Writing in The Guardian ahead of the visit, Miliband said: “The only way to respond to [the climate crisis] is with decisive action at home and abroad… climate action at home without pushing larger countries to do their fair share would not protect current and future generations. Emissions know no borders, and we will only protect our farmers, our pensioners and our children if we get other countries of the world to play their part.”

On Monday 17 March, Ed Miliband met with Chinese Vice Premier Ding Xuexiang in Beijing. The two sides agreed to enhance cooperation in jointly addressing climate change. Ding, also a member of the Standing Committee of the Political Bureau of the Communist Party of China Central Committee, noted that China is ready to work with the UK to earnestly implement the important consensus reached by the leaders of both countries, consolidate the momentum for improvement and development of bilateral ties, deepen cooperation in areas such as financial services, trade and investment and low-carbon development, and jointly address climate change to better benefit the people of both countries and the world.

Miliband and China’s National Energy Administrator Minister, Wang Hongzhi, also co-hosted the 8th China-UK Energy Dialogue in Beijing on 17 March. The two sides exchanged views on topics including clean energy technologies, energy transition, energy security and global energy governance. Following the dialogue, Miliband and Minister Wang signed a Memorandum of Understanding on the China-UK Clean Energy Partnership, which identifies priorities for collaboration, including power market reform, power grids, battery storage, offshore wind energy, carbon capture, utilisation and storage (CCUS), clean low-carbon and renewable hydrogen.

Earlier, on Saturday, 15 March, Miliband met with China’s Ecology and Environment Minister, Huang Runqiu, and held in-depth discussions on topics including cooperation in climate change. Minister Huang outlined China’s policies, actions, and achievements in combating climate change, expressing China’s willingness further to deepen policy dialogue and practical cooperation with the UK in areas such as carbon markets, climate investment and financing, and climate adaptation. He emphasised that such collaboration would contribute positively to global climate governance.

The Energy Secretary will refresh the 10-year-old UK Clean Energy Partnership with China – which will now provide clarity on areas where the UK government can securely collaborate with China on areas of mutual benefit – such as new emerging technologies, including hydrogen and carbon capture and storage. The UK will also share expertise on phasing out coal, having closed its last coal-fired power station last year.

Ed Miliband said:  

“We can only keep future generations safe from climate change if all major emitters act. It is simply an act of negligence to today’s and future generations not to engage China on how it can play its part in taking action on climate. 

That is why I will be meeting Chinese ministers for frank conversations about how both countries can fulfil the aims of the Paris Climate Agreement, to which both countries are signed up.  

Our Plan for Change and clean energy superpower mission is about energy security, lower bills, good jobs and growth for the British people. It is with this mission that we can also influence climate action on a global stage, fight for our way of life and keep our planet safe for our children and grandchildren.”

Coinciding with Miliband’s visit to China, CBBC, in partnership with the British Embassy and the British Chamber of Commerce in China, hosted the UK-China Clean Energy Reception in Beijing. The event brought together nearly 200 guests, including representatives from the UK government, Chinese companies and UK businesses, providing a valuable platform for business and government stakeholders to network and explore collaboration opportunities in the sector. 

CBBC’s Chief Executive Peter Burnett, who is visiting China, attended the event alongside Tom Simpson, CBBC’s Managing Director for China.

Speaking at the event, CBBC’s Chief Executive Peter Burnett said:

“There are important shared objectives between businesses in the UK and China, including tackling climate change, promoting sustainability, and developing clean, efficient, and safe energy solutions. For businesses, this dialogue is incredibly important. All successful businesses mitigate as much risk from their operations as they can. Managing climate-related risks has become an essential business objective, particularly as we have seen the significant impact of climate change worldwide. At CBBC, we will continue to prioritise this issue. Addressing climate change is not just necessary – it also supports economic growth, prosperity, and job creation.”

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The Chinese government recently announced it will remove the requirement for foreigners with university degrees to have two years of work experience when applying for a work permit in Beijing, a policy that may soon be rolled out across the country.

The rule change is just one of a series of welcome recent measures aimed at tempting tourists, business travellers and students back to China post-Covid, including visa-free entry for a growing list of countries, relaxed requirements for visas on arrival, and easier payment options for foreign visitors.

These policies are a response to the sharp fall in the number of foreign nationals visiting as well as residing in China in recent years, and a recognition of the importance of reversing this trend to help strengthen people-to-people ties at all levels.

According to the most recent national census, Beijing’s foreign population fell from 107,000 in 2010 to around 62,000 in 2020. Meanwhile, the foreign population in Shanghai fell from 208,000 to 164,000 in the same period. Today, the numbers are likely even lower following the worst of the pandemic controls in 2022, which led to a large outflow of foreign nationals, particularly in Shanghai.

