For many British brands, China presents both an enormous opportunity and a unique set of challenges. With a growing middle class, an appetite for niche and premium products, and a digital landscape that moves at lightning speed, success in China requires more than just exporting a product. It demands cultural awareness, channel-specific strategies, and a long-term vision.

Brewing success and bottling heritage

Both companies emphasise that entering China is not about a quick win but a long-term journey. Taylors of Harrogate, makers of the beloved Yorkshire Tea, first began exporting to China in 2005 via a distributor. The company has since faced the complexities of evolving retail and digital channels. “Over the last 20 years we’ve seen distributors come and go for various reasons,” says Sarah Henderson, International Business Manager for Asia, Central & South America. “We’ve always believed in building long-term relationships rather than going for a quick win.”

Similarly, Jeremy Taylor, Group Commercial Director at Boadicea the Victorious, stresses the importance of patience. “It’s not about making a quick buck this year,” he says. “It’s about building something lasting over five or ten years.”

Both brands have learned the hard way that applying Western market assumptions to China can backfire. Taylors experienced this in 2014 when an online sales agreement – not fully understood internally – disrupted pricing and undercut its own distributors. Boadicea, too, saw its early China efforts face a number of distribution challenges. Both pulled back and regrouped, now approaching the market with far more intent and clarity.

Digital First, Always

One of the biggest lessons both brands share is the critical importance of digital-first strategies.

“In the West, you start with bricks-and-mortar, then go online,” says Henderson. “In China, it’s the opposite. You build your presence digitally first – then the rest follows.”

Taylors is now launching its own Tmall store via e-commerce partner WPIC, having previously experimented with a Little Red Book (Xiaohongshu) page. Boadicea, meanwhile, is leveraging UK-based Chinese influencers and building brand awareness online before entering physical retail. “You need people to understand the brand first,” says Taylor. “If it’s not for you, then it’s not for you. But if it is, we want them to fall in love with it.”

This approach is as much about protecting brand integrity as it is about visibility. Both brands have had to deal with unauthorised listings, price inconsistencies, and confusion caused by legacy distribution models. Establishing official digital channels gives them control over how the brand is presented and sold.

KOLs, KOCs and Content

For both Taylors and Boadicea, influencer engagement – through key opinion leaders (KOLs) and key opinion consumers (KOCs) – is central to their strategy.

“Chinese consumers want more than just a product – they want the story,” says Henderson. “What really appeals is the Britishness of our tea. The idea of English breakfast tea and the culture around how it’s consumed in the UK really resonates.”

Boadicea shares this emphasis on storytelling. With handmade pewter bottles created by a 200-year-old Birmingham firm that also worked on Game of Thrones and Harry Potter, the brand leans into its dramatic heritage. “If you want a fragrance that helps you disappear into the background, then don’t wear ours,” Taylor says.

The CBBC has played a vital role in guiding both brands, helping with influencer partnerships and introductions to local platforms and networks. “Working with CBBC made sense,” says Taylor. “You’ve got to make the right connections and understand the rules.”

Targeting the Right Audience

A major insight for both brands has been the importance of targeting Tier 2, 3 and even Tier 4 cities – rather than focusing solely on saturated Tier 1 urban centres like Shanghai or Beijing.

“Traditionally we’ve focused on the eastern seaboard,” says Henderson. “But online allows us to reach beyond that. Tier 3 and Tier 4 cities are still massive – that’s where you can learn your trade and grow your following.”

Boadicea sees similar potential in China’s emerging cities. “Luxury is being democratised,” says Taylor. “People are more adventurous – not just in Tier 1 cities but across the board. Even a small sliver of that middle class is a huge market.”

Doing It the Right Way

Both Taylors and Boadicea underline the importance of compliance, planning and market understanding.

Boadicea is midway through the complex product registration process in China, a vital step for any cosmetics or fragrance brand. “The creativity of our perfumers is not always aligned with compliance across all international markets,” Taylor jokes. “But you have to follow the rules if you want to do business there.”

Taylors, too, has had to learn how to manage distributors, pricing structures and unauthorised resellers. “Everything is interconnected in China,” Henderson notes. “You need a clear structure – who takes what, at what price – otherwise it causes issues.”

Brand First, Sales Second

Both brands are taking the long view: build the brand first, then scale the sales.

For Taylors, that means leveraging digital platforms to test what appeals to Chinese consumers. “We did some research to see if we even deserved a place in China,” Henderson admits. “But we found strong resonance with 25- to 40-year-old women. It confirmed we’re not a cheap tea – we appeal to the middle class, and there’s a growing audience for what we offer.”

For Boadicea, it’s about seeding the brand before making the leap into luxury department stores like SKP or Lane Crawford. “We want the right kind of awareness,” says Taylor. “The experience needs to be consistent – online or offline.”

A Cautious Confidence

In their own ways, Taylors of Harrogate and Boadicea the Victorious are showing that British brands can succeed in China – by respecting the market, understanding its nuances, and putting in the groundwork.

“You’ve got to find the right partners,” Taylor advises. “And sometimes that means waiting. But if the brand is strong and you do it properly, the results will come.”

Join CBBC’s China Consumer 2025 to learn more about China’s consumer sector.

