Official Report 187KB pdf
Agenda item 2 is our second evidence session on the Scottish Government's China plan. Today's discussion will cover business, trade and tourism.
I am the head of economic development at Angus Council.
I am the chairman of Arup Scotland.
I am from the China-Britain Business Council.
I am an international officer at Glasgow City Council.
I am an adviser to the Lord Provost at Glasgow City Council. My job remit includes responsibility for the council's international strategy.
I am an international trade manager at the Scottish Council for Development and Industry.
I am the Asia director for Scottish Development International.
I am the operations director for Scottish Development International.
I am the marketing manager for VisitScotland and I head up the emerging markets team.
Thank you. There are a few themes that we want to discuss. The witnesses are all aware of the Scottish Government's plan for engagement with China. Given your experience of dealing with China, has the Government set the right objectives and targets in the plan?
The refreshed China plan reflects more broadly what SDI wants to do in China, and is consistent with the objectives of our operations throughout the world. Our job is to help Scottish businesses to internationalise and to help overseas and international companies to come to Scotland and create employment here. We also want to build broader business and cultural links and to play our part for team Scotland. We are pretty comfortable with the refreshed plan. It appears to us that many of the metrics around the China plan are pretty much on course to be achieved—I could quote many statistics in that context.
VisitScotland is also comfortable with the refreshed China plan—in particular with the tourism target of Scotland achieving a percentage of United Kingdom traffic. Such a target makes sense, given that there is no direct air service to Scotland from China. We work closely with our strategic partner, VisitBritain, which is on-territory.
As I said in my written submission, the objectives in the plan are appropriate and I fully support them. It was important that the new Administration in Scotland endorse the plan, so it is significant that the Administration did that and aligned the plan with its stated objectives to achieve a wealthier and fairer Scotland, to achieve sustainable growth and so on.
There has been a lot of applause for the plan so far.
The China-Britain Business Council very much supports the overriding objectives and targets in the plan. As someone who is in the shoes of business, I suggest that it would be helpful if the targets that relate to business were a little more specific and set out exactly what will be done to help individual businesses, because the targets are rather at the macro level. However, the thrust of the plan is correct.
I will make a similar point. Local authorities agree with the objectives on the macro level, but we must consider next the step down to the intermediate level. For example, the plan talks about giving strategic consideration to, and aligning the roles of, stakeholders. There is a job to be done in identifying stakeholders and ascertaining how they can be best engaged.
I concur with Stephen Phillips. There is a need to engage businesses, in particular the small and medium-sized enterprises for which China is a challenging and daunting market. What specific engagement with smaller businesses will there be, to ensure that the Chinese market is open to them?
I am sorry, but I will sing from the same hymn sheet. The plan lays good foundations, but the devil is in the detail and we must consider how we move on from here.
I noticed that several submissions mentioned resources, which we might discuss later.
I am happy to comment. Our approach is very much driven by "The Government Economic Strategy" and by the need for focus, which has been mentioned. Scotland has particular strengths to offer and to build on in business engagement with the Chinese marketplace. I invite Frank Boyland to comment on that.
We sell Scotland. SDI has four offices in greater China—in Shanghai, Beijing, Hong Kong and Taipei, which is in Taiwan. Our job is to promote Scotland. We want the world and China to know that we are smart people, that we are technologically advanced, that we have and always have had great scientists and that we have great education establishments that have produced scientists and engineers who have greatly benefited the world.
On connectivity, Glasgow City Council feels, as a local authority, that we can add value to existing structures and existing activities. The question is how to explore that and do it to the best of our ability. Glasgow City Council has discussed with universities how we can help them with international recruitment by selling the city and selling Glasgow and Scotland in China. We are interested to hear more about what the other witnesses think about that.
Glasgow City Council has a geographic focus, does it not?
Yes—we are twinned with Dalian.
I recall reading that in your evidence.