Crucially for young Brits, the pandemic effectively paused all the activity which had built up over the years – or in many cases decades – aimed at providing exchange opportunities. For three years, students were unable to visit China for study, and the arrival of graduates looking to develop their early careers in cities like Shanghai, Guangzhou, or Chengdu ground to a halt, save a few resourceful individuals who were able to navigate the visa and border restrictions.

Added to today’s challenges is the fact that the prevailing geopolitical environment has cooled enthusiasm among young Brits for exchanges with China. The trend was already drifting negative prior to the pandemic, with the problem compounded further by the sudden closing of China’s borders.

Meanwhile, the appetite for understanding of the UK in China remains strong, with student numbers around 150,000 last year and visitors beginning to return in large numbers. China not only has a sizeable trade surplus with the UK but also a knowledge surplus – and both will need to be addressed if we are to have a healthy, long-term relationship.

There are signs of light beginning to appear in the tunnel, however. Although recovering the full scale and scope of exchanges last seen in 2019 will take time, a growing range of institutions in the UK and China are taking encouraging steps to restart programmes, build new initiatives, or take existing programmes to the next level.

We have a lot of catching up to do after the last four years, and the need for two-way understanding is greater today than ever

The British Council is bringing a thousand British high school students to China in July 2024 as part of the Mandarin Excellence Programme. This is the first visit by the Mandarin Excellence Programme and will hopefully mark the start of a sustained effort to familiarise young Brits with Chinese language and culture.

A new initiative launched in 2023 by Engage with China saw 10 British pupils win A-level scholarships in China. The scholarships include both fully-funded and part-funded placements and are run in collaboration with Wycombe Abbey School in Changzhou (WASC).

Tom Simpson and his cohort on a gap year with Project Trust in 2004-05

Project Trust is also resuming its China programmes for gap-year students. PT will have its first cohort of volunteers coming out to China later this summer to work in rural schools in Sichuan, Jiangxi and Heilongjiang after a four-year hiatus. I personally spent my first year in China with PT back in 2004-05, teaching at a school in rural Xinjiang before going on to study Chinese at Leeds University.

UK universities that diverted their Chinese language studies cohorts to Taiwan during the pandemic are now offering places at Chinese universities again. The resumption of university courses will help to raise the number of British students in China, even if the overall number is likely to remain low. While we don’t know the exact number of British students in China today, for context, there are just 720 US students currently studying in China.

The long-running Schwarzman Scholar programme, which offers a one-year Master of Global Affairs degree at Tsinghua University, is open to British applicants too, with the deadline for 2025 scholars open until September 2024. Although primarily a US-led program, the University of Oxford also plays a central role, including providing faculty.

Furthermore, the British Council’s Generation UK, which was launched in 2013 with the aim of helping UK students and graduates to “develop a global mindset through study and work experience opportunities in China”, will hopefully return at some stage in a new format. Since its inception, Generation UK has built a network of over 4,000 participants and has been one of the most impactful initiatives aimed at building an understanding of China among Brits to date.

Another important route for young Brits to come and work in China has been through internships. CRCC Asia provides one, two and three-month internships in China and is a great way for graduates to experience life in Shanghai. The China-Britain Business Council also provides internship opportunities in Beijing and Shanghai on an ongoing basis.

Although designed for mid-career participants, a mention should also go to the Great Britain China Centre’s Future Leaders Programme, which aims to “build China literacy among rising civil servants, MPs and business representatives” with modules in the UK and China. The programme has just closed applications for its 2024 cohort and, given the success of previous years, will hopefully become a sustained initiative.

Leeds University Chinese degree graduation group, 2009

A large number of the British expats who have built careers or started companies in China started out as graduates or arrived early in their careers with a curiosity to learn about the country and experience its work culture. Most did not study Chinese and simply saw China as a place where they could develop themselves and have a rewarding experience.

Several current UK MPs took up the option to come to China in their younger years. Catherine West (MP for Hornsey and Wood Green) worked at a school in Nanjing in the 1990s, while Mark Logan (MP for Bolton Northwest) worked at the British Consulate in Shanghai in the 2010s. Neil Coyle (MP for Bermondsey and Old Southwark) also spent two years in China from 2001 as a 23-year-old.

A lot of work remains to be done to rebuild and reinvigorate activity to develop understanding of China among the next generation of Brits, whether through study, work, cultural exchange, travel or business connections. There is a role for us all to play, whether through developing internships or full-time roles, helping to spread the word about programmes such as those mentioned above, supporting the excellent work of the British Council, GBCC, Project Trust, Engage with China (and the many other organisations, too many to mention!) either financially, with your time, or developing new exchange programmes.