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China’s decision to reduce or remove some retaliatory tariffs has encouraged a cautious optimism among British businesses. Yet while the trade climate appears to be improving, brands entering or re-entering the Chinese market are faced with the more complex challenge of navigating a complex consumer ecosystem shaped by policy shifts, cultural expectations and rising nationalism.

The reality is that while some trade barriers have lowered, others, especially those linked to regulation, culture and politics, remain significant.

Regulatory headwinds

China’s business environment has become more tightly governed in recent years. Foreign firms must now comply with a range of new requirements, from data privacy and security laws to investment restrictions and evolving digital content regulations.

Entire industries have undergone sweeping regulatory changes. From livestream ecommerce to education, the rules are continually being rewritten—often at short notice and with opaque enforcement. Understanding these changes is critical for British brands seeking market entry or expansion.

“In an unstable environment, I believe in a ‘Ready, fire, aim’ approach. Move quickly, test early, then refine your strategy. Those who wait for certainty may miss the window,” says Yang Ding, Founder and Director of New Silk Route Digital.

New Silk Route supports British brands across sectors such as sport, education and culture. Their work involves localising campaigns for Chinese audiences through livestreaming, influencer partnerships and culturally attuned storytelling. “It’s not just about exporting products,” Yang adds. “It’s about exporting values, and doing so in a way that resonates locally.”

Cultural literacy and soft power

British culture retains a powerful pull for many Chinese consumers. From the Premier League to Harry Potter, the UK continues to enjoy strong cultural cachet. But audiences today demand more than surface-level branding. They want relevance, authenticity and an understanding of what truly matters to them.

This was evident in the years leading up to the pandemic, when tourism was a central pillar of UK–China engagement. Public-private collaboration enabled large-scale, coordinated efforts to attract Chinese visitors to Britain’s regions.

“Before the pandemic, when China was a key visitor market and the UK government was investing heavily to keep Britain competitive, we had the opportunity to work with some of Britain’s most popular tourism destinations,” says Meimei Zhao, Founder of Variety Plus. “One standout project was in collaboration with London & Partners, where we supported the development and launch of tourism products designed specifically for the Chinese market — connecting London and Manchester with surrounding regions.”

Variety Plus helps UK and European brands expand into China, and Chinese brands go global. Zhao credits the success of these campaigns to the Discover England Fund — a £40 million government initiative that united airlines, hotels, attractions, and metro mayors around a shared vision. “It was a strong example of what’s possible when public and private sectors align,” she says. “Sadly, in the absence of sustained, large-scale funding for multi-year programmes, initiatives of this scale have become much harder to deliver.”

Despite this, British institutions and brands continue to foster cultural links through partnerships, creative collaborations and targeted campaigns — especially in education, design, heritage and lifestyle.

Shifting consumer dynamics

Today’s Chinese consumers are more value-driven, digitally fluent and locally proud. While international brands are still welcomed, especially in sectors like skincare, nutrition and premium fashion, they face stiff competition from high-quality domestic players.

British brands must bring more than heritage. They need relevance and adaptability, especially online. Digital ecosystems such as WeChat, Xiaohongshu and Douyin dominate daily life. Brands that localise their presence within these platforms are best placed to build lasting engagement.

Live commerce and influencer-led marketing are no longer optional, they’re central to the brand discovery journey. But execution matters. Chinese consumers are sensitive to tone, aesthetics and messaging. A misstep can be costly, while a well-executed campaign can deliver exponential returns. “Influencers in China are not just marketers,” says Yang Ding. “They’re cultural translators. The right partnership can open doors that advertising alone never will.”

Some of the most successful British brands in China today are those that combine product excellence with credible storytelling. This often involves deeper collaborations with local communities, creators and cultural tastemakers.

Political context and risk

While trade relations may be warming in some areas, wider UK–China relations remain complex. Issues such as technology, national security and academic exchange continue to shape the bilateral relationship. And for brands, politics cannot be ignored.

Chinese consumers are increasingly attuned to perceived slights, whether real or manufactured. Misjudged campaigns, poorly timed statements or partnerships with controversial figures can quickly spark backlash. State media and social platforms can amplify reputational risk within hours.

As a result, many brands are treading carefully. Some are pivoting to lower-risk sectors, such as health and wellbeing, education technology or sustainability. Others are investing more in market intelligence and crisis planning.

Still, there are windows of opportunity. Regional governments in China remain enthusiastic about foreign investment, particularly when it brings innovation, jobs or exports. British firms with a clear offer and flexible delivery models can still gain traction—if they act decisively. “We are in an era where agility beats certainty,” says Yang Ding. “It’s no longer about finding the ‘perfect’ strategy. It’s about learning fast, acting local, and building real human connections. That’s how you build brand equity in China today.”

Join CBBC’s China Consumer 2025 to learn more about the consumer and retail sector in China

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In 2022, China’s population fell for the first time in six decades, dropping from 1.4126 billion to 1.4118 billion, a decline of 850,000. This trend has accelerated, with losses of 2.08 million in 2023 and 1.39 million in 2024, according to China’s National Bureau of Statistics. The United Nations projects a further decline of 204 million by 2054, and by 2100, China could lose over half its current population, falling by 786 million. This shift, driven by low birth rates and an ageing population, is reshaping labour markets, consumer demand, and business prospects. For UK firms, understanding these changes is key to thriving in China’s evolving market.

