UK-China Trade Relation In The Current Economic Scenario

UK-China Trade Relation In The Current Economic Scenario

The United Kingdom and China have been trading partners since medieval times. The Trading post of Hong Kong was a testament of how important trade links with China must have been for the United Kingdom. Cotton, indigo, Opium and gems and Jewellery were the traditional trading items between the two nations, which were gradually replaced by more industrially important commodities over a period. It is because of the Trade with China that the sea routes of east Asia became so famous leading to the rise of porting destinations like Singapore and Malaysia as important centres of world trade where traders of several countries could meet, and trade links could be forged. The peaceful handover of Hong Kong to China by the United Kingdom only underpins how important trade links between the two countries are.

The United Kingdom, during its hay days of the British Empire’s dominion, had gained significantly due to its trade dealing with Asia. Be it India or China they both contributed significantly to the Wealth creation for the British Monarchy. The United Kingdom even benefited by being a middleman between the Asian countries and profited by selling opium in one Asian country that was produced in another. However, despite its stupendous success in spreading its dominion across Asia, the United Kingdom couldn't bring China Under its dominion; however, it's trading relations with china remained unabated and expanded further.

Modern-day China is an Economic Superpower. It not only has the world’s second-largest economy but is also the largest consumers of many of the world’s primary commodities and the largest producers of many of the world’s intermediate and final industrial goods. It has trade links with all other economic superpowers of the world and also has significant politico-economic impact on the rest of the world. The rise of the country to such global superpower status has not been any less than a miracle, especially when European countries like France, Portugal, Spain and the United Kingdom with extensive trade linkages already exist. The country’s massive population, which was once its weakness, came to become its largest strengths. With the increasing prosperity of the people in that country the ability of the country to invest increased exponentially while the same did not happen with the European countries. This same population also led to the rise of a massive market with a huge middle class and a sizable upper class, which became attractive factors for all international companies to expand their business activities. On the back of the above and with the policy to expand the manufacturing base of the country, China soon became the largest manufacturer of the world and given the massive resource base in labour in the country it also became the cheapest manufacturing destination in the world.

Sensing the fact, most of the largest manufacturing companies, be it apparel manufacturers or automobile manufacturers started setting up their manufacturing bases across China in order to be internationally competitive. The Chinese government also, on its part, left no stone unturned to invite international companies to set up base in the country. Companies from the United Kingdom were not behind in the race of international companies to set up base in China. Many of them have made significant investments in the country in part to take advantage of its cheap manufacturing base to target the international market and in part to target the massively expanding and increasingly prospering Chinese marketplace.

British Companies tryst with China

China, as a trading bloc, has never been so attractive to Europeans, especially to the United Kingdom during this interregnum period of Brexit. As the two economic blocks of United Kingdom and the rest of European Union formalise their deed of falling apart, there is a greater urgency on both sides to enter into competing trade agreements, in order to compensate for the loss of business activity. The entire region has been reeling under depressing economic conditions since 2016 when the decision of withdrawal of the United Kingdom from the European Union was announced. Economic activities across the region has been shrinking for some time now, and the capital markets have also been suffering, leading to a shrinkage of investment activity as well. Under such circumstance, it is but natural for the investors and companies to look to regions outside of Europe to create value.

China, at this time, is also a significant investor in the United Kingdom; it has made several high-profile investments in the United Kingdom and its companies. The mutual flow of capital between the two countries has increased significantly over the recent years, in addition to the exponentially increasing trading activity among these two countries. The most important of British companies belonging to FTSE 100 index having significant business in China is Hong Kong and Shanghai Banking Corporations (HSBC), ARM Holdings, Burberrys, Intertek and Standard Chartered who get more than a fifth of their earnings from their operations in China.  Given the above level of engagement between the two countries, a trade deal could go a long way to push up the fortunes of the British companies.

The recent trip by British premier Boris Johnson to China in the month of July was in this regard. Both of the trading blocs currently are seeking alternative arrangements to balance out negative cues facing their respective economies. While the United Kingdom is faced with Brexit, China has been for some time been struggling with trade war-like situation with the United States with no easy or early solutions in sight. In such a scenario, a trade pact will not only protect mutual investments made by both China and the United Kingdom in each other's countries but will also help them to tack global macroeconomic blue more effectively.

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