I am delighted by the opportunity to address such a distinguished audience here in Hong Kong, the financial heart of Asia. I have been a frequent visitor here in the past, as I have been to the Chinese mainland, but it is a pleasure to return now as Foreign Secretary of Britain’s coalition government.
Hong Kong’s economy is on a roll. It continues to be a highly attractive place to do business. As one of the world’s leading global financial centres and host to 70 of the world’s 100 largest banks alone, it is a shining example of Asian success and the opportunities this region has to offer. The Heritage Foundation last week again rated it the freest economy in the world - for the seventeenth time. Its independent judiciary is robust. Its civil service is a model. Moves last year towards more representative elections were welcome. Debate is vigorous. You have shown that “one country two systems” is working.
For some it may be counter-intuitive that a Foreign Secretary would come to address a financial forum. But the choice is very deliberate. We know that foreign policy and economic success go hand in hand. It is one of the tasks of British foreign policy to advocate Britain as a home for business and investment and to contribute to our economy. This comes on top of all our necessary work to reduce conflict, alleviate poverty and avert threats to the flows of trade and people on which all our economies depend. It is essential for British citizens, at a time of economic difficulty, that we strain every sinew make every effort, in foreign policy to support their jobs and livelihoods as well as to maintain their security.
We also know that as economic weight and political influence shifts to many of the countries of the East and the South, British diplomacy has to shift its weight accordingly. Many of these countries are also the same ones that we need to work with in multilateral organisations and in matters of security, so there is a double imperative for this shift in emphasis. Successful international cooperation to tackle climate change, prevent nuclear proliferation in the Middle East and stem international terrorism all require intensive exchanges with partners in Asia, and this is a major component of our stronger ties with the emerging economies in this region.
One of the missions of the Foreign Office I lead is to make the new connections that help support British-based businesses as they seek out opportunity in these countries, as well as advance other British interests. So in our first nine months as a new British Government we have started a new wide-ranging initiative to broaden our ties with the Gulf States in diplomacy, defence, trade, culture, education and health; we have called an end to Britain’s retreat from Latin America, we have set out to reinvigorate our ties with Japan; we have called for a new Special Relationship with India and we have launched a new partnership for growth with China. After I leave Hong Kong on this visit, I will be the First British Foreign Secretary to visit Australia and New Zealand in nearly twenty years.
We have appointed an excellent new Minister devoted solely to promoting UK trade and investment, Lord Stephen Green. As ex-Group Chairman of HSBC, he needs little introduction to you. And of course we have taken the tough decisions in the UK needed to get a grip of our nation’s finance and set it on the path to recovery and growth. We are hardwiring a commercial focus into our foreign policy so that we become more agile in cultivating the relationships that Britain needs to prosper well into the future.
We will work hard to support British businesses as they look East to the opportunities in Asia, while urging companies and governments in Asia to continue to look West to Britain as a natural home for trade and investment and for access into European markets. And as a third strand, we will also work with our partners in Asia and around the world on reform of the international financial system, removing international barriers to free trade and promoting low carbon growth. So this is the approach you can expect from the Government of Britain; reinvigorating bilateral ties, investing in relationships in the emerging markets, championing the UK and working to strengthen the international system.
Importance of Asia
There can be no doubt of the importance of Asian markets. By 2030 Asian consumers are forecast to spend around $32 trillion annually, comprising about 43% of worldwide consumption. Asia’s strong and sustained growth has acted as a linchpin for global trade during the global economic downturn. Japan and China represent the two largest world markets for luxury goods, a vital industry for the UK. Asia continues to lead the global recovery.
So the economic compass of British businesses should be pointing firmly East, and indeed many are already doing so. This region played host to over £84 billion of the stock of outward foreign investment from the UK. Last year, a £10 billion increase on the previous year and 8% of all British overseas investment. UK exports of goods to the region last year amounted to £22 billion. This represents around 10% of the UK’s total export revenue, while the UK also ranks alongside Germany as the largest European investor in China. Even so, a report card for the UK’s trade relationship with Asia would read ‘good but could do better’ and we are ambitious for what we can achieve in the future.
A particular focus of our diplomatic efforts must be on China.
Last November our Prime Minister led the UK’s largest ever trade delegation to Beijing, leading to tangible benefits for business on both sides. Among these were the launch of a new $500 million UK-China investment fund, announcement of the first UK Chinese banking joint venture and agreement by Rolls Royce to supply £750 million worth of aircraft engines to China Eastern. Last week the Vice Premier of China was in London for a highly successful visit during which deals worth £2.6 billion were signed, including a commitment by Jaguar Land Rover to sales of 40,000 vehicles this year. Agreement too was reached between BP and the China National Offshore Oil to conduct deepwater exploration in the South China Sea.