The decline stems from the One-Child Policy (1979–2015), which limited most families to one child, reducing the number of women of childbearing age and skewing gender ratios. Coupled with high living costs, shifting attitudes towards marriage, and the economic impact of COVID-19, China’s birth rate in 2024 was just 6.77 live births per 1,000 people, slightly up from 6.39 in 2023. Meanwhile, the population over 60 reached 310.3 million in 2024, up from 297 million, while the working-age population (16–59 years) dropped from 61.3% to 60.9%, totalling 858 million. By 2050, those over 65 are expected to double, straining social systems.

To counter this, China has rolled out policies to boost births and manage an ageing society. Since 2016, couples can have two children, expanded to three in 2021. Subsidies, like Shenzhen’s RMB 19,000 (£2,050) for families with one to three children, aim to encourage childbirth, alongside tax deductions and childcare support. However, these measures have yet to reverse the decline. Starting January 2025, China will raise retirement ages, men from 60 to 63, women from 50 to 55 (blue-collar) or 55 to 58 (white-collar) over 15 years, to address a shrinking workforce. The government is also investing in the “silver economy,” with policies like rent exemptions and tax breaks for eldercare providers, as outlined in the 2022 National Development and Reform Commission measures and the 2024 State Council’s Opinions on Developing a Silver Economy. A private pension scheme, launched in 2022 and expanded nationwide in 2024, offers tax incentives to ease pressure on public pensions. Additionally, China is pushing automation and “New Quality Productive Forces” (NQPFs), focusing on AI, robotics, and biotechnology to offset labour shortages.

This demographic shift challenges China’s economic model, once fuelled by a large, young workforce. With 734.4 million workers in 2024, labour shortages are not immediate, but industries like manufacturing and construction may face higher wages and shortages as younger workers shun manual labour. A smaller population could shrink consumer markets, with older citizens spending less. Yet, rising per capita income – RMB 41,314 (£3,550) in 2024 – and policies like the Special Action Plan to Boost Consumption and the dual circulation strategy are strengthening domestic demand. British brands like Burberry succeeded by tailoring products to local tastes, highlighting the need for adaptability.

Despite challenges, China’s ageing population creates opportunities for British businesses. The eldercare market, projected to reach £2.6 trillion by 2030, demands healthcare services, pharmaceuticals, and medical devices. Healthcare Opportunities in China, allow UK firms like AstraZeneca to grow in China through local partnerships to meet these needs. Education is another growth area, with smaller families spending more on premium services and a shortage of skilled workers in technology, healthcare, and engineering. UK institutions are also helping to uskilling China’s workforce by expanding vocational training. China’s push for automation aligns with UK strengths in AI and robotics, as seen at the 2024 China International Import Expo, where British tech firms showcased innovative solutions.

To succeed, British businesses should invest in automation, partnering with Chinese firms to develop AI and robotics. Offering vocational training, diversifying products for an ageing, affluent market, and building local partnerships are critical. Flexible work arrangements can also attract talent in a competitive market. While China’s population decline poses risks like labour shortages and reduced consumer demand, it also opens doors in healthcare, education and technology. By staying agile and leveraging UK expertise, British firms can seize these opportunities in China’s changing landscape.

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In its eleventh edition, the CBBC Trade Tracker, released in June 2025, paints an optimistic picture of UK-China trade relations, underscoring the resilience and dynamic nature of this vital economic partnership. In 2024, a year marked by global economic turbulence and shifting geopolitical currents, UK goods exports to China rose by 1% to £21.1 billion, reversing a 1.6% decline from 2023. This modest but significant growth signals a renewed momentum in bilateral trade, driven by diverse regional contributions from across the UK’s regions and a deepening of commercial ties with the world’s second-largest economy. With China, including Hong Kong, standing as the UK’s third-largest trading partner and fifth-largest export market, the report highlights the critical role this relationship plays in bolstering British prosperity.

The CBBC’s report, drawing on HM Revenue and Customs (HMRC) data, offers a granular view of how UK regions and devolved administrations have navigated the complexities of the Chinese market in 2024. Among the standout performers, the East Midlands, which solidified its position as the UK’s largest exporter to China with £3.5 billion in goods, a 2.8% increase from the previous year. The region’s dominance is largely attributed to its robust trade in power-generating machinery and equipment, which rose by 1.3% to £2.6 billion, accounting for the lion’s share of its exports. Notably, the East Midlands remains the only UK region to run a trade surplus with China, with exports to Hong Kong comprising an impressive 84% of its total trade with the country. This underscores the region’s strategic importance as a hub for high-value manufacturing and its ability to capitalise on demand in both Mainland China and Hong Kong.

Hot on the heels of the East Midlands, the West Midlands emerged as the UK’s second-largest exporter to China, with goods exports edging up by 0.5% to £3.21 billion. The region’s trade is anchored by road vehicles, including premium cars and automotive components, which, despite a marginal 1.6% dip to £2.15 billion, remain the cornerstone of its exports. A notable bright spot was the 36.8% surge in power generating equipment exports to £287 million, reflecting growing Chinese demand for advanced energy technologies. The West Midlands’ contribution to UK-China trade accounted for 1.65% of its regional GDP, the second-highest share among UK regions, highlighting its pivotal role in sustaining national economic growth.

