Speech by H.E. Ambassador Zha Peixin At CBBC Conference (13 May, 2003)

Deputy Prime Minister,

Lord Powell,

Distinguished guests,

Ladies and Gentlemen,

It gives me great pleasure to be invited to speak at the annual conference of the China-Britain Business Council. Since its establishment, CBBC has played an important role in promoting bilateral trade and economic cooperation between our two countries. We highly appreciate the efforts CBBC has made over the years and wish to offer our warm congratulation for its accomplishments. Due to the changes in our two countries as well as in the world, the economic relations between our two countries are standing at another critical juncture. This Forum, with "Facing up to the future" as its theme, is both timely and of great significance. I sincerely wish this conference a full and complete success. Now I would like to share with you some of my views on Sino-British economic cooperation.

I. A Brief Overview of Bilateral Economic Cooperation

Since the return of Hong Kong in 1997, economic cooperation between our two countries has witnessed a rapid and significant upsurge. In more tangible terms, there have been two "doubles": First, bilateral trade has more than doubled in a short span of 5 years. In 1997, bilateral trade was a little more than 5 billion US dollars. Last year, it reached 11.4 billion US dollars. Second, paid-in investment has also doubled. In 1997, British paid-in investment in China stood at 5.3 billion US dollars. In 2002, it soared to more than 10.7 billion US dollars. The two countries have now become important trading partners to each other. Britain is China's No.1 investor and 2nd largest trading partner among EU countries. China is a priority market for many British companies.

Growth of bilateral trade is reflected not only in volume but also in rationalization of the composition of exported goods. The content of technology is growing. Electrical and machinery products now dominate our bilateral trade. Economic links have been greatly expanded. By the end of last year, there were 3400 British-invested projects in China. About 130 Chinese companies have established their presence in UK. So far, British banks have opened 8 branches and 12 representative offices in China. 11 British insurance institutions have set up 24 representative offices and among them 3 have already established 4 companies in China. The Bank of China also opened 5 branches in UK. China's Industrial and Commercial Bank will soon open its subsidiary in London. In short, the field of bilateral cooperation is broadening with each passing day.

While it's gratifying to see the continued strengthening of our commercial ties, the potentials for bilateral cooperation are still far from being fully tapped:

1. Both China and Britain are major economies in the world, ranking No.6 and No.4 respectively. Both are full-fledged economies and are highly complementary to each other. China, being the largest developing country, has a vast land, huge market potentials and rich human resources. Britain, as an important developed country is strong in its financial, scientific and technological strength and in managerial expertise. It has a competitive edge in transportation, energy, chemical and pharmaceutical industry, environmental protection, electronics, communication and high and new technology. These are the very areas that China has identified as priority areas for development.

While our bilateral trade has expanded rapidly, it is still not commensurate with the size of the two economies. At present, it only accounts for less than 2% of each other's total foreign trade. Although Britain is currently China's No.2 European trading partner, the gap between No.2 and No.1 is quite conspicuous. Sino-British trade is less than half of Sino-German trade. In the area of investment, British investment in China only occupies 4% of its total overseas investment. South Korea's economy ranks No.13th in the world. Its economic scale is much smaller than UK. But it is the 6th largest global investor in China, with a paid-in investment of 15 billion US dollars which is much larger than that of UK. In 2002 alone, South Korea invested about 4008 projects in China with a paid-in investment of 2.7 billion US dollars.

2. In the past 20 years, China's economy has maintained a stable and rapid development with an average annual growth rate of 9%. Last November, the 16th CPC National Congress worked out a blueprint for the development of China in the first 20 years of this century and set the objective of building a well-off society in an all-round way to the benefit of 1.3 billion people. In the economic field, the objective is to quadruple its GDP of 2000 by the year 2020. That means China's GDP will reach about 4.32 trillion US dollars by the year 2020. In order to achieve this objective, China's economy will keep an annual growth rate of 7% for the next 20 years. The rapid growth of China's economy will further bring out the potentials of China's market. Taking import as an example. In recent years, China's import has displayed a strong growth driven by increasing demand at home. In 2002, China's imports reached 295.2 billion US dollars, an increase of 21.2%. In the next 10 years, China will import at least 2000 billion US dollars worth of goods. This undoubtedly presents an enormous opportunity for foreign enterprises.