We have a lot of catching up to do after the last four years or so of disruption. Meanwhile, the need for two-way understanding is greater today than ever. I remain optimistic we will see the numbers of young Brits coming to China grow as the programmes listed above are reestablished and interest gradually returns. But what is clear is it will require a holistic and sustained approach from across businesses, NGOs, academic institutions and government if we are to be successful over the long term.

Photo by MD Duran on Unsplash

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Over the past year, we have seen a gradual rapprochement of Western relations with China, including the UK, after a few years of tense relations and largely constructive introspection. This was particularly the case over the last four months with James Cleverly’s visit to Beijing and the Biden-Xi meeting in San Francisco. And March’s Integrated Review refresh helped to provide some much-needed structure to the UK government’s approach to relations with China.

The volume and seniority of inward visits coming to China has been high and sustained throughout the year, with global executives, state leaders and the trade delegations making their way here. The last quarter of 2023 felt much like 2019 in terms of business programming and traffic flow in China.

Meanwhile, the landscape remains mixed for British businesses operating in China, with three distinct investor profiles emerging:

1. Confident and investing: This group consists primarily of the largest UK investors in China as well as those with significant market share or revenue exposure. In most cases, this group operates local business units that have grown over multiple decades. A sizable number of SMEs with strong market fit also fall into this category. Larger investments by this group that CBBC has supported in 2023 range from $100 million (£78.4 million) to upwards of $1 billion (£784 million) and more announcements are anticipated for 2024.

2. Hesitant but growing: The largest of the three groups and consisting of a wide body of sectors and company sizes. The hesitancy tends to be concentrated at the HQ level rather than local and is due to a combination of geopolitics, sluggish domestic and international economic outlook, or commercial considerations (competition, pressure on margins, regulation, etc.). Add also the fact that British companies tend to lean more conservative than our comparators, such as those from the US.

3. Recovering revenue or struggling for growth: Companies in this group are often facing strong headwinds from competition and regulatory barriers, economic challenges such as the real estate crisis and/or weak demand, or are still working to recover revenues from the impact of Covid restrictions. This group is generally not considering leaving China and is instead reorienting its strategic approach to return to a growth trajectory. In a very small number of cases, companies have decided to exit – although this is not uncommon in any given year due to mostly commercial failure. However, in one case, a company (Graphcore) did opt to exit China this year due to US semiconductor controls in a rare case of a UK company getting caught directly in the crossfire of geopolitics.

As we head into 2024, talk will continue to focus on the performance of the Chinese economy and potential risks (real estate, local Government debt levels, domestic demand, oversupply) in addition to recovering investor confidence among both domestic and foreign investors. This was also the focus at the beginning of 2023, when I wrote an article reflecting on the long-term challenges the current mix of headwinds present for China.

The Chinese Government will continue to take steps to reassure investors of their commitment to supporting the economy and, in particular, the private sector. This will have a positive effect; however, any shift in sentiment is likely to be gradual due to continued uncertainty around geopolitics and the macroeconomy.

Regardless, foreign MNCs with significant traction in China will continue to invest into their operations in the pursuit of growth. R&D and M&A will be a major focus as a way to counter the increasing fronts of competition with domestic companies. Localisation will remain a major theme. MNCs will also turn to more creative ways of financing investments in China, including through local banks (see BASF’s recent RMB 40 billion syndicated bank loan as a leading example) motivated by comparatively cheaper rates and the need to commit cash to other key markets.

China will remain a critical front for the future of many MNCs as a focal point for facing up to competition, innovating technology and services, and maintaining or growing global market share.

I also expect we will see an uptick in investment activity into the UK from China, both by State-owned and private investors. This investment will be aimed towards renewables, batteries and EVs — all areas the UK Government is actively promoting — but also consumer and niche segments of healthcare, manufacturing and technology. This is despite continued concerns among Chinese investors regarding the degree to which their investment is still welcome. More work is required to shift this perception, and CBBC will continue to play a central role on this front.

Meanwhile, trade between the UK and China will continue to perform strongly in 2024 and likely set new records, both in terms of exports and imports. UK exports to China had a bumper 12 months up to the end of September, growing by +10.6% to £138.6 billion (inc HK) — the highest 12 months on record. UK exports grew a staggering 71% to £44.4 billion in this period.

Nevertheless, despite the overall positive outlook for growth of UK-China trade, export controls will remain a challenge for many UK exporters. Clearly, more work needs to be done to improve the process. Again, this will form a core focus for CBBC’s work to support our members next year.

