Building on Success: Charlie Humphreys

27 March 2015

The economic dynamics in Asia are changing rapidly. As China’s imports catch up with the country’s exports due to fast growing domestic consumption, intra-Asian trade is thriving. Asian economies are no longer characterised by exports of low value-add goods to developed economies, but increasingly higher technology goods are being manufactured for both export and consumption across Asia.

The growth of the new Asian middle class is the single biggest demographic change since the industrial revolution in Western Europe, resulting in fast economic growth, coupled with increased demand for sophisticated goods and services. As developed economies remain in slow growth or recession, these developments in Asia present enormous opportunities for Western exporters.

According to the IMF however, only 5.6 per cent of the UK’s exports go to “emerging and developing Asia”, with exports to Belgium and Ireland combined being double that of China and India combined. Despite having a population of over 250 million, encompassing 50 million middle class consumers, Indonesia is only the UK’s 47th largest export destination, with merely US$812 million in exports, accounting for 0.17 per cent of total exports.  Whilst advanced economies will naturally sustain greater import markets, these numbers suggest UK exporters have not responded to the Asian economic growth phenomenon.

Advanced economies’ resilience as export markets is understandable. Stable and predictable markets provide a strong attraction for both new and seasoned exporters against less predictable and more risky, albeit faster growing, emerging markets. Issues around corruption and economic stability can significantly affect exporters in emerging markets. Broadly speaking, developing economies are not simply poorer versions of developed ones – their structure and internal dynamics are less familiar and more challenging to UK exporters. This should not, however, deter exporters determined to capture gains from the fast growth of these markets as the risks can be calculated and in many cases mitigated.

The UK’s position in the World is far from clear. With an unpredictable General Election looming and questions about EU membership, the UK’s trade partners are understandably cautious. In the frank discussion at the private briefings we regularly hold at Asia House, we often hear how the ongoing debate about UK membership of the EU has impacted Asian stakeholders’ confidence in the UK. The UK forms its trade deals via Brussels. As a member of the World’s biggest trade bloc and most attractive market, the UK can negotiate the highest level of trade access. The need to continue competing with fellow EU members is not diminished by this, but doing so outside of this framework could prove extremely challenging.

Whilst the EU can leverage comprehensive trade deals, Asia has a number of “mega trade deals” under negotiation such as the ASEAN Economic Community, the Regional Economic Cooperative Partnership and the Trans-Pacific Partnership. Over 20 countries are negotiating across these agreements. EU negotiations with Asian countries have proved slow and only one Free Trade Agreement has been concluded with an Asian country – South Korea in 2011. The removal of import duties increased EU exports to South Korea by 35 per cent, whilst UK exports increased by 156 per cent, achieving significant benefits for the UK.

Whilst these figures demonstrate the benefits of deals via the EU, they also demonstrate the danger of remaining outside of the increasingly complex “noodle bowl” of trade agreements with and amongst the fast developing Asian countries.  Assuming the UK is able to find its place and access global markets, the challenge remains of how UK exporters can effectively compete in the fast growing markets of Asia and beyond.

Charlie Humphreys, Director of Corporate Affairs, Asia House

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