CLASS IV, VOTE 4

HC Deb 18 July 1985 vol 83 cc486-525

Motion made, and Question proposed, That a further sum not exceeding £39,501,000 be granted to Her Majesty out of the Consolidated fund to defray the charges which will come in course of payment during the year ending on 31st March 1986 for expenditure by the Department of Trade and Industry on export promotion, trade co-operation, regulation of trading practices and consumer protection, and other services including grants in aid and international subscriptions, and other grants.—[Mr. Channon.]

Mr. Speaker

I remind the House that the debate should relate to United Kingdom trade with China following the approval by the House of the recommendations of the Liaison Committee.

3.58 pm

Mr. Kenneth Warren (Hastings and Rye)

I wish to speak on the motion on class IV, vote 4, because it is clear from the report which the Select Committee on Trade and Industry had the honour to present to Parliament on Monday of this week that we are worried about the adequacy of the vote and wish it to be examined during today's debate, and further examined by the Governirent in the light of the contributions that I am sure hon. Members on both sides of the House will wish to make.

As Chairman of that Committee, I express my thanks to the hon. Members who helped in the preparation of the report, who were assiduous in carrying out the investigation and who conducted themselves extremely well during our visit to China to examine the problems and opportunities of trade with that country. I hope that it is not inopportune or out of order for me to say that the clerks and staff of the Committee performed an excellent task. Although they are not often praised in the House, may I also thank the printers, Greenaway Harrison Ltd., who not only last Friday produced a proof of the report, but had it on the desks of the Committee's members at 10 o'clock on Monday morning.

We visited China as the guests of the financial and economic committee of the National People's Congress of the People's Republic of China, and had the honour of being met by Vice-Premier Li Peng. The embassy of the People's Republic in London and our embassy in Peking rendered tremendous service to us, and we wish to thank Sir Richard Evans and his staff, especially Mr. Charles Haswell, who accompanied the Committee on its tour. We also wish to thank Mr. Christian Adams and Mr. Andrew Seaton of the British Trade Commission in Hong Kong for the assistance that they gave us.

The House may already have sensed from what I have said that the tone of our report is one of earnest desire, and the belief that it is possible to co-operate with the People's Republic, to the benefit of everyone in Britain, through advancing our trade. Our Committee is solution-oriented. The reports that we have published demonstrate that it is not problem-dominated. All our reports to the House—I cannot promise that this will continue—have been unanimous and have sought to be constructive, but we have not hesitated, as Ministers from the Department of Trade and Industry will know, to confront them when we believed that such confrontation would be constructive.

China is a buyer's market. It is also the last great untapped market in the world. It is a difficult market, and we praise British exporters for the quality of their products and the success that they have already achieved. However, if I tell the House that, if one travelled through China and saw 1 million people a week, it would take 20 years to see the entire population, hon. Members can gauge the size of the market, the country and, I hope, the opportunity.

Most people talk about the high technology goods needed in countries such as China, but there are many opportunities for exporting what could be called low-technology goods. We could also export what I could call, without wishing to denigrate the value of the products, second-hand goods, because China is moving up the scale of economic development and needs many of the products and processes that were common in the west 10, 20 or 30 years ago.

The Chinese market does not only present opportunities to export hardware. The Chinese need advice in accountancy, banking, insurance and international trading practices. They also need product support to meet the priorities that they have designated as the lead tasks of the next five-year plan, which will be launched in January 1986. Those tasks are designed to meet their needs in energy, transportation and communications.

I must report that the position of our sales to China is less one of accomplishment than one of opportunity. Britain is a long way down the list of OECD countries that export to China. It supplies only about 3 per cent. of all exports to China, which compares badly with Japan and the United States, which together supply about two thirds of China's imported goods and services. We are outranked by Japan, whose exports are worth £4.5 billion a year, the United States at £2 billion a year, West Germany and Canada at £700 million a year each and Australia at £500 million a year. Britain's exports are worth only £300 million a year. The Committee believes—I am sure that this will be endorsed by other hon. Members—that Britain is not exploiting all the available opportunities. Whatever the Government can do to make such exploitation possible will not only benefit employment and profit in Britain, but will give pleasure to the Chinese Government who, after the signing of the Hong Kong agreement, wish to trade with us. I am sure that we could take advantage of that.