London, with £3 billion in exports, maintained its position as a key player in UK-China trade, despite a 4.8% decline from 2023, a marked improvement from the 25.5% drop the previous year. The capital’s trade profile is distinctive, with miscellaneous manufactured articles, such as luxury cosmetics and designer goods, leading the way, though these fell by 13% due to subdued consumer sentiment in China. London’s unique position is further evidenced by China ranking as its third-largest export market, the only UK region where this is the case, and its prominence in apparel and optical goods exports. The presence of major energy firms headquartered in the capital also drives significant petroleum exports, though these are more reflective of corporate activity than physical trade.

The North West of England also shone brightly, with exports to China climbing by 7.6% to £2.15 billion, marking the third-fastest growth rate among UK regions. This growth was underpinned by steady demand for road vehicles, including electric vehicles and components, as well as strong performance in agri-food exports such as cereals and animal feed. The region’s success in these categories aligns with China’s increasing focus on food security, positioning the North West as a critical supplier in this strategic sector. Meanwhile, the South West of England celebrated its fourth consecutive year of export growth, with a 3.5% increase to £1.7 billion, overtaking the South East to become the UK’s fifth-largest exporter to China. The region’s strength lies in ‘other transport equipment,’ including aircraft parts and luxury yachts, as well as scientific instruments like avionics and radar systems, which saw robust demand.

Regional Stars: North East and Scotland Surge Ahead

Among the most striking stories of 2024 is the remarkable export growth from England’s North East, which soared by an impressive 45.9% to £620.6 million, the fastest growth rate of any UK region. This surge was driven by power-generating machinery and equipment, likely including turbines and wind energy technologies, alongside significant gains in non-ferrous metals (up 174%) and medicinal and pharmaceutical products (up 138%). Despite being the UK’s second-smallest exporter to China, the North East’s leadership in niche categories like timber and organic chemicals underscores its outsized impact on UK-China trade.

Scotland, too, delivered a standout performance, with goods exports surging by 32.6% to £1.47 billion, the second-highest growth rate among UK regions. A key driver was the meteoric rise of petroleum exports, which leapt from negligible levels to £407.5 million, making Scotland the only UK region with oil as its leading export to China. Equally impressive was the 128.9% increase in seafood exports, reaching £75.3 million, a trend likely fuelled by China’s booming cold chain logistics sector. While beverage exports, primarily whisky, dipped by 32.7% amid China’s reduced luxury spending, Scotland’s dominance in leather goods and beverages highlights its diverse export portfolio.

Diverse Strengths Across the UK

The East of England also contributed to the positive narrative, with exports to China rising by 3.5% to £1.39 billion, reversing a three-year decline. Seven out of its eight top export categories recorded growth, with medicinal and pharmaceutical products remaining the region’s flagship export at £367.5 million, despite a slight 2.9% dip. The East’s position as the UK’s largest exporter of pharmaceuticals, meat and crude rubber underscores its critical role in meeting China’s demand for high-quality goods.

While not all regions saw growth, the overall picture is one of resilience and opportunity. Seven of the UK’s twelve regions recorded export increases in 2024, up from just four in 2023, reflecting a broadening of engagement with the Chinese market. Even regions like Wales and Northern Ireland, which saw declines of 15.2% and 14.7% respectively, showed pockets of strength, Wales in transport equipment and Northern Ireland in pharmaceuticals. The South East, despite a 12.4% drop to £1.47 billion, retained its leadership in pulp and waste paper and inorganic chemicals, while Yorkshire and the Humber’s modest 4.7% decline was offset by gains in dairy and egg exports.

The CBBC’s Trade Tracker highlights the complementary nature of British heritage goods and specialised industrial products, finding a ready market in China’s sophisticated economy. As Peter Burnett, CEO of CBBC, notes in the foreword, the improved engagement by the Labour government in 2024, marked by high-level ministerial visits, has fostered a more constructive dialogue and boosted business sentiment. Despite global challenges, including US tariffs and China’s domestic economic pressures, the UK’s ability to grow civilian goods trade unimpeded offers a pathway for further expansion.

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China’s economic allure, with a projected GDP growth of around 5% for 2025, continues to draw global investors, including British firms seeking to tap its vast consumer base and innovation-driven markets. However, the country’s foreign investment regime, governed by the Foreign Investment Law (FIL) of 2019, balances openness with stringent controls, particularly in sectors deemed sensitive to national security or cultural identity. For UK businesses, navigating these restrictions is essential to unlocking opportunities in a market where bilateral trade reached £111 billion in 2022.

The Framework: Foreign Investment Law and Negative Lists

Enacted on 1 January 2020, the FIL transformed China’s approach to foreign direct investment (FDI) by replacing a patchwork of approval-based rules with a unified framework. The law promotes “national treatment,” ensuring foreign investors are treated similarly to domestic ones, except in sectors outlined in the Negative List for Foreign Investment Access. The 2024 edition of this list, issued by the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) on 8 September 2024 and effective from 1 November 2024, reduced restricted and prohibited sectors to 29 from 31 in 2021, signalling progressive liberalisation. Prohibited sectors include news media, internet publishing, and audio-visual production, reflecting China’s tight grip on information and cultural industries. Restricted sectors, such as telecommunications and medical institutions, often require joint ventures with Chinese partners, with foreign equity typically capped at 50%.