As members know, Angus Council is, in effect, twinned with Yantai in Shandong. The relationships that we have built there have helped to develop successful trade and tourism links. It is important that those links have helped us to develop links elsewhere—we do not deal exclusively with Yantai. A big spin-out has been the relationships that we have built in Yantai and which have helped businesses to develop links elsewhere, particularly in Shanghai. We have twinned Carnoustie championship golf links with Tiger Beach golf links, whose owner is a very successful businessman who owns Shanghai Silport, which is a resort in Shanghai, and dozens of companies in Shanghai. Such a connection helps us to deliver for our businesses and others who want to do business in China. It also signals that we want a long and lasting relationship with China, which is important. Knowing that we are serious about China helps other people.
I want to pick up both on connectivity between the objectives and on the geographic issue.
That is a very useful point.
I want to pick up on connectivity and targeting.
I suppose that such individuals are also the most mobile.
While having this conversation today, we are obviously in a completely different situation from that of three months ago, both in terms of where we are sitting and in terms of where China is sitting. Given that the Chinese economy is reckoned to require 8 per cent growth just to stand still—that is, to absorb all the people coming in from the rural areas—but is likely to suffer negative growth next year, China faces potentially huge consequences that could include social unrest among its millions of unemployed graduates. There is a danger that China will look inward again, rather than outward. Given where we are at and where China appears to be going in the next year or two—like the rest of us, China is likely to suffer from the global recession—what will be the impacts on our strategies for building relationships with China in trade, technology and education? It seems to me that the desire of China's political leadership to keep a lid on potential social unrest will have huge implications for all aspects of how we deal with China, so I am interested to hear the witnesses' views.
When I visited Shanghai and Beijing about 10 days ago, the mood was still pretty positive. The Chinese Government had just announced a $440 billion stimulus package, through which it will invest in 10 separate areas of the economy. Some interesting facts and figures emerge from that, including the fact that life sciences will be a key area. Right now, almost every Chinese life sciences company is submitting proposals to the Ministry of Health for various kinds of R and D. That could be an opportunity for Scotland, given that a lot of that research needs to be internationally collaborative. I believe that there are still opportunities for Scotland. I will try to keep my comments strictly to the business aspect of Mr Neil's question.
Such as investing in buying HBOS.
I believe that that was mooted in some parts of the media.
I want to give the local authority point of view. Glasgow has been twinned with the city of Dalian since the 1980s, during which time there has been a series of different circumstances. That kind of permanent civic engagement enables local authorities to add value by keeping open channels that may otherwise fluctuate because of circumstances such as the current economic situation.
I will comment first on growth forecasts. The World Bank forecasts that China will have 7.5 per cent growth next year and the most pessimistic scenario was painted by Goldman Sachs, which said that Chinese growth would be 6 per cent. However, the consensus seems to be that China will manage 7 to 8 per cent growth next year. There will probably be lower growth in the first half of the year, but investment in infrastructure will kick-start the economy and create higher growth in the second half of the year. However, there will be significant geographical variations in that growth. Some of the southern provinces that are very export driven have taken a greater economic hit than have some of the central provinces and the north-east.
I reiterate what Frank Boyland said in response to Mr Neil: given the current challenging economic climate, there is even more need for a China plan. On Frank Boyland's reference to opportunities, Scotland can add value to China's challenging domestic market; for example, there will be huge opportunities for the world-class companies in the renewable energy sector in Scotland, particularly small and medium-sized enterprises. This is a good time for Scottish businesses to focus on China, given the challenging markets in both Scotland and China. We need to tell businesses about our strategy and show them how to come in on the back of it.
Peter Budd has direct experience that will be of great interest to us.
I will take up Mr Neil's point about China getting into difficulty in the short term. I have worked in China since 1979 and have witnessed the huge changes that have evolved there over that period, so it is clear to me that China plays the long game. Two years is not an issue for China because it looks five, 10, 20, 30, 40 or 50 years ahead. It is clear that engagement with the rest of the world is now very much on the agenda in China. We would at our peril withdraw and not support China at this time. Certainly, from a business perspective, Arup Scotland will put in serious effort in China over the next five years because the Chinese Government has a well-defined strategy.
That is interesting.
