Lord Grimstone of Boscobel Kt is the Minister for investment jointly at the Department for International Trade, and at the department for Business, energy and industrial strategy. He spoke to CBBC members about his role, his ambitions to support British business in China and the future of trade in a post virus world.
In his role as double minister, Lord Grimstone’s role is, he says, simply to attract investment into the UK. This may be in FDI investment, portfolio investment or as fund investment and then to keep in touch with those who have invested in the UK. Lord Grimstone, or Gerry as he is known, has experience of working at the highest level of finance as the former chairman of Barclays Bank and Standard Life Aberdeen. His government credentials have also seen him on the board of the Ministry of defence and the chair of the financial services body, TheCityUK, as well as sitting on the Treasury’s Financial Services Trade and Investment Board
Both a minister and Lord, he explains his role is a two-way job with supporting outbound and inbound investment and as the government spokesman on trade policy in the House of Lords, has a central role in trade policy going forward.
With over 300 visits to China under his belt over a 30 year period, and as the chairman of a large insurance joint Venture in Tianjin, Lord Grimstone is also very familiar with China and what it can offer British businesses.
“I am very positive towards China in terms of the mutual advantage this country gets from investment from China into the UK and the advantage UK firms get from investing in China and exporting to China,” he says.
“Everything in China gets associated with politics but we have to look through politics to help get successful business with China.”
China, explains Lord Grimstone, is an important partner with the UK.
“Whatever the causes, the world will look very different after this pandemic to how it looked before,” he says.
“For the first time ever, we will need to recapitalise the globe simultaneously. We have been used to country, company and sector recapitalisations, but not something that affects the whole world. It will lead to a change in investing as well as changing relationships. Those who had access to funds before won’t necessarily be the same afterwards,” warns Lord Grimstone.
Matthew Rous, CBBC, Chief Executive, went on to give a summary of how the virus has affected each of the major sectors
Automotive and Technology
The automotive and semi-conductors sectors have been heavily affected because much of these industries are based in Wuhan. The logistics sector has also been impacted as Wuhan is a central point on the East-West, North-South routes and there has been a decline in terms of supply chain and demand. There has been a dip in innovation as product cycles are delayed and tech funding has taken a hit, shrinking by 31 percent. The BAT companies (Baidu, Alibaba, Tencent) and others have been actively involved in rolling out tech responses, and CBBC thinks there is a chance to learn from China in thinking about opportunities, including 5G, which has expanded rapidly in China.
Retail took an early hit but is now recovering and there is potential for significant growth in health and beauty retail. A McKinsey survey says 48 percent of respondents are confident that spending is picking up in China compared to 23 percent in UK.
Government at a local level in China has provided digital vouchers to fuel a pick-up in spending, and whilst some consumer behaviours will be impacted, consumers are likely to consume brands that support a healthy lifestyle, specifically in the food and drink and grocery market. Britain trades on high-quality hygiene standards, and with the growth of cross border e-commerce, it is likely Britain can benefit from this increased demand. Although China’s food market is highly regulated so companies need to be nimble and ready to respond to trends.
Creative industry (physical)
Creative industries that rely on a physical presence, such as music venues, theatres and museums, are especially hard hit, and it will be tough for the experience economy. Local governments need to work hard to stimulate the economy.
Creative industry (virtual)
The games industry is seeing a big increase in demand, although approvals are difficult to obtain and regulatory bodies are concerned about young people spending too much time on video games. Therefore proof is needed that games are educational or of a high-quality. British museums including the Tate, the British Museum and the V&A are all offering virtual experiences for their venues.
The education sector has been exceptionally hard hit, with schools and universities concerned about entry in September. The UK receives £7 billion from international students. Language schools providing short term language courses are the hardest hit. Many academic institutions and schools are moving to teaching online.
Energy and infrastructure
China is a big consumer of UK energy products, as over 51 percent of energy exports went to China last year. This is mostly made up of equipment and services.
Healthcare life sciences
This sector has high potential for growth as demand for medical protection products, medical devices, drugs, detergents, tele-help and e-medicine all increase. Wedoctor – a Chinese platform – had 92 million online visits last month.
The Financial services sector is adapting quickly to the situation, and the UK, along with the China Market Access Group (CMAG), will need to engage in a new way. This will involve less on pushing for regulatory changes and market access, and more on partnerships and working together to identify and develop new opportunities.
Lord Grimstone responded to a series of questions from CBBC’s Andrew Peaple:
Recently there have been changes in tone from the UK government over China, so what is the government approach to China now?
