British firms catch fast boat for China

LAST week, Jaguar announced it was setting up a sales network in China; it expects to sell 40 cars this year and 100 next. Soon it will be joined by Rolls-Royce, which hopes to sell 26 vehicles - about the same as in Belgium, and not bad given that it had not sold a single car in China only two years before.

Business with China is booming. However much politicians complain about Peking's human rights record, whatever worries economists have about an overheating economy, businessmen are falling over themselves to sell to a country that grew at an annual rate of 14 per cent in the first half of this year - faster than any other sizeable country.

On Monday, Richard Needham, the trade minister, announced that export credit insurance cover was being extended, in large part because British sales to China had increased by 90 per cent in the first half of this year and had quickly bumped into the pre- set cover limits. This weekend, staff are working flat-out at the Cardiff offices of NCM, the company that handles this business, to clear a backlog of delayed export orders worth tens of millions of pounds.

But this week, the hyperactive Mr Needham is off on a trade mission to China again, underlining the negative side of the story. Britain is still lagging behind its rivals by an embarrassing margin. Last year, UK exports to China were one sixteenth of Japan's, a fifth of Germany's and half those of Italy and France. 'Our exports are going up - from an extraordinarily low base,' one observer says.

The reason, China watchers say, is that when the market started to open up to the West in the late 1970s, everyone - including the British - started to look for business. They soon found that China was a fiendishly difficult place in which to work, and that only those prepared to make a long-term commitment could expect to win orders. In very few cases were these companies British.

Then there was the Hong Kong effect. Though the Chinese never discriminated against the British because of political arguments, UK companies were much more wary than others about the possible destabilising effects of the 1997 handover. 'The French, Germans and Italians didn't give it a thought,' one official says.

These attitudes were starting to change in the late 1980s, when the Tiananmen Square massacre sent most people fleeing, and it was only in 1991 that British companies, starved of orders at home, moved in force into China. Now, two years later, they are reaping the rewards.

Although the flowering of Chinese entrepreneurialism is creating demand for Rolls- Royces and Jaguars, the big money is being spent on machinery to upgrade factories, and on large-scale projects. Despite recent central government attempts to cool the economy, observers do not believe this sort of developmental spending will be cut back.

Peter Godwin, chairman of the Asia Pacific Advisory Group, has just come back from China and was assured that all worthwhile projects would keep going.

'The Chinese have great lists of things they want to pursue,' he said. 'The only problem is telling which ones will go ahead.'

Some of the biggest jumps in UK sales to China this year came from specialised machinery (up 99 per cent to pounds 72m in the first eight months of the year), general industrial machinery (up 185 per cent to pounds 55.4m) and transport equipment (234 per cent to pounds 60m).

Sales for projects are reflected in the 117 per cent jump for power generation equipment to pounds 48m, and the 324 per cent leap for telecommunications equipment to pounds 47m. But these are just the beginnings of what should turn into very large numbers. GEC-Alsthom has signed a contract with a UK element of pounds 500m for the Shajiao C power station, which will not start to figure in the statistics for at least a year. And Mr Godwin added: 'A lot of airports and metro systems are being talked about.'

Businessmen and officials praise the efforts of ministers first in forcing the Treasury to lift export credit restrictions, and second in supporting businessmen by taking them on trade missions.

Already, some companies have moved beyond direct selling to investment. Businessmen seeking a comforting example should look to Slumberland, the bed maker. It has been so successful with the factory it runs in the north that it is now building another.