Glasgow City Council visited Dalian in April 2008. The presentations and information that we were given suggest that they are planning for the next five to 10 years. We also recently hosted a visit from the Dalian water affairs bureau, which is interested in having a business relationship with Scottish Water. There is no evidence that it will rein in its plans because of the current crisis.
One of my questions is on how the exchange rate could affect the situation with China. If I have got my sums right, it looks like the rate will probably give us opportunities there, both for exporting and for tourism.
There are six or seven key strategic sectors for Scotland, which we work to promote. Food and drink is one and textiles is another. We had a mission last year when companies such as Begg, Lochcarron and all the companies that you would expect came out to China and SDI worked with them to promote them.
I think so. If you could wave a magic wand, what would you do to make it all happen?
I would want one of those time turners from Harry Potter so that we could run forward three years, because we could perhaps get to the other side of the recession.
So the culture is different in that companies have to build up a lot of trust.
Very much so. They want to know who you are, to get used to you and to see what you have to offer them. That is how business is done.
In doing business in China, it is often personal relationships that stand the test of time. I have worked with people for 20 years as they have migrated through the system; the relationship that I have with them is both friendship and business relationship. That is fundamental to doing business there—there are no quick wins.
I will add a caveat. I agree that doing business in China is about developing long-term relationships, but a handful of SMEs—particularly those with innovative technology—are entering the market very quickly and achieving success quickly too. China is a fast-moving place, and we must bear in mind that what held true six months ago does not necessarily hold true today. The CBBC recently published a major piece of work that maps seven sectors across 35 cities in China. That report offers an excellent starting point for companies that want to have a look at the opportunities that exist throughout the country.
I endorse what has been said about relationships. In my submission, I mentioned the notion of guanxi, which involves building a relationship not just for the sake of it but for mutual benefit somewhere along the line. The importance of Government-to-Government connections has been mentioned. Those connections are important in building guanxi.
I have a small supplementary. The work that Angus Council has done on twinning with areas of China is great. Many other parts of Scotland are twinned with areas of Europe, which is brilliant, too. How would you encourage other local authorities to engage in twinning? What is the key to making that happen in the other 30-odd councils?
There is a great deal of interest in such work among local authorities. That is helped by the endorsement of the China plan, which contains statements about the value of local authority intervention. Such work obviously needs to be done in conjunction with SDI and the CBBC, and we have done that since the beginning.
Does Glasgow City Council want to comment on that?
As part of the visit in April, we looked at sport and education. We were interested in the links between our schools, particularly with the creation of the Confucius hub. To reinforce what Dave Valentine said, many other local authorities would be interested in educational links, but they would probably need more support on how to create such links. Seminars such as those that Angus Council has organised have been extremely useful in allowing us to exchange experience.
Such work does not need to be done only on a local authority basis. We are aware that many UK and European cities are moving into China on a city-to-city basis. Again, that is an area in which we can help. It appears that efforts on that scale are large enough to have an impact but small enough to allow the relationships that others have mentioned to be built.
Do you want to make a final brief comment, David?
I will add a rider to that. In my submission, I mentioned the city analysis that the CBBC has done for UK Trade and Investment. Of the 274 cities in China that have a population of more than 1 million, seven of the 35 cities that are identified as being at the top level are in Shandong. That makes Shandong a good place for Scottish local authorities to consider first. It is not the only option, but it is a serious one, given the dynamics.
I want to focus on trade and to link that with what we have been told about twinning. In addition, I will take up Ms Gotts's point about ensuring that there are opportunities for small and medium-sized enterprises, and Mr Boyland's point about new opportunities, especially in the biotech industry—I am probably out of date when I use the term "biotech"; I should say "life sciences".
To be honest, the hoped-for outcomes on trade have not come about, which is one reason why we are engaged in today's meeting. We want to link all the work together and we are grateful to have an opportunity to tell our colleagues from the various sectors what the concept of twin cities can add and what added value can come from civic involvement. As Dave Valentine said, local authorities are not just local economic development agencies; they have other roles, and those are the ones with which we have had more success recently in Dalian.
