Britain chases the dragon

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In centuries past, important visitors to the Emperor's residence in the Forbidden City would usually have arrived in a sedan chair carried by servants. But if Rover Group has its way, VIP guests will in future be transported to Beijing's premier tourist site in a dark green Range Rover.

Tomorrow in the Square of the Supreme Harmony inside the Forbidden City, the company will donate one such Range Rover to the department of the Chinese government which runs the palace museum. Harmoniously presiding over the presentation will be Michael Heseltine, the Deputy Prime Minister, who arrived in Beijing yesterday at the head of Britain's biggest-ever trade mission. Some 280 businessmen flew in with Mr Heseltine for the one-week tour of Beijing Shanghai and Hong Kong, in a "demonstration of UK Plc", as one official put it.

Doing business in China has its unexpected sideshows. The Rover company's Chinese PR spokesman said the gift would "express goodwill" for the official launch of Rover vehicles in China. (It seems churlish to remind anyone that Rover is now German-owned.)

It is almost a year since Mr Heseltine's last trade mission to China, and while this time he arrives as Deputy Prime Minister rather than President of the Board of Trade, the emphasis is again very much on business. As the captains of British industry are shepherded to the relevant ministries, Mr Heseltine will lobby for a number of items including insurance company licences, the European bid for a 100-seater aircraft project, financial services, and for British companies to take their share of China's infrastructure projects.

So how is British business doing in China? On the list of signings scheduled for this week, there are no big-ticket items to grab the headlines; Zeneca's pounds 53m pesticides collaboration is probably the largest among a clutch of joint ventures and office openings. But, compared with two years ago, British industry has woken up to China's potential.

The statistics paint a mixed picture. Despite Mr Heseltine's efforts last year, UK exports to China in 1995 actually fell 2.4 per cent to pounds 824m. At the same time, UK imports from China rose 18 per cent to pounds 1.94bn, widening the trade deficit still further. In Europe, Britain lags behind Germany, France and Italy in selling to China.

Direct investment in China is more impressive: in 1995, British companies invested pounds 605m in China, according to Chinese government statistics, more than any other European country, and the seventh highest of all countries. This brings British companies' accumulated investment in China to pounds 1.5bn at the end of 1995, a huge jump on the pounds 400m at the end of 1993.

Businessmen say the climate is now better than ever for British companies, with many feeling that the disputes over Hong Kong are no longer muddying the waters. But it remains a testing market, extremely competitive, bureaucratic and vulnerable to sudden changes in Chinese government thinking.

Many companies, with the benefit of experience, are redefining their position in China. British Petroleum, for instance, which in the 1980s and 1990s spent over pounds 130m drilling offshore wells with no commercial result, has wound down exploration and put the emphasis on downstream activities. In January, BP Chemicals launched a pounds 160m joint venture acetic acid plant in Sichuan Province, in partnership with the state petrochemical company, Sinopec.

For many companies, existing customers are coming back with new orders. Babcock Energy is about to sign a further contract with Huaneng Power, this time for boiler plant at Fuzhou power station, worth about pounds 66m. David Roberts, the chief representative for the telecommunications group GPT in China, said: "It has been a good year." GPT has delivered 2,500 card-technology payphones toBeijing, Shenzhen and Hangzhou."

China can still be an exasperating place to do business, especially when the government changes the rules. Providers of economic data, such as Reuters, were stunned earlier this year when China announced it was taking control of the dissemination of economic news and information, demanding access to all technology and confidential customer contracts.

State companies are powerful competitors. British Airways is waiting for clearance to start its third weekly flight on the London-Beijing route. It has government agreement, but the go-ahead is being blocked by Air China which wants a new routing for its reciprocal flight.

Many markets in which British companies might prosper remain protected. Mr Heseltine will push Beijing officials to grant operating licences for British insurance companies. Commercial Union, which this week opens its third representative office, should now qualify. "We would like to have a clear commitment from the Chinese government," said Wu Xiaomei, the firm's Beijing representative.