Complementing the Negative List is the Market Access Negative List, which applies to both domestic and foreign investors. In April 2025, this list was trimmed to 106 items from 117 in 2022, easing barriers in sectors like hotel management and construction. Free Trade Zones (FTZs), such as those in Shanghai and Guangdong, operate under a separate FTZ Negative List, which is less restrictive but still enforces sector-specific rules. For example, while the 2024 Negative List lifted all manufacturing restrictions nationwide, FTZs had already relaxed these rules in 2021, offering British firms in fintech and professional services a testing ground for investment. However, inconsistencies between these lists can complicate compliance, and firms should seek expert guidance.

Sector-Specific Restrictions

Manufacturing: A New Era of Openness

The most significant reform in 2024 was the complete removal of foreign investment restrictions in manufacturing. Previously, sectors like publication printing and traditional Chinese medicine processing faced ownership caps or joint venture requirements. Effective 1 November 2024, these barriers were eliminated, allowing wholly foreign-owned enterprises to operate freely in manufacturing. This aligns with China’s “Made in China 2025” strategy, which prioritises high-end manufacturing and innovation. For UK firms in advanced manufacturing, such as aerospace or clean technology, this presents a golden opportunity to establish fully controlled operations, though local competition and IP risks remain concerns.

Services: Gradual Liberalisation

The service sector, critical for UK exporters in finance, healthcare, and technology, is undergoing cautious liberalisation. In telecommunications, pilot programmes in cities like Beijing, Shanghai, and Hainan, launched in April 2024 and expanded in 2025, relaxed foreign ownership restrictions for value-added services, including Internet Data Centres and Content Delivery Networks. The 2024 Negative List also removed foreign equity caps in app store services, reflecting China’s push to integrate AI and digital services. However, basic telecommunications services still require Chinese control, limiting foreign influence in core infrastructure.

Healthcare, a priority under the “Healthy China 2030” initiative, saw a landmark reform in 2024. A joint circular from MOFCOM, the National Health Commission, and the National Medical Products Administration permitted wholly foreign-owned hospitals in nine cities, including Beijing, Shanghai, and Hainan. This shift, effective from 1 November 2024, opens doors for UK biosciences firms, but strict regulations persist. Approvals for medical services and compliance with human genetic resource rules for research involving stem cells or gene therapy are mandatory, requiring robust due diligence.

Financial Services and Listed Companies

China’s financial sector, a stronghold for UK firms like HSBC, has seen progressive easing. The 2020 Negative List lifted equity caps for foreign investors in banking, securities, and insurance, allowing full ownership in certain financial services. In November 2024, rules for foreign investment in listed companies were relaxed, lowering the asset threshold for non-controlling investors from $100 million to $50 million and introducing tender offers as an approved investment method. These changes aim to attract capital to China’s stock markets, though geopolitical tensions and market volatility may temper enthusiasm.

Data, Cybersecurity, and Anti-Espionage Laws

China’s data and cybersecurity regulations pose significant challenges for foreign investors, particularly in tech-heavy sectors where the UK excels. The Cybersecurity Law of 2017, updated in 2024, mandates local storage of personal and “important” data and requires government approval for cross-border transfers. The Personal Information Protection Law (PIPL) of 2021 further tightens data handling, impacting firms in e-commerce and digital services. The Anti-Espionage Law, amended in July 2023, expanded its scope to include “documents, data, or materials” related to national security, raising concerns about vague enforcement. Foreign firms, including UK tech companies, must navigate these laws carefully, as compliance failures can lead to fines or operational bans. The CBBC recommends partnering with local legal experts to ensure adherence while protecting IP, especially in China’s first-to-file patent system.

Geopolitical and Trade Considerations

The U.S.-China trade war, escalating in 2025 with U.S. tariffs on Chinese goods reaching 145%, has ripple effects for foreign investors. Dual tariffs—125% on components imported into China and 145% on exports to the U.S.—complicate supply chains for manufacturers reliant on China for assembly. While the UK faces fewer direct trade barriers, China’s retaliatory measures, such as rare earths export controls in April 2025, underscore its economic leverage. British firms benefit from a stable UK-China relationship, reinforced by the UK-China Economic and Financial Dialogue (EFD) in 2025, which eased barriers in agri-food exports. However, the UK’s National Security and Investment Act (NSI) mirrors China’s scrutiny, requiring notifications for investments in 17 sensitive sectors, highlighting the need for transparency in bilateral deals.

Incentives and Challenges

China’s Catalogue of Encouraged Industries, updated in 2024, incentivises investment in high-tech fields like gene sequencing and green energy, offering tax breaks and land-use subsidies. The “24 Point Guidelines” of 2023 promote equal treatment in government procurement and streamline data flows, though local implementation varies. Despite these efforts, challenges persist. A 2023 CBBC survey found 73% of British multinationals faced restrictions, from opaque licensing to discriminatory procurement. The World Bank’s 2023 transparency score of 1.75 out of 5 reflects regulatory complexity, particularly for SMEs. Bureaucratic delays in profit repatriation and local competition further complicate operations.

Strategic Considerations for British Businesses

For UK firms, success in China hinges on strategic planning. The CBBC offers market insights and partner vetting, critical for navigating restrictions. Local partnerships can ease compliance, especially in restricted sectors like healthcare. Understanding consumer preferences and digital platforms like WeChat is vital, as is safeguarding IP through proactive registration. Collaborations, such as Westwell Holdings’ AI-powered trucks at Felixstowe port, showcase UK-China synergy in aligned sectors like AI and clean tech.

