This week, UK Chancellor George Osbourne pulled off a surprise, exclusive agreement with China, which will see the UK become Europe’s hub for Chinese business. With immediate effect, China has agreed to partake in a joint venture with Manchester Airports Group, to form a £800 million real estate development close to the major UK airport.
This will then be followed by an initial pilot deal worth to be an extra £20 million that will see London become the European primary business location for China. Chinese banks will first set up subsidiaries in London, potentially other corporations will then follow suit. In total, 59 cooperation projects are in the pipeline. The sectors range from infrastructure to nuclear power.
What this means for the UK economy:
The UK will become the 4th major economy, and the first in Europe to have direct trading links with China. They will be behind only Australia, Japan and the United States. They will now have direct access to the worlds fastest growing economy.
As China looks to diversify their foreign direct investment portfolio, they may now put more attention towards getting a foothold in the UK economy. The United States is facing consistent economic challenges, Japan is transitioning through abenomics, and Australia is looking to rebuild their economy. The UK could become China’s new primary attraction for developing new business relationships.
It has already been confirmed that the £800 million real estate development project close to Manchester Airport, will create around 16,000 jobs. This will consequently lower the UK unemployment rates, and boost the value of the UK sterling.
Chinese banks will then open up subsidiaries in London. This will create additional welcome employment opportunities for the British public. It is then believed that other forms of Chinese businesses will look to diversify into the United Kingdom.
The UK’s manufacturing industry is now showing growth again and it will be interesting to see if China now begins to import more UK products. The UK unemployment rates are a key part of the BoE’s current monetary policy. The BoE have previously stated that as soon as the UK unemployment rates decrease to 7%, they will look to increase their benchmark interest rates.
Increased access for Chinese tourism
The next apparent move on the agenda is for the UK to open up their strict visa procedures, and create a more simplified process for Chinese tourists to enter the United Kingdom. This means that UK tourism will get a further boost, and with it so will retail sales, local hotels and transport links, to mention a few. Last year, 210,000 Chinese tourists spent around £300 million in the United Kingdom.
However, the UK’s strict visa protocols meant that only 10% of the possible Chinese number of tourists who could potentially enter the United Kingdom, actually visited. Initial indications are suggesting that the UK are aiming to treble the amount of Chinese tourists they receive by 2015. This means that within the next two years, the United Kingdom are expecting over 600,000 tourists from China, who could potentially contribute up to £900 million to the UK economy.
It shouldn’t be underestimated how lucrative this deal can become for the United Kingdom.
Written by Jameel Ahmad, Research Analyst at Blackwell Global.
Follow Jameel on Twitter @JameelAhmadFX