China excites strong emotions in people, both positive and negative. Hardly anybody is neutral towards China, just like China has opinions about countries in the West.
The pandemic has come as a huge shock to the world, as it has to China as well. Many countries will be asking how it occurred, could we have done more to stop it, and how we can do more to stop it from happening in the future. I am a believer in asking questions and the Chinese will also want answers. Our role is to help colleague, look through short-term factors, and look at the advantages to both China and the UK of having a good relationship going forward.
Hong Kong has also been a major topic. How problematic is it in terms of UK-China relations?
Hong Kong is part of China and it’s part of China through international treaty. It doesn’t mean people in the UK can’t have views of what happens in Hong Kong, but the fact that Hong Kong is part of China is the reason many of us invested in Hong Kong because we saw it as a gateway to China. I am of the opinion that constructive relationships between Hong Kong and China are important not just to those two but to all of us. I long for the day when matters are stable to benefit all.
The decision was made to allow Huawei to build 5G networks in the UK, but have there been more voices calling for a reversal of that decision?
Thought was given from all branches of the UK government and I think it was the right decision – a grown-up decision. For practical reasons but also for relationship reasons.
We have to look to our national interests, as does China. I think that is well understood.
Unless there is a profound change in technical or financial circumstances, then there’s no reason to change it and many UK telecoms companies were the ones supporting this.
There has been positive feedback because of the Huawei deal and if we had shut the door to Huawei there would have been a negative response. I know the ambassador and think he does an excellent job for his country and thinks he would have been disappointed on any rollback of Mr Xi’s visit. We should see this in the wider construct. China took positivity from that. Boris Johnson and Xi Jinping have a positive relationship, and I think a constructive relationship between China and the UK has a benefit to both sides.
If the pandemic causes a fall to asset prices in the UK, is there some concern that Chinese investors could buy up UK assets at discount prices?
It is a general concern if market concern causes assets to be mis-priced – not just from China. The main action from the treasury is to get through the crisis as quickly as possible so asset prices can be priced normally again. Owners usually look through short term crises and look for long term value. None of us would want to see assets mis-priced but I am a fervent believer in two-way trade and two-way investment. There will always be areas and sectors that the government are more interested in but I am a supporter of free-trade. There will be short term fluctuations in the market but look through them to real values going forward.
Is China a priority in post-Brexit Britain?
Our first priority is to establish new Free Trade Agreements with those we have existing relationships with – US, Japan and so on. We have a lot on our plate in terms of Free Trade Agreements and in due course we want to see proper trade relationships with China.
Which sectors are you most optimistic about and how do you plan to promote commercial opportunities?
We always need to look for a competitive advantage. In the UK, tech, innovation and long-established manufacturing firms are one of our strengths. There is a clean growth agenda as well as opportunities in life sciences and in education. This is not to the exclusion of other sectors. It is easy to think of trade and investment of large multinationals but it’s the SMEs that form the backbone of trade and investment relationships. It is as important to get the SME trade and investment juices flowing as it is to help the multinationals. I will do this by being completely accessible to people. There is nothing better than face to face relationships.
A number of members also asked Lord Grimstone questions
There seem to be some reflections on the sustainability of certain supply chains? He Xiaowei – University of Northampton
Some companies will be looking to shorten and diversify supply chains. When everything is running smoothly we don’t look at how supply chains work, we just take for granted that they work. There will be repositioning of supply chains and part of my role will be to reposition them in the UK as that would be a great advantage to us. And there will be a question about national resilience. This has shown that we have to have levels of resilience and perhaps not enough attention has been paid to that in recent years. There will be enormous thinking and different ways of working and ways of getting supply chains. People will certainly become more interested in supply chains.
Do you feel the focus on investment is London-centric at the moment? Do you think UK regions are being recognised and how might we be able to position ourselves better? Chris Vitali – West of England combined authority
I was taught as a banker that you might want to sell something, but someone has to want to buy it. It’s really pinning down the unique propositions in your locality. Manufacturing, heritage, academia – it can come from many sources. The only people that traded 20-30 years ago where large companies wanting to work with large businesses. Now it’s all kinds of companies, all sizes, all regions. This provides smaller companies with good opportunities.
Finding an anchor tenant is always good. And where you have large manufacturers in your area where supply chains reach into China. Drawing in those contacts to draw in others. Familiarity draws in investment. In other words, which companies already have investors and investment and how can we build on that?