China’s investment regime is evolving toward greater openness, but restrictions in services, data, and sensitive sectors remain. For British businesses, the challenge is to balance compliance with ambition, leveraging China’s market while mitigating risks. With careful navigation, UK firms can capitalise on this dynamic economy, fostering mutual growth in a globally connected world.

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On Monday, 5 February, China’s blue-chip CSI 300 Index fell by close to 5%, hitting its lowest level since 2019. Confidence in the market has waned amid an economic turndown, driven by issues such as a debt-ridden property industry.

The latest fall came on a day of highly negative news, which did little to help sentiment. Chinese billionaire banker Bao Fan, who vanished from public view last year, resigned from all roles at his firm, China Renaissance Holdings. Elsewhere, the former president of China Merchants Bank, Tian Huiyu, was handed a suspended death sentence for corruption and insider trading. The court said that he had used his position to accrue illegal gains of over RMB 290 million (£32.2 million).

The sliding markets prompted further action by the country’s regulator, the China Securities Regulatory Commission (CSRC).

On Sunday, 5 February, CSRC issued a statement promising more market stabilisation methods, a listening ear for investors, and a crackdown on misbehaviours such as market manipulation.

Then, on Tuesday, 6 February, CSRC announced more measures to prop up the market and curb short-selling, including:

• The suspension of brokerages borrowing shares from institutional investors for short sales
• A cap on the size of the so-called securities re-lending business
• A ban on securities lending to investors who sell stocks on the same day of purchase

The same day, Bloomberg reported that President Xi Jinping would be holding talks with CSRC, leading to a brief stock rally. As of the time of publication, no further news or confirmation has come out about these talks.

As a result, on Wednesday 7 February, trading activity in the CSI 300 and other indexes rose to the highest levels since August 2023. China’s so-called ‘National Team’ of state-backed financial institutions, including Central Huijin (a unit of the sovereign wealth fund China Investment Corp) have already stepped in to purchase exchange traded funds to help maintain the market.

In a further surprise move, on Wednesday 7 February, the Xinhua news service announced that CSRC would replace its head, Yi Huiman, with Wu Qing, a banking veteran who has led the Shanghai Stock Exchange and has a reputation for taking tough action. As SCMP points out, Wu will now face the daunting task of alleviating the concerns of China’s 220 million individual investors, the largest such group in the world.

Despite Wu’s appointment being seen as a broadly positive move, analysts have said that it will take concrete actions to reverse the currently-entrenched pessimism of investors, and that China’s continued crackdown on the finance sector will do little good to its ailing property sector, which is in need of credit from banks to finish housing projects.

As China goes into the week-long Lunar New Year and trading in China is suspended, the markets will have the opportunity to digest the announcements of the past week, with more changes expected in the weeks to come.

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The takes on China’s economy from media and analysts in 2023 comes across like a Dickens reading list: there have been Great Expectations, ample descriptions of Hard Times, and now – to stretch the wordplay a little – many pessimists are calling it a Bleak House.

But is everything really doom and gloom? This article will take a closer look at the course China’s economy has taken so far in 2023 through a selection of eight charts.

Gross domestic product

China’s disappointing GDP growth so far has been blamed on many factors: poor domestic and international demand, a property market slump, low consumer confidence and geopolitical tensions. Nevertheless, National Bureau of Statistics spokespeople have rightly pointed out that China’s GDP grew an aggregate 5.5% year-on-year in the first half of 2023 – making it the fastest-growing among major economies. But despite the NBS’s bullishness, many financial institutions have lowered their GDP growth predictions for the remainder of 2023. Economists polled by Bloomberg have cut their estimates from 5.2% to 5.1%.

Inflation

China’s falling CPI is mostly due to low consumer demand and confidence – which stems from the poorly performing property sector, general economic malaise, and the damage caused by years of severe pandemic controls. Instead of the “revenge spending” that had been predicted, Chinese consumers have been locking up their savings while waiting for the economy to improve. The country’s low PPI, on the other hand, is due to weak domestic and global demand for Chinese goods and materials. It’s also due to a higher base for comparison because global commodity prices soared after Russia’s invasion of Ukraine in 2022.

The resulting deflation has the effect of delaying many consumers’ purchases and investments – especially in houses, cars, and travel – as they wait for prices to stop falling. Deflation also increases the real value of debts. However, there are reasons to believe China’s deflation may be temporary. July’s fall involved one-off factors such as the price of food, particularly pork prices. The same month, China’s “core inflation” – or inflation without volatile items such as energy and food – actually rose from 0.4% to 0.8%. Analysis by BNP Paribas also suggests that China’s economic fundamentals do not meet the typical conditions for lasting deflation, including a contracting money supply, significantly flagging demand, and a consistent loss in confidence.

Manufacturing purchasing manager’s index (PMI)

Manufacturing PMI is an economic indicator representing the rate of expansion or contraction in the manufacturing sector. A result of above 50 implies expansion, while a result below 50 implies a contraction. It is calculated through surveys completed by managers, and focuses on variables like output, new orders, employment, supplier delivery times, and inventory levels. It is an important metric for China because manufacturing accounts for a third of its economy by value.

The spike in manufacturing PMI earlier in the year was probably due to the initial momentum caused by the lifting of Covid-19 controls in December 2022, as well as factories fulfilling a backlog of late orders that had not been completed due to 2022 disruptions, while the subsequent depression in manufacturing orders has been mostly due to low global and domestic demand.