Dr. Norman A. Godman (Greenock and Port Glasgow)

One of the most important industries in Scotland is the offshore oil and gas construction industry. That industry must be export-minded in its approach to further developments. Does the hon. Gentleman believe that enough is being done in China to persuade the Chinese to purchase such high-technology hardware from the United Kingdom?

Mr. Warren

We discovered that, although a great deal is being done in all industries, it is not enough. When we met representatives of operators in the South China sea and in the Bohai sea, we discovered that in many cases the Chinese were eager for the most basic help, such as writing specifications to determine the quality of goods that should be demanded of those who supply them. Bristow Helicopters is already there, and British Petroleum is already drilling. The expertise of BP in the Forties field is directly applicable to the opportunities that lie in the deeper waters to the south of China.

During our visit to Canton, we met representatives and the general managers of the companies which, under the Chinese Government, are responsible for the exploitation of those oil reserves. Although no deal of significant commercial quality has yet been struck, British representatives still believe that they will be successful. I hope that the other members of the Committee will agree with me when I urge those who have that unusual expertise in deep-water oil exploration off the Scottish coast to get together with their Chinese colleagues. As the House knows, in offshore engineering, the ability to supply products and services immediately is paramount. No lead time is available. Companies must be there on the day that oil is struck. I value the hon. Gentleman's intervention and commend it to the House.

The Select Committee members were not the only people to express the views set out in our report. I hope that the House will be glad to hear about a letter sent to me on 5 July 1985 by my right hon. Friend the Prime Minister, following the visit of the Chinese Premier to Britain. She said: The Chinese Government share our view that the opportunities for expanding our trade and economic links have never been better. I believe the committee have chosen an opportune moment to investigate this important subject. As we travelled extensively throughout China, we were given shopping lists of Chinese requirements in every city and plant that we visited. Without doubt, the leadership of China has created eagerness and a dedication to economic growth at all levels of authority, and the wish to succeed is strong in the Chinese people. On a personal note, I should add that it was rare to come across people of such universally high intelligence in whom good sense is a common quality.

Until recently, Chinese financial reserves were strong, but they have been spending quickly. However, it was evident from our discussions in China and from discussions held with our visitors when the Chinese Premier came to Britain that they are conscious that their rate of spend must be matched to their ability to replenish their resources.

Recently, they have imposed certain constrictions on the way in which goods are handled for imports, but, on the other hand, they have opened up military facilities to make sure that waiting time does not attract a penalty in delivery for goods that have already been contracted. None of my hon. Friends will accuse me of being a sympathiser with Communism, but I sense that there was an economic pragmatism there in the best interests of the Chinese people in terms of what they were trying to do to develop their country.

I was also impressed by the way in which young science and business technocrats of the post-cultural revolution generation are the allies of the old guard in economic development and take an active part in policy discussions. These youngsters are causing an interesting ratchet effect. They believe that forward is the only direction of motion after the experience of Maoism and the cultural revolution.

The Hong Kong agreement is an important step forward. The Select Committee, having had the opportunity to visit China and Hong Kong. knows that the Hong Kong agreement is regarded by the Chinese as a bridge of opportunity between our two countries that is not sensed as clearly on this side of the bridge, in Parliament and the country.

The period of the next five-year plan starting in January 1986 gives us enormous trade penetration opportunities while it is being drafted over the next several months. In this plan, the Chinese will be accentuating the need for two-way trade, whereas we all tend to regard exports as being the prime opportunity. I hope that we can understand that, to import, the Chinese have to export. If we acknowledge this, we shall have made a gain over other nations that have ignored this. I have to say this rather quietly, lest others take note of what a humble Chairman of a Select Committee says.