I want to press you on that. The link with Dalian is probably Glasgow's longest twinning link, or one of its longest, as it has existed for 21 years. Other links have been established more recently, with Havana, Rostov-on-Don and Nuremberg, to name but three. I presume that trade with those other cities is more developed. Why has trade with Dalian not really taken off?
Just as a point of information, the other links that you mentioned are of about the same length—they were established in 1985, 1990 and 1986.
So we are comparing like with like.
In terms of their longevity, yes, but they are not alike in their maturity. Initially, after the early visits, there was great hope that the dealings with Dalian would result in major engineering and other contracts coming to Glasgow and there was a belief that those had been secured, but the hope was not fulfilled in the end. In part, that would have been because of the inexperience of those who were involved in the process.
Pat Lally? Inexperienced?
I was talking about inexperience with engineering contracts.
I seem to remember that he built a concert hall.
There are many things in which Pat Lally was deeply experienced.
He still is, and he is a constituent of mine.
My point is that all the sectors and institutions that are represented here today will appreciate not only that things have moved on in China in those 21 years but that their expertise has also developed. As our colleague Peter Budd said, because he has worked in China since the late 1970s, he has acquired the necessary relationships and expertise to deal in China. I hope that we are now better placed to make progress through the proposed plan.
Finally, I would like reassurance that there has not been a failure to trade with all your other twinning partners. There is a particular problem with a lack of trade development with Dalian, but can you reassure me that trade is taking place with Nuremberg, Rostov and the other twin cities?
One of the most successful links has been with Rostov-on-Don. There was the same sort of phenomenon that we heard described earlier. A major engineering company was introduced to Rostov and that became an introduction to the Russian market. The company did not secure contracts in Rostov, but it opened an office in Moscow instead, which is where the growth is. There is trade with Rostov. Trading with Nuremberg is on a much smaller scale, but it exists.
I suppose that my ultimate point is that, given these new trading opportunities with China, local authorities might be able to use their twinning links to set up occasional trade missions that the SMEs can fit into. After all, they will not always be able to fit into the current year's SDI initiative which, as we have heard, tends to be driven by the bigger players in each sector.
Perhaps Jane Gotts will comment on that point.
In March, the SCDI collaborated with Angus Council on a trade visit to Shanghai and Beijing. We are open to any opportunity for making more of a hit on markets and are happy to speak to local authorities about linking in with our activities. As Dave Valentine knows, we took 20 companies on that visit. That had a real impact, but we need to get the message out to others.
Are you sure that you are not touting for business? [Laughter.]
It is important that we consider opportunities for collaboration. As Jane Gotts knows, each year we work very closely with the SCDI on funding and supporting those missions, which form part of the overall mix of activities that we try to sponsor and support.
In response to Mr Gordon's view of collaboration between cities, I point out that it takes two to tango. The Chinese view of the benefits that cities get from international relationships has changed quite dramatically over the past 10 years. In the beginning, they simply wanted cultural exchanges. Indeed, signing 50 memorandums of understanding was deemed to be a performance indicator for most cities, but the fact is that most of those MOUs went nowhere. There were a couple of cultural exchanges in each direction and the Chinese were very happy because they had achieved their key performance indicators.
I noted that, in his submission, David Valentine was a bit critical of the lack of engagement of stakeholder groups in SDI's planning. Would you like to comment on that?
I would be happy to. I think that I said that there should be more engagement in relation to the China plan. I referred to specific actions such as the formation of stakeholder groups. After the plan was refreshed, there was consultation with stakeholders through the international division. However, since then, I have not seen any real evidence of stakeholders being brought together to look at the strategy and action plans with timescales and budgets being made, which would be useful. I am not getting at SDI in particular; there is a collective responsibility.