Non-manufacturing/service purchasing manager’s index (PMI)

Non-manufacturing PMI is an official index that covers services and construction. Its readings and data are similar to manufacturing PMI, with a reading of 50 implying neither growth nor contraction. Caixin’s equivalent is the Service PMI, which does not include construction.

Both indices rocketed in January, reaching a peak in March. The growth of both indices has been helped by a boom in catering, entertainment and hospitality since the relaxation of Covid-19 controls. However, the growth of both indices has slowed since March, and services PMI softened even further in August, despite it being the first post-pandemic summer season, and in spite of record railway sales and a strong box office performance at cinemas. This indicated a weak performance in the travel industry and a possible consumer shift towards lower-priced services.

Exports and imports

Weak foreign demand – due to inflation – and falling purchases of electronic products are the main reason for the declining exports, which has hampered China’s recovery. This overall decline in exports is not unique to China and has been plaguing other economies as well. Weak external demand has also put downward pressure on China’s imports, since many are materials used to manufacture goods for export. Weak consumer demand and China’s struggling property sector have also played a role. However, both imports and exports showed some signs of stabilisation in August, beating analyst’s expectations.

Youth unemployment

China’s youth unemployment rate rose to a record high of 21.3% in June 2023, breaking the previous record high of 20.8% recorded in May, after which point the government announced it was temporarily suspending the publication of figures.

China’s general economic challenges mean that many companies are retaining older, more experienced staff and not hiring. Young people are generally vulnerable during economic downturns because they have less work experience. Moreover, many among China’s record numbers of university graduates have degrees such as sports and education that don’t match the needs of China’s current employment market – and they don’t necessarily want to engage in certain types of work they consider physically challenging or demeaning.

Young people are big spenders, so unemployment is likely to be sapping domestic consumption growth, and some analysts argue that high youth unemployment risks destabilising society by causing anger and resentment.

New house prices

The year-on-year change in the price of new houses plummeted in 2022 due to China’s real estate crisis, bearing in mind that many new houses are pre-sold prior to completion. The decline in new house prices narrowed in the first couple of months of 2023. The rate of increase then slowed sharply in May – leading to fears that pent-up demand was already fading – and prices then fell again in June and July.

China’s gargantuan real estate sector is of immense importance to its economy – and even has an impact on the world economy. It is estimated to contribute up to a third of national GDP. It could also have a major impact on the solvency of financial institutions, besides the parlous state of real estate companies themselves. Unfortunately, many reports and analyses suggest that China’s property downturn is far worse than the numbers suggest, with house prices falling by double digits in some areas this summer. The comparatively rosy government figures are likely to be a misleading owing to their survey-based data collection method.

Retail sales

China’s retail sales statistics measure the total value of goods sold to consumers within a month, providing useful insights into consumer confidence and consumption trends ahead of GDP data releases.

China’s retail sales appear to have been boosted by post-Covid ‘revenge spending’ to some degree – as predicted – but a reduction in retail spending since April points to falling demand as a result of depressed consumer confidence. That being said, a sector-by-sector breakdown shows that sales in many areas were robust in July:

• Online retail sales grew 12.5% year-on-year
• Catering revenue grew 15.8% year-on-year
• Retail sales of grain, oil, and food increased by 5.5% over the same period
• Retail sales of beverages went up by 3.1% relative to the same month in 2022

In 2023, the Chinese economy has presented a complex tableau, influenced by myriad domestic and international factors. As the eight charts underline, there have been moments of resilience, particularly in certain sectors of retail, juxtaposed against challenging trends like youth unemployment and a wobbly property market. The growth in GDP, despite being adjusted downward by analysts, still makes China the fastest-growing of the major economies. However, concerns around deflation, faltering consumer confidence, and an unsettled real estate sector indicate underlying vulnerabilities.

The post Eight charts that explain the Chinese economy in 2023 appeared first on Focus - China Britain Business Council.

On Thursday, 10 August, Country Garden, one of the few major developers in China to avoid bankruptcy in recent years, issued a profit warning. The next day, its shares fell to record lows, affecting the wider property sector; the Hang Seng Mainland Property Index fell 1.49% the same afternoon. On Monday, 14 August, Country Garden delayed payment on a private onshore bond for the first time.

On Thursday, 17 August, Zhongzhi Enterprise Group – a major Beijing-based asset manager with considerable exposure to the property sector that has a reported RMB 1 trillion (£108.5 billion) in assets – told investors that it needs to restructure its debt. It had already been missing payments on dozens of financial products. Reuters reported that Zhongzhi had hired one of the Big Four accounting firms to audit it.

The same day, China’s property giant Evergrande, which defaulted in 2021, filed for bankruptcy protection in New York. It was also informed by China’s securities regulator that it is being investigated for suspected disclosure violations.

On Friday, 18th August, two Hong Kong-listed property developers, Yuzhou Holdings and Sino-Ocean Group Holdings, announced significant losses for the first six months of the year. Nikkei Asia reported that Yuzhou cited an “unfavourable macro environment and the downturn in the real estate industry”.

Concerns about property contagion – which then extended to the financial economy due to Zhongzhi’s troubles – led several global financial institutions to cut their China growth forecasts for the year. Morgan Stanley, for example, cut its estimate from 5% to 4.7%.