Without any qualification, I can say that the big United Kingdom firms such as British Aerospace, GEC and others in that league are establishing sound credibility that can enhance the opportunities for small firms, and the important factor is not only the totality of the contracts that go to them. From information that we have gleaned from them, probably only about one third of the total value of the contract goes to the prime contractor. Two thirds of the value will go to those down the chain of contract, most of whom will be small firms. Small firms should look at China through the eyes of their large suppliers and not give up the chance of selling in Hong Kong through reputable agents and straight into China the products and processes that they have available. In this connection I was disappointed to find how few manuals of goods and services representing the interests and capabilities of small firms were readily available either in China or Hong Kong.

I declare an interest as an engineer, although not one connected with China. Looking through such eyes, I saw colossal problems in Chinese engineering firms, some of which were the fault of suppliers, although not British suppliers. The standard and quality of that which this country could provide and the knowledge that, in dealing with this country, the Chinese will get a straight deal that will carry them forward is something that we should put forward in our own determination through diplomatic, commercial and trade channels at every opportunity. We supply quality, and that is what people in China want.

In getting what they want, the Chinese have to understand what is available. I have referred to those goods and services that can be made known through various normal trade communication channels. However, training and retraining in the United Kingdom of commercial, technical and particularly managing staff, sponsored by partnerships between the Government and state and private companies, is most important. This would be a cost-effective method to promote trade.

I have already given a long list of favourable comments about trade with China, and, to be constructive, I would be failing in my duty if I did not also make some unfavourable comments. It is obvious that there must be uncertainty about the future of society in China. There have been political upheavals over a number of years, but the present stability seems better than that which existed when I visited the country four years ago. Substantial progress has been made, and I had a welcome shock at the way in which ordinary Chinese people have been able to make progress in their personal lives.

Market penetration is enormously difficult, slow and expensive. Just about every representative of a major company to whom we talked in Peking told us that it cost them £50,000 a year to keep just one person there, excluding the salary. It is obvious that, as it is a Communist state, purchasing machinery is politically based, and, naturally, there are tensions between state and political authorities over industrial objectives. They arise from the fact that central Government have decided that they will sub-contract responsibility down the chain to the provinces, with the results that one might expect.

When one exports to China, one is faced—this is no reflection on the Chinese—with the fact that their purchasing skills are poor. A hard deal is not necessarily in the best interest of the buyer any more than it is necessarily in the worst interests of the supplier. It is always important that one should, within the limits of language and definition, have a deal that is happy on both sides. I hope that the Chinese can move forward to promote sensible customer-supplier relationships, to their benefit as well as the benefit of those whom we are supplying.

I have already, in reply to an intervention by the hon. Member for Greenock and Port Glasgow (Dr. Godman), drawn attention to the fact that a substantial upgrading is required in Chinese systems of specifications and a knowledge of how quality assurance can operate, as opposed to what is called quality control. It is important that they understand the technology of quality assurance, which is practised in the Western world and which they are eager to obtain. That is an opening for British companies that can export such knowledge, and an opportunity for small companies at that.

The British Executive Service Overseas—BESO—has some retired, or supposedly retired, managers and engineers who rendered an enormous service to the rest of the world and have already proved themselves in China. I have found out from it that in one year the voluntary retired managers and engineers, a part of BESO that is jointly funded by Government and management, has received a request for specialist advice from the Chinese for chemical, steel, vehicle, ceramic, electronic and light manufacturing industries specifically linked by the Chinese to their re-equipment needs.

BESO has already completed some 12 assignments, which have yielded new contacts with potential British suppliers. It stresses the fact, and I endorse it, that contact and communication, however achieved, are keys to the trading expansion in the China market.

I must give a personal impression of Hong Kong, which I am sure will not be supported by other members of the Committee. I was surprised at it because I had had the opportunity to visit Hong Kong on a number of previous occasions. When I sat down opposite representatives of the Hong Kong Government, I rather felt as though I were facing not my allies but a foreign Government. With 1997 only 12 years away—I say only 12 years because when one looks back 12 years one realises how short 12 years can be—there was not the coming together of purpose that must develop between the British and Hong Kong Governments as the identity of interest becomes coincidental. The Chinese Government are both a Government of an independent territory and a partner Government in a joint agreement with us. I am aware of the high standards and good practices of those who participate in the Government of Hong Kong, and we were delighted that they were so helpful to us. I hope that my personal comment will be seen to be constructive. The Hong Kong Government may not have recognised their responsibility for the promotion of United Kingdom exports, but I hope that they will as we approach 1997. The Hong Kong agreement, seen from China, and as it should be seen from the United Kingdom, may not appear in the same light from Hong Kong, but I hope that the vision will shortly become the same for all three.