That is a very good suggestion. The point about mentoring is good. There are 38 Scottish companies with a base in China today. When I was in Beijing a couple of weeks ago, we got 12 of them around the table for lunch. The group, which you could call a Scottish business in China group, included some of the big hitters, such as the Royal Bank of Scotland and Standard Life, and little companies such as ADgem, which is a two-man band that does plant protein quarantine tests. SgurrEnergy and Scottish and Southern Energy were there, too. All those companies shared experiences; there was an awful lot of information sharing. That lunch was probably the first in a regular series of get-togethers of Scottish companies in the market, which will be able to see how they can help one another. It will present a welcoming face to visiting companies, the SCDI, local councils and so on.
I think that Stephen Phillips raised the issue of SMEs. Some of the points that I was going to raise have been covered already. We have heard a lot about Scottish and Southern Energy, Scottish Water and Arup—bigger companies that can invest in trust and long-term relationships. It might be more difficult for SMEs to do that; it might not even occur to them that they have the ability or the resources to invest in it. Is it anybody's job to go out proactively to talk to SMEs? In this country, they will have the Official Journal of the European Union, local authorities' approved lists and other ways of finding out what business opportunities are available, but they might find it difficult to find out about opportunities in China.
The trade visits that we organise are specifically targeted at SMEs; the funding is available only for SMEs, so that is the market that we are targeting for all our trade visits. We work with SDI to go through the client account managed companies with which it is working. We promote trade visits to local authorities, to our own members and to the other organisations in the group of six. We are trying to get as big a coverage as possible. Our trade visits are targeted purely at SMEs, which are the only companies that would qualify for funding.
Is there a way in which SMEs across the country, beyond the client managed accounts and the companies that you have managed to get in touch with, can access that clear information?
The onus is on companies, to an extent. If a company is looking to internationalise, it knows that it should go to Scottish Enterprise, SDI and the local authorities. I would hope that those three routes would capture nearly all those businesses. However, that is not to say that we do not recognise that we have to get out to as many companies as possible and promote the plan to businesses. In that regard, we need to ensure that, as well as working with companies in the central belt, we are, for example, engaging with companies in the Highlands and Islands. We need to take on board that challenge.
You ask about leadership in this area. SDI considers that it has a responsibility to engage with the business community throughout Scotland in that regard. We do so through our market awareness-raising programme, which we run in partnership with a range of organisations, some of which are represented around the table today. That programme seeks to draw to the attention of as many companies as possible the opportunities that exist in major markets around the world. There is a considerable focus on China, obviously, and we work closely with the CBBC, the SCDI and others in that regard. We also seek to generate inquiries through the business gateway and the Scottish Enterprise account management group, which should ensure that we end up with a steady stream of inquiries from SMEs and larger organisations. We design our operating plan of activities around the demand that is generated in that way, and we work to ensure that what we deliver in partnership with other organisations meets the demand of the Scottish business community.
What is the role of the China-Britain Business Council in this area?
About 80 per cent of our work is focused on SMEs. A great deal of support is targeted at helping SMEs to overcome the challenges of doing business in China.
Our business development and trade team, which is within the council's development regeneration services department, is also speaking to the companies that have expressed an interest in internationalising their business to remind them about Glasgow's link with Dalian and is offering support, where appropriate.
Most tourism businesses are SMEs, so we have been working closely with SDI to assist businesses that want to internationalise their business. Our efforts must involve not only going out on territory but collaborative working between agencies, which David Valentine mentioned earlier. I will leave some information with you about what our public relation teams have been doing to tap into the SMEs that are active in the international market. For example, when we are doing work on Scotland as the home of whisky, we get the whisky companies actively involved.
Are there any joint ventures that have been set up in Scotland by Chinese businesses?
There is a joint venture between Napier University and a consortium of Chinese companies called Breeze Global. Napier's biofuel unit, which is run by Martin Tangney, is developing second-generation biofuel technology, which involves the burning of waste. That is an example of an academic-industrial collaboration between China and Scotland.
I want to turn to an area that we have not discussed yet, although Mr Budd alluded to it in describing cultural and educational engagement. He talked about a process of letting Chinese people who come here know about what we think in Scotland. I raised the issue with our witnesses last week, who are involved primarily in educational engagement with China, so it is only fair that I raise it with you as well.