It’s been a productive year for CBBC across China and the UK. As a bilateral trade and investment organisation, we thrive on engagement, so 2023 was like taking a big dose of medicine. I look forward to continuing to build upon this momentum into 2024, my seventeenth year in China, and beyond.

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The new space has been designed to provide a modern and stimulating working environment for our Beijing team while positioning our event and meeting space as a hub for our community of members and partners located in the heart of the capital. We are also now located a short walk from the British Embassy, and many of our members who are based in the Guomao CBD.

With six meeting rooms and a large events space with dividing walls, we have created a flexible space that can be used for meetings, small-scale events, roundtables, seminars and receptions. The office sits on the 9th floor of Guanghualu Soho II (光华路SOHO2) with lots of natural light and a roof garden that provides a nice leafy backdrop to our event and meeting area.

We would like to use this opportunity to invite our members and partners to make use of the new space and collaborate with CBBC on events, working groups, and other activities – or simply stop by for a tea or coffee when you’re next in the area!

We are planning to hold a series of mixers over the coming months to introduce our members and partners to the new space, with a formal opening likely to take place in November. We’ll be going out to sponsors soon but get in touch if this could be of interest. Stay tuned, and we look forward to seeing you at the new space soon!

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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.

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC’s market research and analysis services can provide you with the information you need to succeed in China.

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There is widespread relief at the prospect of a more predictable operating environment and the resumption of connectivity with the rest of the world since China dropped its zero covid policy. Recovering the more robust levels of confidence common among foreign investors pre-2019 will now need to be the goal if China seeks to capitalise on its reopening, stabilise, grow levels of inbound investment, and return to the “new normal” of annual GDP expansion of 5% or above.

Initial signs of recovery are beginning to emerge as China’s economy begins to come back to life after a year of heavy disruption. Fortunately for the economy, the impact from the first wave of infections arrived early enough in December and January for the process of recovery to capture a significant chunk of the annual Spring Festival boost to travel, leisure and consumption more broadly.

Travel rebounded strongly over the seven-day holiday up 50.9% on 2021, though still significantly lower than 2019 trip volumes (47%) according to the Ministry of Transport. The box office also sprung back to life with around $1 billion generated over the seven-day national holiday, aided by a strong line-up of domestic films and beating 2019 takings. Data from Meituan indicates a recovery of China’s restaurant sector has also started, with Spring Festival revenues for some chains already recovering to pre-pandemic levels.

Signals from China’s leadership such as China’s Vice Premier Liu He’s Davos speech, which included a declaration that China’s economy ‘will get back to normal in 2023,’ have also added further fuel to the relief rally. As have the recent approvals for foreign finance firms to set up or acquire wholly owned mutual funds as well as securities brokerages. One interpretation of this sudden raft of approvals is that they are evidence of a more welcoming stance toward foreign business (and the private sector more broadly). Foreign investors, however, continue to hold a range of concerns that will be more challenging to shake off for the economy than the reversal of zero covid has proven to be, or the lower-hanging fruit of granting approvals.

Boardrooms are asking more questions of China as the number of fronts that present risk or uncertainty has grown. Whether regulatory, geo-political or the shock of zero covid on the operating environment and supply chains, decision-makers will need to recover the belief that China presents not just growth potential but a predictable enough environment to invest long-term.

Relations have been strained between China and several of its closest neighbours, as well as some of its largest trade and investment partners, including the US, Europe, Canada and the UK. Reducing diplomatic tension will have a positive knock-on effect on foreign businesses that have consistently listed geopolitics as a key factor affecting decision-making since 2018 and the onset of the US-China trade war.

A recent PwC survey of CEOs in China indicates a high degree of concern about the long-term viability of their business models in large part due to the shifting geopolitical landscape and the uncertainty that has formed as a result. Geopolitical conflict sat in third place on the list of business risks that CEOs globally are bracing for over the next 12 months and five years respectively, sitting behind only inflation and macroeconomic instability.

China’s recent efforts to reengage with international partners, including Chinese Xi Jinping’s attendance at the November G20, the healing of relations with Australia and the rush of outward official visits expected to take place in the months following Spring Festival, are all encouraging signs. The lack of interaction between the governments of the UK and China, for example, has created a void in recent years where normally there would be regular engagement at both senior and working levels. Resuming dialogue while accepting both sides will continue to have, at times, significant differences, will be a crucial step to rebuilding trust and constructive exchange.

Foreign investors will also be watching closely for signs the economy remains a high priority. The sudden nature of the restrictions imposed on the education sector, for example, sent a chill through the economy and left many businesses concerned their sector might be next in the firing line. Providing businesses with greater transparency and advanced consultation on decisions regarding future legislation or adjustments to rules and regulations will help create a more predictable environment and contribute toward restoring trust among investors. Continued steps toward increasing market access and tackling business environment issues will also play a big role.

