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Blair fails to clinch big contracts in China

SINO-BRITISH relations may be the warmest for years, but Tony Blair's three-day visit to mainland China has failed to produce the sort of big-number deals that used to go hand in hand with diplomatic successes. It is British industry's ill fortune that, just as relations between London and Peking are back on track, China may be shifting away from using contracts to reward favoured nations.

Sir Charles Powell, president of the China Britain Business Council and head of a group of 21 top UK business leaders, said yesterday: "In terms of specific contracts, no there is nothing huge that has been done, but I was not expecting that. I think there has been a change of style.

"I went to see [the Chinese Prime Minister] Zhu Rongji two weeks ago to talk about the visit, and I got the impression from him that he wants to get away from this notion that `visits equal contracts'. Also in the economic climate at the moment, you would not expect too many big things. So I think it's quite reasonable."

The biggest single deal was National Power's agreement to invest pounds 120m in a coal-fired power station in Hunan province. The award of a Peking branch licence for Standard Chartered was the most important bureaucratic break-through. A pounds 30m expansion of Smithkline Beecham's Tianjin pharmaceuticals factory and pounds 15m on two water projects by China Water in Guizhou province wrapped up the other deals.

Most of the other mooted contract finalisations did not come through in time, including an Airbus deal which would have benefited British Aerospace, BP's planned plant outside Shanghai and Marconi Communications' deal with the Chinese Ministry of Railways for transmission and access equipment.

Mr Blair instead dusted off some earlier announcements, yesterday opening the Shanghai office of Royal & SunAlliance, the first British insurer granted a mainland licence, and inking an air services agreement to open up Shanghai-London flights, a route which will now be fought over by BA and Virgin.

But he said he had "a very positive discussion" with Mr Zhu on potential British investments and contracts worth over pounds 3bn, involving BP, ICI, British Aerospace, Rolls-Royce, Alsthom and Babcock.

Since the handover of Hong Kong in the middle of last year, Sino-British commercial relations have shown a mixed picture. According to Chinese figures, there has already been a surge in British direct investment in the 13 months after the handover. Cumulative British investment reached S$6.12bn (pounds 3.7bn) by the end of July 1998, representing a jump of about pounds 1.26bn during the 13 months after the handover.

The trade picture is less impressive. Last year saw a healthy 26 per cent increase in British exports to China, but this has tailed off. According to British trade statistics, in the first half of this year, Chinese exports to the UK jumped 20 per cent to pounds 1.33bn, while UK sales to China fell 0.05 per cent to pounds 425.2m.