The issue is obviously of concern to our politicians and to the council. We have a deep relationship—it will be 10 years old in January—with Yantai. We have built up trust and mutual respect at the highest level with, for example, the party secretary, who is the number 1 politician—the equivalent of the First Minister—in Yantai. Because we know each other and can talk about the issues, we raise them in an informal but genuine way.
I echo that point. On the visit by the Lord Provost of Glasgow that took place earlier this year, there was open discussion of the issues and an attempt by the authorities in Dalian to make clear the Chinese position and set it against the views of people outside. There was a dialogue, which we hope will be fruitful.
CSR is now a critical issue for businesses, particularly multinationals, and the highest standards are being used in China. We actively engage with businesses on the matter and we talk about the crossover with the human rights agenda. Businesses have an obligation to perform to international standards, and their work to do so supports political dialogue on more sensitive issues.
Having worked in China for a long time, I can assure you that things have changed. It is interesting to note how much impact the Olympics and the freer flow of information have had on the general community in China, and particularly on young people. It is quite common for young Chinese who have not been outside the country to engage in political debate with people such as me. When I was there just before the Olympics, I had some discussions about the Tibet challenges, and people were very opinionated in arguing either for or against the Government's position.
I agree with the comments that have been made. Jamie Hepburn mentioned restrictive practices. For sure, there are still some restrictive practices in business—I limit my comments to business—but the European Union is putting pressure on the Chinese Government to change things.
Thank you. We are running a little short of time, so I will raise the remaining issues that we have not yet covered. At our previous session, many of the contributors mentioned the lack of a stakeholder group. They believe that such a group would facilitate their work in education and research, but would a stakeholder group or forum be useful to the business sector?
First, the China plan has helped. I work in a bureaucracy, which starts with the Government cascading policy, and we must ensure that we fit into it through the community plan and everything else. In terms of policy structure, as a framework document, the plan helps, but it is lacking in timescales and budget planning, which could be addressed through a stakeholder group. The original formulation and construction of the China plan in 2006 was done by an active stakeholder group, and a couple of useful and constructive consultation meetings were held for the refreshed plan. Since then, little has been done, and, although it is all about resources at the end of the day, I would welcome something being done, and I would be willing to participate in it.
A forum would be a good idea, because the Chinese are joined up across their sectors, and if we are to get the most benefit from that, we must be as joined-up as they are.
A forum would be useful to join up the dots. There is a lot of cross-fertilisation between the different areas.
I say yes to the stakeholders group: it is a good idea, particularly for local authorities. It would help us to see where we fit in and to understand what other organisations contribute and do. Also, I agree with David Valentine that the plan helps with policy structure, but perhaps we need more detail on the timescale and available resources.
I have nothing to add.
I also agree. The plan endorses and legitimises what we are trying to achieve. A stakeholder group would be good. We have demonstrated that we can all work together, but we need to focus on a single avenue.
I like the idea of team Scotland, but there are only 5 million of us. If we can get together and pool our resources, we will be a lot more effective. If the stakeholder group is designed to do that, we should have one. SDI Asia is the eyes and ears of Scottish business in Asia, and we are happy to play our part on the business part of the China plan to pull a stakeholder group together.
The plan gives us a helpful framework. This is a long-term play, and we need to continue to work together to develop more collaborative working, so that we can strive to achieve the goals and objectives laid out in the plan, and go beyond them.
I agree with the idea of a stakeholder group. VisitScotland's big wins have come when we have collaborated with the various organisations around this table. Tourism has seen big wins come out of limited resources—we all agree that our resources are limited. Collaboration is the way forward. The China plan is the first step. In the past, we had smaller sub-groups, such as a tourism framework group, in which various agencies were involved. We now have Chinese-speaking guides. Eighteen months ago, we did not have any guides in Scotland who spoke Chinese and knew about Scotland, but now we do, and that came about through collaboration. That is an example of how collaboration can benefit everyone.
As none of my colleagues has a final point to make, I thank all the witnesses for coming along and giving of their time. I also thank them for their written submissions, which will be helpful in our inquiry work.
Meeting suspended.
On resuming—
Next
Visit (Prague)