Regarding the economy, strong growth appears possible in 2023 with projections generally falling between 4% and 5.5%. The second quarter in 2023 is likely to be a bumper one with growth potentially into the double-digits given the low performance of the second quarter of 2022. Although down to an accounting quirk, this will present an opportunity to signal China’s pro-growth stance and provide further evidence of the strength of recovery to the international business community at a time when the global economy is likely to be struggling for positive narratives. The upcoming Two Sessions in March also provides an opportunity to provide reassuring signals to investors.

If strong economic growth is to be a priority for China over the coming years, then recovery of investor confidence will need to feature high on the list of short to medium-term objectives. Any recovery of sentiment, however, will take more than just one of the factors highlighted above to succeed. China’s management of its economy and business-related policies will play a significant role, but unless the backdrop of heightened geo-political tensions eases, uncertainty will persist and continue to weigh upon decision-making for investments, supply chains and any exposure to China more generally.

Initial signs suggest the cautious optimism for 2023 that is increasingly prevalent among foreign business is not misplaced. For board room-level confidence to return, it will require China to take a sustained, collaborative and transparent approach in addition to the return of long-lasting strength in the economy beyond the inevitable bounce from reopening.

The coming months will show what China’s post-zero covid “reset” will mean for business and perhaps provide an early indication of what to expect over the longer term. Foreign investors will be hoping for more efforts to promote confidence and trust in the operating environment for international business, a strong focus on restoring stable long-term growth and predictability in the Chinese economy, alongside visible efforts to dial down geopolitical tensions.

This article was originally published by Caixin as “Opinion: to Capitalise on Reopening, China Needs to Rebuild Investor Confidence”

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC’s market research and analysis services can provide you with the information you need to succeed in China.

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With restrictions removed, wave one saw covid spread at an unprecedented speed and scale, with 80% of the population estimated to have been infected with the virus. China’s healthcare system was pushed to new limits with death rates rising through December and early January. However, as Spring Festival approached, official figures indicated hospitalisation rates dropped by 85%, with fears of a second wave of infection triggered by holiday travel ultimately unfounded.

Despite tragedy hitting many families across the country, normality has nevertheless largely returned to life across China. The initial sense of relief at re-opening and fear of the implications of Covid’s unrestricted spread soon turned into a desire to reconnect with family and friends, travel, shop, eat and drink and try to put the last twelve months to the side.

Much of China’s initial rebound in activity was inevitability going to be visible in sectors artificially depressed by restrictions. However, the sharpness of the rebound in travel, leisure and consumption more generally during Spring Festival has exceeded even the most upbeat expectations.

Domestic air travel over Spring Festival was up 50.9% on 2021 though still significantly (47%) lower than 2019 trip volumes according to the Ministry of Transport. Overall, 226 million trips by road, rail, waterway and air were recorded during the week-long national holiday. Meanwhile, revenues in the tourism and hospitality sector over the seven-day period recovered to 80.7% of pre-pandemic levels.

Thailand found itself back at the top of China’s outbound tourism destinations, with two of the three most visited locations being Bangkok and Phuket. Thai visa applications have surged by 300% year-on-year, while purchases of Thai tourism products jumped by 1,000% according to Alibaba.

The cinema box office also sprung back to life, with around $1 billion generated over the seven-day national holiday, aided by a strong line-up of domestic films and beating even 2019 takings. Data from Meituan suggests the recovery of China’s restaurant sector has begun too, with Spring Festival revenues for some chains already recovering to pre-pandemic levels. Immediately following the holiday, the IMF moved to revise their GDP growth projections from 4.4% to 5.2%.

If China’s reopening is the big economic story of 2023, then consumption is taking the lead role. Fuelled by record savings rates and supportive government policies, consumption looks set to have a bumper year as revenge spending kicks in and appears likely to rise over the course of 2023. Consumption has been deemed the primary economic ‘driving force’ as the government seeks to both recover activity in the short term and rebalance the economy over the long term. Foreign producers and exporters of consumable goods with exposure to Chinese consumers are likely to see upticks in demand as a result.

China’s outlook isn’t without risks, and the best case is not lacking in potential headwinds. The real estate sector and its associated industries, which contributed 24.2% of China’s GDP activity in 2019, still presents a significant concern. With private real estate developers in crisis mode and property prices falling in riskier areas such as city outskirts or lower-tier cities, the government will need to continue its balancing act to ensure a deeper crisis is avoided.