We have also agreed with the Chinese senior leadership that the UK and China are ‘Partners for Growth’. Our economies are becoming increasingly complementary, and we have a strong shared interest in making the most of our bilateral trade and investment relationship, keeping our markets open to each other and working together to make the case globally for free trade.
The Prime Minister also led a successful trade delegation to India last year. We look forward to this initiative bearing early fruit.
So in 2011 we will continue to strive to make further progress towards increased trade and investment between the UK and Asia.
What Britain has to offer
For the UK has much to offer and there are many reasons why Asia’s entrepreneurs and investors should cast their gaze to Britain, while our companies look East. Our unrivalled concentration of capital and capabilities in London and our other financial centres means that more overseas financial institutions and investors choose to do business in, and with, the UK than any other country. We are one of the world’s most open economies, a launch pad into Europe and the home of the world’s number one international financial centre.
The UK is also home to the world’s biggest insurance market, and one of the two largest centres in the world for fund management and international legal services. The World Bank, Economist Intelligence Unit and OECD have all found the UK to be the easiest place to do business in Europe, with the strongest business environment on the continent and the lowest barriers to entrepreneurship in the world. As a result more than a 1/3 of a million new companies are registered in the UK every year. By 2014, we also aim to establish the lowest corporate tax rate in the G7, making the UK even more attractive as a destination for business.
London is soon to be home to the biggest dedicated court in the world. Scheduled for opening close to the Royal Courts of Justice, the new business court will provide a dedicated centre for international business legal cases. We know we have strong bonds and cooperation with other legal jurisdictions in Asia and look forward to working with you as this facility opens. Like Hong Kong, the UK has a well founded reputation for nurturing its skills base, meaning that the UK also possess both the services and skills to respond to the needs of emerging markets.
We are already the location of choice for companies’ European headquarters, a position that we are keen to retain. London is home to offices, branches or headquarters of almost every major international bank and financial institution in the world. The UK’s regional city centres also remain an integral part of the UK’s package, contributing to its depth and diversity. We continue to draw in foreign investments attracting over 1 ½ thousand new investments in the last financial year.
For example the UK enjoys an enviable position as one of the largest recipients of Chinese investment in Europe.
Risks and rewards of a networked world
The complexity of the world’s modern economic and financial systems has led to record levels of interdependence between economies. Global trade volumes have grown to five times their 1980 level. In that same period, the global stock of Foreign Direct Investment has grown almost 10 fold. Global banking assets held overseas have risen from around 20% of global GDP to around 60%. London is the hub of that system, with more cross border lending originating there than in any other city.
In order to reap the benefits of our networked financial world- afforded by the instant communication and ease of transfer of goods, currency and services- we must continue to work together to ensure that we adequately regulate the international financial system, open up markets and develop low carbon growth.
Regulation is not about stifling international commerce but making sure that the global financial system works for all and supports the growth of trade and industry. We wish to remove barriers to trade and are staunchly anti-protectionist. That is why we are lobbying international partners to conclude the Doha round this year, which would boost to the global economy in these difficult times; adding $170 billion to the global economy each year.
Low carbon growth
Just as our economic fortunes are tied together by international financial systems, so too are they linked by the direct and indirect consequences of climate change. While individual weather events can rarely be linked with certainty to climate change, climate change models tell us that extreme weather events, including floods, droughts and heat waves, are likely to become more common as the world warms.
Low carbon investment not only mitigates against the threats posed by climate change but also provides potential for profitable investment in fast growing markets.
We are committed to creating a Green Investment Bank to enable businesses to obtain the finance they need for green growth. Some of our Asian partners are doing the same with South Korea basing its next stage of economic development on a five year green growth plan and China’s investing more than anyone else in clean energy in recent times. The financial sector has an important role to play in allocating investment to sustain low carbon growth in Asia.
There are clear reasons for British and Asian business to seek one another out as business partners of the future. Asia and the UK both have significant legacies as historical international traders. History teaches us that where trade and industry is concerned, those who look ahead to foresee changing and emerging prospects and to act upon them, are the ones that prosper. This is a process of evolution and change which comes naturally to successful businesses, and one which we know Governments must emulate. It is our strong hope and belief in the British government that the UK and Asia can prosper together in this way in the years to come.