3. China is now rigorously pushing forward the readjustment of the industrial structure and implementation of "Develop the West" strategy. The construction of a number of big infrastructure projects is under way. For example, the Qinghai-Tibet Railway, the diversion of natural gas and electricity from the western to the eastern regions and the South-North Water Diversion Project. All these projects present immense business opportunities. China's successful bidding to host the 2008 Olympics and 2010 World Expo in Shanghai also offer greater range for bilateral cooperation.

4. China's service sector has tremendous potential for development. At the moment, service only accounts for less than 1/3 of China's GDP. For developed countries, service usually occupies more than 2/3 of their GDP. China's service sector is now experiencing a period of fast growth. Britain is renowned for its vigour in finance, insurance and other areas of the service sector. With China's accession to WTO and the further opening of its service market, there will undoubtedly be a bright prospect for our bilateral cooperation in this area.

5. China is now implementing the policy of opening up to the outside world with a configuration of "bringing in" and "going out" strategies. Chinese enterprises with real strength are encouraged to invest abroad and to be more outward and forward looking. This definitely will create greater opportunities for our bilateral cooperation. Britain's flexible and open economy makes itself an ideal launching pad into the European market. London has already been considered as an attractive destination for some Chinese enterprises seeking to be listed abroad. Furthermore, it is not beyond imagination that bilateral cooperation can even be extended to joint investment in the third country. There are indeed many new areas and new approaches of cooperation to be explored.

II. Great Opportunities for Better Cooperation

Now we are indeed facing unprecedented opportunities to promote and expand bilateral economic cooperation. There exist all kinds of favourable conditions:

1. Sino-British economic relationship now enjoys a quite good political environment. Both governments attach great importance to bilateral relationship and are determined to facilitate bilateral trade and economic cooperation. After the successful return of Hong Kong in 1997, there are no major outstanding issues left over from history. China and Britain have developed a comprehensive partnership, with Hong Kong serving as a bridge between the two sides. Our two peoples are showing greater interest in having a better understanding of each other. All these factors have laid a solid foundation and create better conditions for further cooperation.

2. On the part of China, the environment for trade and investment has been greatly improved both in hardware and software:

Big strides have been made in constructing and improving the legal system. The framework of laws and regulations governing foreign economic cooperation has already been established. After accession to the WTO, as many as 2300 laws and regulations related to foreign trade and economic cooperation have either been abolished or revised to meet WTO standards. China has especially strengthened its efforts of protecting intellectual property rights by modifying detailed rules of the trade mark law, copy right law and medicine management laws, so as to meet the demand of relevant WTO rules. Such improvements will continue as China further fulfills its obligations to the WTO.

The opening awareness of people has been greatly enhanced. Entrepreneurs are better equipped with experiences and business behaviour compatible with international practices. 20 years ago, few people had heard of the word "joint venture", let alone to fully understand its meaning. Now it has become almost a household word. Administrative procedures have been greatly simplified and red tape has been significantly reduced. Many students who studied abroad have returned to China. They speak good English and are familiar with both the domestic market and international practice. They have enriched and injected vitality into the labour market. Low cost and well trained labour are readily available for foreign companies including multinational corporations.

Infrastructure has been remarkably improved. Taking telecommunication sector as an example. 20 years ago, the percent of population with access to telephone service at home was only about 1%. Today, it is 40%. The number of fixed-line and mobile phone subscribers reached 421 million in 2002, ranking No.1 in the world. The length of installed long-distance optical cables increased from 150,000 km in 1997 to 470,000 km in 2002. In transportation, China built its first express-way from Shangyang to Dalian with a total length of only about a few hundred kilometers in the early 1990's. 10 years later, China has established its own express-way network with a total length of 25,000 kilometers, second only to the US. In the 1997-2002 periods, a total of 50 airports were either newly built or further expanded. The annual cargo handling capacity of dock and port for 10,000 ton-class or larger ships increased by 144 million tons.

3. On the part of UK, the importance of China's market has now been widely recognized. British enterprises' interest in China is growing stronger. For them, China is no longer an unknown market but a familiar one. Over the years, they have accumulated a wealth of experiences through bilateral trade and economic cooperation. There are now various channels for contact and easy access to information. Even for new starters in China's market, they will find it much easier to do business comparing with the situation in the early 1980's. Because there are so many established successful patterns, they don't have to explore their way from the very beginning.