Exports are also increasingly in the spotlight despite being a rare bright spot throughout the pandemic, reaching a record surplus of $877.6 billion in 2022. However, October 2022 saw demand fall by -0.3%, before November (-8.7%) and December (-9.9%) saw the rate of contractions accelerate sharply. With growth in overseas markets expected to continue to struggle and demand expected to remain soft in the first half of 2023, China’s exports are likely to continue to struggle.

Whether a bumper first quarter boosted by a rebound in consumption proves to be the catalyst for a return to sustained levels of strong growth is yet to be seen. Headwinds such as real estate and exports will likely drag on growth in 2023. Though with intervention so far avoiding a deeper property crisis and demand for Chinese exports in the global south rising, the potential risks associated may be mitigated. Consumption will be the main driving force for growth, and with the IMF raising its growth projection from 4.4% to 5.2% will play a key role in how the Chinese and global economies perform in 2023.

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC’s market research and analysis services can provide you with the information you need to succeed in China.

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China’s economy grew by 3% in 2022 according to data from the National Bureau of Statistics, with H2 activity improving on the 2.5% growth in H1. While much higher than the figure recorded by the UK, this growth rate marks one of China’s worst annual performances in nearly half a century.

At the regional level, the GDP figures generally reflect the degree of impact of the zero covid policy (now a thing of the past) on each region, in addition to other factors including exports and real estate.

Beijing grew by 0.7% after experiencing heavy disruption from zero covid. Restrictions tightened ahead of the 20th Party Congress in October and then tightened further as the virus spread in November.

Shanghai’s economy contracted by -0.2% for the year, reflecting the severity of the lockdown from March to June. The city’s GDP fell by -13.7% in Q2 with Q3-4 activity failing to recover the drop.

Former heavy industry giant Jilin fared worse, contracting by -1.9% after also experiencing heavy disruption from zero covid in early 2022. Jilin’s GDP was also ultimately unable to recover from the -7.9% contraction in Q1.

However, things were not all doom and gloom. Shandong (3.9%), Fujian (4.7%) and Jiangxi (4.7%), three provinces which avoided the worst of zero covid disruption, grew significantly above the national average. These provinces perhaps give an indication of the levels of growth we can expect in 2023 (the IMF is currently predicting the Chinese economy will grow by 5.2% in 2023).

Two of China’s biggest provincial economies, Guangdong and Jiangsu, grew by 1.9% and 2.8%, respectively. These figures were significantly lower than in 2021 when growth was 8% for Guangdong and 8.6% in Jiangsu around or above the national average of 8.1%.

Jiangsu was directly impacted by the Shanghai lockdown (as was much of East China) with GDP contracting in Q2 by -1.1%. However, growth was able to recover back to within the range of the national average.

Guangdong, which has remained China’s largest province by total GDP for the last 34 years, experienced sporadic lockdowns throughout 2022, with Shenzhen experiencing lockdown in H1 and Guangzhou in H2.

Hainan (0.2%) and Tibet (1.1%), two of China’s smallest provinces in GDP terms but biggest tourist destinations, were hit by lower visitor numbers due to the wider zero covid impact on domestic travel. Hainan has also seen real estate prices fall by some of the highest levels in China.

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The transition from strict zero covid measures to complete reopening has been swift, and it remains to be seen what the year ahead will bring for businesses and organisations that deal with China, but experts are generally optimistic.

“China’s change of Covid policy has important implications for all those doing business in and with China. And in my view very positive ones,” says Andrew Seaton, Chief Executive of CBBC. “There is a broad expectation of a strong revival in business and economic activity, particularly from Q2 onwards. As The Economist recently said about the new policy: “This year’s biggest economic event is already underway”.

A week on from China reopening its borders, we review some of the major predictions for China happenings in 2023 from the perspectives of business, the consumer market and travel and tourism.

Consumer market

Consumer confidence in China may have dropped to an all-time low during 2022, but the market has proven to be resilient, and consumer spending is already starting to bounce back at the beginning of 2023. According to the Beijing Municipal Commerce Bureau, during the three-day New Year’s Day holiday, department stores, supermarkets, catering and e-commerce enterprises saw sales reach RMB 3.53 billion, recovering to 83.8% of the same period of last year. The government has emphasised the importance of domestic consumption as a counter to lagging overseas demand for Chinese products and materials amid a global economic downturn.

Once Chinese consumers are out and about again, they will certainly have money to spend, with household savings deposits growing by RMB 14 trillion in the first three quarters of 2022. A McKinsey survey found that 58% of urban households wanted to “put money away for a rainy day,” 9% higher than in 2019.

