London closes for business in Shanghai

By Murad Qureshi AM, London Assembly, and Sonny Leong, Chair, Chinese for Labour

The Mayor of London was quick to lap up the publicity surrounding the recent launch of the Chinese Business Association (CBA) set up by the London Chamber of Commerce and Industry (LCCI) with his “backing”. The Mayor promised to do all he can “to ensure this city retained its competitive edge…” yet, ironically, he is now busy closing down his office in Shanghai! This illustrates well the short-sightedness of public expenditure cuts in the UK in response to the fragile world economy, coming also on the back of the closure of its Indian offices last year.

The last Mayor had set-up his stall globally by promoting London to the emerging economies in Brazil, Russia, India and China, in recognition of their growing economic stature. Now, with the proposed closures and particularly with the dramatic move towards Asia in the world economy, London will undoubtedly be the loser. Without a local presence in these powerful emerging markets, we will miss out on opportunities to do business, for example by promoting tourism and study in our capital as well as direct foreign investment, which has seen a rapid growth in the last two decades. Surely, whilst China is booming, London should be looking to “lasso” the rampaging tiger and secure some traction for the capital.

The launch of the CBA was precipitated by the growing influence of China. Research by the LCCI, revealed that about 400 Chinese-owned companies operated in London and the South East. At the launch, the Mayor made reference to the increased investment we’d seen from China in recent years with the opening of new offices in the heart of the City and the promise of telecoms and technology companies arriving too. So why withdraw from a city which promises so much and which has so much potential? It seems that the Mayor may be relying on the newly established CBA to forge links between its members and “business opportunities London has to offer”. But isn’t the Mayor missing an obvious trick here? What about the business opportunities in China? It is of course welcome and reassuring that the CBA will look out for opportunities in the UK market but equally, isn’t just as likely (if not more so), that a UK presence in China would be just as well placed to look out for new opportunities in the Chinese market?

Britain does not make many of the goods China or any developing countries are interested in. If they want machine tools or engineering expertise, they will look to Germany or Japan, if they want wines, perfume or agricultural knowhow they will look to France. In fact, Britain sells less to China than Italy.

A single trip by the Prime Minister, coupled with all the noise and column inches in the media will not win the trade billions the Prime Minister is after. This is a long haul – trust and respect – two essential ingredients needed in any business relationships in the Middle Kingdom.

The soon to be defunct London Development Agency (LDA) which is the Mayor’s agency responsible for driving London’s sustainable economic growth currently operates two overseas offices in Beijing and Shanghai and employs three members of staff in these cities. Following a review, the LDA has commenced a close-down of its operations in Shanghai. The total budget for the LDA’s overseas offices in 2010/11 is £250,000. In 2011/12 the planning budget is £100,000, making a total saving of closing these offices £150,000. Surely, this would have been a relatively small price to pay for keeping a front row seat in some of the major economic capitals of the world? For example, without the Mayor’s representation in China over recent years, we would have lost at least seven direct inward investment leads and four trade missions including the opportunity to promote London in at least twenty eight key events since November 2009. Not forgetting his expenditure of almost £2million at the Shanghai Expo last year to promote London as the world’s best city in which to invest, study and visit.

The Mayor set up a review of the GLA’s overseas offices in 2008 and it reported its findings in January of the following year. Headed by the Mayor’s then deputy Ian Clement, the review concluded that there was no case for closing these offices finding that “the rationale for London to have offices in key emerging markets is fundamentally sound” and that they “do play an important role in promoting London’s interest, from supporting the capital’s businesses to enhancing the image of our city around the world.”

In a submission to the GLA review, the London Chamber of Commerce stated:

“Closing the offices in India and China as part of a cost-cutting exercise would be short-sighted and send entirely the wrong signals to potential investors and importers in two of London’s most important potential markets. The GLA may save £1 million, but it is London’s firms that may ultimately end up paying a much higher price. If the mayor is not out there promoting London, someone else will be promoting New York, Paris and Sydney instead.”

Past warnings of this clarity make uncomfortable reading while it’s recently emerged that only 7 per cent of UK exports go to China, India and Brazil. These are the economies seen as the locomotive of global growth. Developing economies like China’s have grown in global importance due to their having escaped the worst consequences of the recession. It also illustrated the foresight of the previous Mayor’s, Ken Livingstone regime which established these hubs based upon an economic health warning that without them, we would suffer lost opportunities.

Last year, David Cameron famously said that “we do more trade with Ireland than with China, Brazil, India and Russia combined” In contrast, last week, he announced that the UK is “open for business”. This is a juxtaposition which will be made worse by the Mayor’s shortsighted doggedness to castrate his offices abroad which have, based upon his own figures paid for themselves many times over in terms of the business and employment prospects they have generated.

China is the second largest economy in the world, why then would the Mayor not want to help drive the London economy by retaining a direct presence in Shanghai itself, the financial and commercial capital? For me, the sign on this London Mayor’s shop window is not a big clear “Open” for business, but more akin to, “Out for lunch, back soon or perhaps when it’s a bit too late……”.

Murad Qureshi blogs under http://blog.muradqureshi.com/