UK – China Industry Relations | Investment or Timebomb?

UK China

This week it’s been announced that Tata Steel could slash up to 1,200 jobs across Scunthorpe and Soctland. Caparo Industries has called in the administrators and now up to 1,700 of their staff are facing real uncertainty about their futures. The UK Steel industry is in crisis and many commentators are rushing to blame China. But the fact of the matter is that the global Steel industry is in crisis, not just the UK, with many nations overproducing and even our closest neighbors in the EU undercutting British produced Steel. At a time when unprecedented trade deals are being fought for and signed across the globe we have to ask if we should still be trying to use China as a scapegoat or if it’s time to reconsider our economic ties with the emergent power.

The strength of the global Steel Industry in the years prior to these turbulent times was powered almost entirely by the surging Chinese demand. The slow-down of the Chinese economy along with increasing conflict in many developing nations has led to the situation we have now which is a year on year reduction in global Steel requirements. Comparable to the oil industry we are now experiencing a glut in production, but many nations are over-producing as well as China. We are entering a cycle whereby Steel manufacturers have to keep producing and gamble on Steel prices recovering in the coming years, as to slow production would irreparably damage their production capabilities in many cases. Some industry experts have suggested putting together some sort of organisation along the lines of OPEC to control global Steel production but realistically such a thing couldn’t be done in time to stop the consequences of the already contracting Steel market being felt to their full extent.

Steel produced in France and Germany is still far cheaper than British Steel for a variety of reasons including state support of the industries. Without intervention from the British government British Steel will remain unable to compete. A strong pound and high business rates mean that almost all of our EU neighbors can produce at a price we simply cannot match.

We recently wrote about the TPP trade deal the USA is pushing through, largely with the intent to move a lot of industry and manufacturing away from China and to other parts of the Far-East. Whilst this may benefit the US the UK stands to reap many benefits from closer relations with Beijing. There is significant appetite for Chinese investment in UK industry with multiple Chinese bids for HS2 investment and the already secured £2 billion investment in Hinkley C. Many commentators have bemoaned the need to seek foreign investment in projects like HS2, the simple fact of the matter is that as we all know, the UK has been suffering an engineering skills shortage for some time now. By securing investment and undertaking cutting-edge projects we can attract the best back to Britain and ensure there is a reason for people to choose a career in engineering. Rail projects around the world have been taking British engineers away from Britain with higher wages and better working conditions, foreign investment is part of the problem there and could be part of the solution here.

The Hinkley C reactor is projected to create 25,000 jobs and produce up to 7% of the UK’s electricity needs when it comes online in 2025. This will be the first Nuclear reactor built in the UK since the 1990s and represents an important step in our energy security going forward. Along with the emerging Shale Gas industry and our domestic renewable industry the UK is creating jobs and keeping our Industrial & Manufacturing sectors strong. Chinese investment should be seen in that light, as a valuable investment that keeps our British industries healthy.

As huge trade deals like TPP and TTIP are coming closer to being signed it would be remiss of the UK to alienate a huge global trading partner not bound by such agreements. Though UK interests often align with those of the EU and US there are many instances where they don’t. For instance the UK interest in bringing the Chinese investment and currency sectors into the global market. London is a financial hub of the world and the UK could see huge benefits from closer ties with Shanghai. There are many issues with having closer ties with Chinese industry and China in general but for British industry and manufacturing it could be a blunder to make China the scapegoat it’s been in the past.