Tom Simpson, CBBC’s Managing Director of China Operations and Chief China Representative, suggests that we could start to see some of that money being put into retail investments, which could be an opportunity for British financial institutions to offer new products and services.

Overall, the situation is optimistic for British brands going into 2023. According to McKinsey, high-income consumers are spending more across almost all fast-moving consumer goods (FCMG) categories, driven by a growing preference for premium, rather than mass market, products. This will benefit boutique and luxury British brands, especially if their products demonstrate exceptional functionality and high-quality specifications (for example, skincare products with targeted ingredients).

Business and trade

Total trade in goods and services between the UK and China was worth £92.9 billion in 2022. While this figure has contracted slightly during the pandemic (2022 figures were down 1.6% on 2021), it is expected to rebound this year as demand increases in China. The UK’s main exports to China include crude oil, cars, and medicinal and pharmaceutical products.

As China emerges from the pandemic, that last category could be a potential area of growth for UK companies in China. As Simpsons points out, in recent years, there has been a focus by policy-makers and investors on the importance of improving and upgrading the healthcare system in China – something that has only been emphasised by the pressure on hospitals during the Covid surge in December. Moreover, China’s ageing population will increase demand for new and innovative healthcare solutions, in particular monitoring equipment, wearable devices, and other at-home healthcare solutions.

The UK-China trade relationship will also be strengthened by the resumption of in-person business exchanges. “We are already seeing an uptick in interest from our members and partners in visiting China during 2023; and we expect to see a rebound in trade missions and in-person events in China,” says Seaton.

The time is now for your business to get “China ready”. At CBBC we are here and ready to help any company wishing to step forward into the Chinese market and create a strategic plan for your company to enter – Andrew Seaton, Chief Executive, China-Britain Business Council

Simpsons confirms that people based in countries and regions close to China such as Hong Kong are already coming over to catch up with mainland China-based teams and meet partners and stakeholders, but predicts that long-haul travel from the UK to China may only start to pick up in earnest in March/April after the Lianghui (the Two Sessions, the annual meetings of the National People’s Congress (NPC), and the National Committee of the Chinese People’s Political Consultative Conference (CPPCC), which concludes on 15 March.

Simpson also notes that large-scale political, cultural and sporting events will now gradually resume in China, with the 19th Asian Games in Hangzhou already confirmed for September/October, for example.

Travel and tourism

Domestic travel has rebounded quickly following the lifting of restrictions, which has coincided with the start of the Lunar New Year travel rush, known in China as chunyun. Around 70 million domestic trips were made during the first chunyun weekend on 7-8 January, with each day seeing 40% more trips than the comparable period in 2022.

However, for UK businesses, it is the resumption of international travel to and from China that will have the biggest positive impact. After three years of pandemic restrictions, multiple sources suggest that Chinese people are ready and willing to travel. Search volume for flight tickets on Trip.com reached a three year high just half an hour after the reopening was announced at the end of December. Although some countries – including the UK – have re-imposed Covid testing requirements for travellers arriving from China, Chinese tourists are unlikely to be put off by the need to test having become used to it over the past three years.

Ticket prices will be high in the short-term until flight schedules return to normal, but Simpson predicts the resumption of key flight routes will start in late Q1/early Q2. During the first week of 2023, Air China announced the opening of its Shanghai-Athens route, and the resumption of its Shanghai-Frankfurt route. China Southern has opened its Shenzhen-Amsterdam route, and Hainan Airlines has announced weekly flights between Beijing and Manchester, to name just a few.

To get the most out of China’s reopening, tourism destinations need to be aware of how the priorities of Chinese tourists have shifted since 2020. Gusto Luxe’s Chloe Reuter writes that three of the main Chinese travel trends we can expect to see are an appetite for high-quality wellness experiences, a desire to get out into the great outdoors and a greater awareness of sustainability. Many hotels in holiday resorts like Sanya in Hainan stepped up their offerings in recent years, and Chinese tourists taking their first foreign trip in three years will be looking for premium experiences of comparable quality.

As a result, it will be more important than ever to use Chinese social media platforms — especially currently popular platforms like Xiaohongshu – to showcase your brand’s unique offering and tell authentic, engaging stories.

The post What China’s reopening means for British business appeared first on Focus - China Britain Business Council.

Why the sudden change?

The 180-policy reversal seems to have been prompted by three main factors: a major outbreak in Beijing, growing frustration at zero covid (and hard lockdowns in particular) and recognition of the low health risk omicron presents to the population.

A plan to shift away from zero covid was likely already being considered (mostly likely for Spring 2023) but was fast-tracked after covid slipped out of control in Beijing and authorities found they could no longer turn to hard lockdowns. The demonstrations over the weekend of 25-27 November thus played a small but significant role in bringing about the shift in policy by removing hard lockdowns from the policy toolkit.