III. Some Suggestions

Although we are blessed with all the above favourable conditions, deeper and closer cooperation will not come by automatically. As China's opening expands in greater scope and depth, international competition for market share is also intensifying. There is indeed a bright prospect for British companies to occupy a bigger share in the growing Chinese market, but more efforts should be made especially in the following aspects:

1. To have a better understanding of the priority and practical needs of China's economic development. Fully exploiting market potentials depends on the ability to adjust to market demands. Better knowledge of China's priority development areas will get your investment "twice the result with half the effort".

2. To have better knowledge of China's culture and history. This provides you with an in-depth understanding of China and Chinese people which are valuable assets in doing business.

3. To further enhance competitiveness. That means one ought to be more active even aggressive on China's market and to make further improvement in areas of price, quality, financial terms, post-sale service, and technology transfer.

4. To promote trade in technology. In this area, Britain is lagging far behind Germany and France. Today, as trade in technology is gaining more priority and importance, I do think more attention should be given to this area.

5. To embrace new trend of practice. For example, many multi-national corporations are now establishing their Research & Development centers in China because the human resources are rich and the cost is lower. Successful foreign corporations are also trying to localize their management team in China.

6. To find a good cooperative partner and form a long-term relationship. The principles of equality and mutual benefits should always be upheld. For only when it is mutually beneficial, can the relationship last long and be sustainable.

7. To encourage more cooperation between small and medium-sized enterprises. Small and medium-sized enterprises comprise the great majority of enterprises in both countries. To bring out their potentials into full play will definitely give a boost to the trade and economic cooperation between our two countries. Therefore, more efforts should be made to create favourable conditions for cooperation between the small and medium-sized enterprises of our two countries.

8. To be good at seizing business opportunities. Opportunities come and go in a blink of an eye. In business, there will never be such a thing like zero risk. To get ahead of other competitors by acting decisivly is of paramount importance. Otherwise, opportunities will just slip through your fingers.

IV. Conclusion

The United Kingdom is one of the first Western countries to recognize and trade with the People's Republic of China. 50 years ago, some British companies went to China in defiance of obstacles on a famous ice-breaking visit for developing bilateral trade and economic cooperation. During their visit, a trade agreement was signed, the first ever between new China and UK. 50 years have elapsed, great changes have taken place in the world as well as in our two countries. Cold war has long ended. Peace and development is now the main theme of our time and common aspiration of the people around the world. Of course, bilateral economic cooperation is unlikely to be problem free. But the nature of the problems and challenges we are facing today are completely different from those 50 years ago. Many of the problems today are indeed problems of success. They can be and will be solved through further development of bilateral cooperation.

During the process of China's modernization drive, there will be all kinds of difficulties ahead, some foreseen and some unexpected. SARS, for instance, is such an unexpected difficulty in case. It has caused great concern among the general public at the moment. Due to the cancellation and postponement of business trips, it undoubtedly will have some negative impacts on our economic relations. But its impact is temporary in nature. The fundamental strength of China's economy remains unchanged. For the first quarter of this year, China's GDP growth rate is 9.9%. Right now, the Chinese Government and Chinese people are doing their utmost to keep SARS under control. Like all other infectious diseases in history, SARS is the common enemy of mankind. In the past two centuries, mankind has built a much stronger ability to fight against infectious diseases and the pace of conquering infectious diseases is becoming quicker and quicker. Only in a few months' time, Chinese scientists, doctors and researchers have not only identified the SARS virus but also the genome sequence of the virus. We have also developed ways to diagnose the disease and treat the patient. Facts will prove that SARS is controllable, preventable and curable. So there is no reason for panic. There is a will, there is a way. No difficulty is without solution. I am fully confident that with the joint efforts of the government and people in China and with active international cooperation, we can definitely keep SARS under control and win a complete victory in conquering this disease.

Facing up to the future, there is indeed a broad prospect for bilateral trade and economic cooperation. What is needed is a strategic perspective, a pioneering spirit and unswerving efforts to explore new avenues and new areas to expand bilateral economic cooperation. I am confident that with our combined efforts, Sino-British economic cooperation can surely be raised to a new level.

Thank you.