SCMP reported that the Japanese financial services company Nomura gave an unusually pessimistic assessment in a new research report on China, warning that “slumping home sales may lead to a rising number of developer defaults, a sharp contraction of government revenue, falling demand for construction materials, declining wages of employees in the property and government sectors, weaker consumption and faltering financial institutions.”

China has already started to act to shore up the economy, including a 10-basis-point cut in its one-year benchmark lending rate on Monday. The small size of the cut may reflect concerns by the authorities about bank profitability – a key factor in preserving financial stability.

Nevertheless, Nicholas Spiro, a partner at Lauressa Advisory, a London-based real estate and macroeconomic advisory firm, told SCMP that while China’s property sector woes are serious, their potential impact on global markets should not be overstated and that China is highly unlikely to be facing a “Lehman moment”, a sentiment echoed by many other analysts in the industry.

This is partly because state ownership provides banks in China with a degree of protection against problems in other parts of the financial market. Moreover, in contrast to the West, Beijing tends to allow state-owned banks and other financial entities to help absorb troubled companies.

Photo by Karl Groendal on Unsplash

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Although China’s post-Covid economic recovery has been remarkable, recent figures have fallen short of expectations.

The country’s economy is experiencing deflation for the first time since early 2021. The consumer price index fell 0.3% year-on-year in July, while the producer price index dropped 4.4%.

Imports and exports also fell faster than expected in July. Imports dropped 12.4% year-on-year, considerably worse than analyst predictions of a 5% fall, while exports fell 14.5%, also steeper than the expected 12.5% decline.

These figures have prompted various government departments to take measures to combat the slowdown. On Thursday, 3 August, the Ministry of Public Security (MPS) issued 26 guidelines to promote “high quality development” and the “free movement” of people, vehicles and data in China. As yet, the guidelines are just that, but the MPS’s deputy head of research has said that they are making all efforts to put them into action by the end of the month.

The guidelines include a milestone relaxation of hukou, or household registration, restrictions. This will allow millions of urban residents that still have a rural hukou to switch to an urban hukou, granting them improved access to housing, education and healthcare – and likely unlocking more of their spending power. Restrictions will vary based on city size:

• Cities with a population of under 3 million (hundreds of cities) will completely cancel all hukou restrictions
• Cities with a population of 3-5 million (20 cities) will relax hukou restrictions
• Cities with a population of over 5 million (19 cities) will relax their quotas and ease the points-based system for permit applications

The MPS has also emphasised the need to streamline the provision of government services by cutting red tape, moving more services online, and making services accessible across regional jurisdictions, particularly in the Guangdong-Hong Kong-Macau Greater Bay Area.

Perhaps most notably for FOCUS readers, the guidelines prominently feature measures to allow foreign businesspeople travelling to China for business activities on short notice to apply for a business visa on arrival, rather than having to obtain one before travelling. In addition, people who need to travel to and from China multiple times for commercial business reasons will be permitted to apply for a valid three-year multiple-entry business visa after entering the country. Foreigners will also be allowed to keep their passports when applying for residence permits.

The guidelines also include recommendations for traffic management, vehicles and logistics, including measures to boost spending on consumer goods such as electric and second-hand cars, relax rules on driving licence exams, and enable pilot programmes to set up security service companies.

Many regions of China will also be implementing concrete local policies in line with the MPS’s guidelines. One province even did so before the announcement came out.

In July, the eastern province of Zhejiang announced that it would eliminate hukou limits in urban areas and allow residence permits to be recognised between cities. This policy came into effect on Tuesday, 1 August, two days before the government announcement.

The post Will new guidelines for freedom of movement stimulate China’s economy? appeared first on Focus - China Britain Business Council.

While growth of 6.3% may appear strong, Q2 of 2022 saw China’s economy expand by 0.4% as the country experienced severe disruption from its zero Covid policy – so Q2 of 2023 was always expected to be a higher-than-average number.

Seasonally adjusted quarter-on-quarter growth saw an expansion of 0.8%. And in nominal terms, Q2 growth was lower than Q1 at 4.8% compared to 5%, respectively.

Meanwhile, consumption, a key growth driver as China seeks to shift its economy away from supply, remains sluggish. Retail sales grew by 3.1% year-on-year in June. Again, this growth is warped by the same month in 2022, when the economy was experiencing major impacts from severe lockdowns from March through June.

The charts above and below (all taken from Caixin) reflect two further key fronts for China’s economy in 2023: real estate and youth unemployment.

Image captured from Caixin

Image captured from Caixin

Investment in property development continues to fall (-7.9%), while state-led infrastructure investment expanded by 7.2%. Residential property sales are also struggling, with pre-owned unit prices falling by 0.7% in June month-on-month, according to China’s National Bureau of Statistics. New home sales by China’s 100 biggest real estate developers fell by 28.1% to $72.5 billion (£55.3 billion) in June despite 2022 being a slow year due to zero-Covid.

Youth unemployment has now climbed to 21.4% in June, with the China Academy of Social Sciences predicting this number will peak at 23% in July as another fresh wave of graduates hits the job market.

The perennial question of ‘when stimulus’ may finally be answered in the coming weeks. And if and when that stimulus does arrive, expect to see measures introduced to support households and the private sector – both of which have borne the brunt of the economic impact of recent years.

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