NIESR Press Release: UK-China economic links “cover the waterfront”
The strength and depth of the economic relationship between the United Kingdom and China is highlighted by a new report, as part of a new series of Landscape Economic papers looking at overseas economic relationships, by the National Institute of Economics and Social Research into the financial, trade and educational links between the two countries.
China’s rise over the last decade to become the world’s second largest economy based on the development its manufacturing output and its place in the global supply chain has a led to a re-orientation of activity in the UK away from traditional industries towards industries and sectors that are able to compete internationally, such as pharmaceuticals and finance.
Trade between mainland China and the UK has grown consistently since the 1990s. Mainland China is the third largest market for UK exports of goods and services, and one of the fastest growing.
Total Sino-UK exports and imports increased from £6 billion in 1999 to £80 billion in 2019, according to official figures. Direct trade with mainland China accounts for 5.6 per cent of total UK trade, and China is now the fifth largest trading partner of the UK and its second largest non-EU partner after the US.
Trade in services between the UK and China has grown steadily over the past two decades. Trade picked up particularly after 2012. This coincided with the adoption of the EU-China 2020 Strategic Agenda for Cooperation in 2013, which also saw the first currency swap deal between the Bank of England and the People’s Bank of China.
China’s share in total UK services exports increased from 0.6 per cent in 1999 to 1.7 per cent in 2019. The main recorded service exports from the UK to China were other business services (£1.2 billion), intellectual property (£1.1 billion), personal travel (£870 million), sea transportation (£450 million), financial services (£380 million), architectural, engineering, scientific and other technical services (£340 million), and information services (£330 million). Bilateral trade in services was higher than ever before in 2019.
The number of Chinese students at UK universities has more than trebled since 2006, and is now about 115,000, more than from the entire EU. Their fees are at least £1.7 billion a year. There are 13 Higher Education institutions where more than 10% of the students are Chinese. Some 16,000 pupils at UK independent schools are from China and Hong Kong, 28% of the non-UK total. Chinese tourists to the UK spent £1.7 billion in 2019.
NIESR ran illustrative scenarios using its economic model NiGEM into the impact on the UK of a sustained fall of 6 per cent in Chinese economic output. It found that the impact on the UK might be about 1% of GDP, perhaps lasting for several years. It also simulated a trade war between the US and China which suggested that the effect on UK GDP would be modest, reducing UK GDP by less than 0.1 percentage points.
“Our paper highlights the depth and breadth of the economic relationship between the UK and China,” said Jagjit Chadha, Director of NIESR. “There is a key question on the horizon as Brexit emerges and we try to recover from the impact of Covid-19: what form of economic relationship do we want to develop with the second largest economy in the world?”
Notes for editors:
The full report, ‘China and the United Kingdom: Economic Relationships’ can be found here.
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