Blair's business relief in China

Mary Hennock
BBC News Online business reporter

UK Prime Minister Tony Blair is on a whirlwind tour of Asia's biggest economies - Japan, China and South Korea.

Raising a glass to a P&O deal to expand Qingdao port

Fresh from talks in Washington, Mr Blair has been focusing on the nuclear brinkmanship on the Korean peninsula as he shuttles from Seoul to Beijing, whose leaders are equally eager to see US tensions with North Korea defused.

His tour ends in Hong Kong, engulfed in its biggest political crisis since British rule ended six years ago.

Protesters accuse Hong Kong's chief executive of incompetence and a servile relationship with Beijing.

Mr Blair's speech to the British Chamber of Commerce there is sure to attract attention, though anyone hoping for criticism of their new rulers is likely to be disappointed.

With so many trouble spots on the agenda, all of them overshadowed by the political crisis back home over the apparent suicide of an Iraq weapons expert, promoting British business in China should come as light relief to Mr Blair.

There, he is being joined by Trade Minister Mike O'Brien and a delegation of 10 carefully-chosen UK firms.

Britain's exit from Hong Kong in 1997 removed the main thorn in an already strong commercial relationship.

The British bosses travelling with Mr Blair will be hoping his kudos can help them clinch new business and a fatter slice of China's hefty economic pie.

It's a relationship building exercise Lloyds of London spokesman

Even the deadly Sars flu outbreak failed to sap growth, which topped 8% in the first half of 2003.

Both Downing Street and the UK firms deny there is anything more than sheer good manners behind the chief executive's decision to accompany the prime minister. They were invited, and they are going, is the line.

Targeted visit

"From our point of view there are no burning issues," said a spokesman for engineering giant Rolls-Royce.

"It's a relationship-building exercise," according to a spokeswoman for Lloyd's of London, the world's biggest insurance market.

IN CHINA WITH BLAIR P&O GlaxoSmithKline BP Shell Rolls-Royce Lloyd's of London Barclays Capital Standard Chartered JC Bamford Excavators China-Britain Business Council

But Trade Partners UK, a government sponsored body which had a hand in the selection, said all had been picked because they are nursing along commercial breakthroughs.

"It's a short visit and, to a degree, a targeted visit, and it makes sense for us to have a small delegation of high powered people who are progressing their interests... on an imminent commercial basis," a TradePartners UK spokesman told BBC News Online.

But all parties are staying tight-lipped about the details of those deals.

The delegation splits between City of London financial services firms, oil giants and engineering firms, plus drug-maker GlaxoSmithKline.

And Mr Blair's visit was accompanied by an announcement by the ports firm P&O of an $800m investment with its Chinese and Danish partners to build a container terminal in the northern Chinese port of Qingdao.

"This port is going to become extremely important for China over many years to come," P&O's Peter Smith told BBC World Business Report.

"The scale of investment and the expansion of the port is quite phenomenal."

Booster

British trade with China could use a boost, as exports of goods sagged 10% in 2002 after three years' strong growth.

Among EU nations, the UK is China's second biggest trading partner, with trade worth £12.6bn in 2002, according to the China-Britain Business Council (CBBC).

Unlike Germany or France, the UK runs a trade deficit with China though it is dwarfed by a negative US trade balance with Asia's emerging manufacturing giant.

China's grandiose state infrastructure projects offer metal bashing industries huge opportunities

However, part of the reason for Britain's trade deficit is that it is the biggest EU investor in China, making goods there that might otherwise be exported, says CBBC Chief Executive Peter Nightingale, who is part of the UK delegation.

Another, he says, is that Britain excels in selling hard-to-measure legal and financial expertise abroad rather than industrial goods.

Banks and insurers like those travelling with Mr Blair have a strong interest in new regulations letting foreign firms into the financial services market.

Relaxed rules

China is "making progress" at dismantling obstacles to foreign financial bodies, as it promised the World Trade Organisation to do, but there are "teething problems", says Mr Nightingale.

Services firms "would like to see that there are not at the same time other barriers raised," he said.

Banks like Standard Chartered are gearing up for 2006 when foreign firms will be able to handle local currency accounts for ordinary Chinese but have found new hurdles are replacing old problems.

Rules on setting up extra branches are proving "pretty burdensome" and are being challenged by the EU, said Mr Nightingale.

Among EU nations, the UK is China's second biggest trading partner

China's grandiose state infrastructure projects offer metal bashing industries huge opportunities for sales, few more so than the 4,200 kilometre West-East pipeline to carry gas from the poor, western province of Xinjiang to Shanghai on the prosperous east coast.

Shell is building the multi-billion dollar pipeline as a joint venture partner of PetroChina, in a consortium with US oil firm ExxonMobil and Russia's Gazprom.

BP, which also has links to PetroChina, has decided not to take part in the project, which is controversial with human rights activists because it takes resources from poor, Muslim areas.

Animal rights activists are watching too. Shell has had to make costly route changes to avoid deserts inhabited by the world's few remaining wild two-humped, or Bactrian camels.

Rolls-Royce is bidding to supply turbines and compression systems which would pump the gas down the length of the pipeline. It already makes aircraft turbines in China.

China wants 10% of its energy needs met by gas and gas-fired power stations instead of just over 2% at present so building the pipeline could be only the beginning of an engineering bonanza.

To give UK trade a boost, Mr Blair will open The British Centre, a walk-in office providing contacts to Chinese businesses.

For those, like Rolls-Royce Regional Director for China Richard Margolis, who remember the mid-1970s when Western capitalists were described as running dogs, China today is "another planet".