exports a myriad of products to China, representing a cross-section of British industry and services. In order of volume, the largest export categories are:

1. Machinery/electrical products
2. Road vehicles
3. Metals
4. Transportation services
5. Travel services
6. Business services
7. Raw materials
8. Precision instruments
9. Pharmaceuticals
10. Chemicals
11. Plastics
12. Financial services

Outlook

The IMF predicts that China’s import market will be worth over £3 trillion (US$3.6 trillion) by 2020. This presents a huge opportunity for the UK, and if trade patterns are identified and acted upon accordingly, the UK could close the gap with its European competitors in China.

While the UK will prioritize its negotiations with the EU, it will need to work significantly in rethinking its trade relationship with China in the future in order to come to a successful trade agreement. Britain’s relationship with China goes back centuries and includes stewardship of Hong Kong until 1999, when the territory initially developed as an international financial services hub.

According to the post Opportunities and Challenges for UK businesses in China The “China Challenge” is now greater for UK companies, particularly SMEs. Also here comes the business conference for the UK companies aimed to register in China. Click Attending the 5th upcoming CBBC China business conference for more info.