The economic impact was likely a secondary factor. After all, China has been unflinching in its willingness to weather the economic impact of zero covid over the last three years – and especially so over the course of 2022. The economic issue is also neither new nor surprising (as CBBC members can attest) so doesn’t explain the sudden change of strategy. The preferred approach of the Chinese government would likely have been to weather a few more months of pain to see out the winter, but circumstances had other ideas.

The first post-zero covid wave

With the end of mass testing and the reporting of community cases, it is difficult to get accurate data on infections. However, China is clearly experiencing its first major population-wide wave of covid. Informal surveys conducted by Beijing residents indicate infection rates of between 40-60% of the city’s population within just the last couple of weeks.

We are also hearing reports of companies with cases among as many as 50% of their Beijing staff. Positive infections are now so commonplace in Beijing and across China that people are posting their positive test results on WeChat without any of the fear or stigma previously associated with catching covid. The shift in perception towards covid is staggering to say the least (and certainly very welcome).

Home quarantine is now the standard way for people to recover, with only the most serious cases being admitted to hospitals. Fever clinics have been set up in over 300 hospitals across Beijing, with admissions on Sunday 11 December topping 22,000 according to a report from Caixin.

The authorities are actively discouraging people from calling emergency services or going to hospitals unless necessary. This hasn’t prevented some hospitals from being swamped, although so far it appears that serious cases remain few. State media has also been working in overdrive to shift perception of covid and disrupt the cultural instinct of seeking treatment for mild symptoms at hospitals.

The expectation is that Beijing is a prelude and case numbers will soon surge in other cities across China over the coming weeks with most major cities likely a couple weeks behind. A growing number of cases are already being reporting in Shanghai. Estimates put the peak for this spike in cases at around mid-January, so we are still in the early stages of the first wave.

Dismantling zero covid

The end of zero covid means the dismantling of much of China’s zero covid industrial complex. At one point testing alone was estimated to be 1.3% of GDP. Local governments will be particularly relieved at the easing on their finances, though perhaps not those which have embarked on large zero covid-related investments sprees (e.g., building quarantine centres that are now obsolete).

Testing sites have closed, ‘dabai’ (the nickname for the epidemic prevention and control personnel who wear white hazmat suits) are seeking new employment, the national green code system for tracking travel ended on 13 December (though local HealthKits remain), tests are no longer required for domestic travel, and restrictions on the sale of flu and fever medicines have been lifted. Some restrictions remain, such as 48-hour tests to enter restaurants, bars and gyms.

Much like in the West, the use of home test kits (rapid antigen tests, known in the UK as lateral flow tests) have already become the norm. Sales of flu medicine have naturally spiked along with prices. Procuring medicine has become a challenge, with many left scrambling to get their hands on drugs.

Outlook and implications for UK business

The easing of restrictions is beginning to lift the mood among CBBC members albeit from a sustained period of low sentiment which has persisted since the Shanghai lockdown (March to June). We are unlikely to see a sharp rebound in sentiment but rather a gradual recovery over the coming six months as we get through the first wave of infections and further announcements are made regarding the easing of international travel restrictions.

Coexistence with covid brings a new set of issues for businesses to manage. The risk of infection has increased significantly for UK businesses operating across China as the first major wave makes its way through the population. To mitigate, companies are shifting to flexible working, updating their covid prevention measures, and procuring flu medicine and test kits for their staff.

The easing of restrictions also means the likely return of international travel to China. For the first time since China’s borders closed in March 2020, we believe UK businesses can begin to plan with confidence to visit China during 2023.

Quarantine remains 5+3 (hotel + home) at the time of writing, although we expect this will ease in the coming months, with a full removal of hotel quarantine potentially by the summer. This will likely lead to a sharp uptick in business travel, delegations and tourism. It also bodes well for the prospect of a return to ministerial visits and potentially a resumption of UK-China Government exchanges such as the Economic & Financial Dialogue and JETCO.

The end of zero covid also removes a significant risk factor for business operations and production, logistics and supply chains in particular. Zero covid disruption has been high on the risk index for businesses over the last three years since the initial outbreak, and even as recently as November major companies like Apple were dealing with severe disruption to their supply chains in China.

While we can all breathe a sigh of relief at the end of zero covid, new uncertainty will emerge over the coming weeks and months as cases spike across China. Regardless, the prospect of a return to normality is very much welcome as China begins to reopen and reconnect with the rest of the world.

The post What Happened to China’s Zero Covid Policy? appeared first on Focus - China Britain Business Council.