The Chinese certainly expect our Government to act vigorously as a constant partner in United Kingdom enterprises selling into China. The Chinese leadership is inexperienced in world trade practices. That is not a critical but a constructive comment. They certainly gauge the credibility of a foreign trader by their standards, and they study how the trader's Government help him to promote his products. The Select Committee has said without qualification that the visible and practical partnership rationale, including soft loans, should and must be a facet of growing importance.

Other hon. Members wish to speak, and they will no doubt enlarge on the 12 recommendations submitted in our report.

Mr. Bowen Wells (Hertford and Stortford)

From which budget does my hon. Friend see additional soft loans being made available? Is he thinking of the Overseas Development Administration budget, aid and trade provision assistance or some other source?

Mr. Warren

It is always nice when an hon. Friend reminds me of what I should say. I was about to come to that point, which is difficult to answer. Rather than decide from which budget the additional loans should come, all available Government resources, whether from the Export Credits Guarantee Department, ATP provision or whatever, should be considered together as total assistance. The various sources should not be presented as an obstacle course to British exporters. At present traders must often look into the ECGD or argue a case for a soft loan. We welcome the Government's recent announcement that soft loans will be granted to Indonesia, and we hope that that is merely the litmus test to prove that they work. One cannot ignore the way in which competitors and their Governments support their exports. There is no point in saying that that cannot be done, because it must be done, and we must get on with it without hesitation.

I must be daring and criticise my Government because I am a Select Committee Chairman. The Select Committee was dismayed at the statement on 10 July from the Department of Trade and Industry. Paragraph 3, dealing wih soft loans, states: Officials are discussing with the financial community what mechanism might be devised for providing soft loans. It will be some time before these arrangements can be finalised. There is no time. That must be done now. I ask my right hon. Friend the Minister for Trade to tackle the problem without hesitation, and to respond to that challenge today.

Mr. Tam Dalyell (Linlithgow)

During his interesting visit, did the hon. Gentleman hear about the work of the overseas projects board? Some hon. Members believe that the United Kingdom should give much more help to our overseas projects, considering what other countries are doing.

Mr. Warren

The hon. Gentleman refers to the point that I was making. The total available resources should be considered together rather than separately.

In the report's conclusions we stated the need for a positive commitment by United Kingdom companies, if they are to enjoy a share in the growth of the Chinese market. It is easy to pontificate, and I must declare an interest in that in the past I had a great opportunity, and much misery, in trying to export overseas. A previous Prime Minister said that exporting was fun, but the only fun that I found was when I succeeded, and that was less often than I failed. A long-term commitment towards China is needed. The Chinese like working with people whom they know. I recommend that British companies hang in there. Success will undoubtedly come when the Chinese become used to working with them and know about them.

It is essential that British companies send appropriate executives. The eager salesman will not do. They must send the sales director to China so that he may be given the appropriate introductions in China. Chinese business can be enhanced through a partnership with British business men. They should tour the various symposia which are organised, especially by the provinces in China. We visited Sichuan province, which has a population twice the size of that of the United Kingdom. I am fond of making the analogy that an increase of only 2 per cent. in the telephone lines in China would be equivalent to the whole of British Telecom. The opportunities are enormous and we should not merely consider the opportunities in the capital, the coastal cities or special economic zones.

The Government have a stronger duty than they may be seen to perform at present to collect intelligence information, as the Americans do. They have a stronger duty to fight to prevent people from stopping COCOM from exporting products which have no military significance to China. I am extremely worried at the rumours about substantial American computer companies engaging in sales drives in China. We fear that soon they will say that the items can be sold, and they will tell COCOM that they can be sold. By then we shall have been outflanked, and will be without a chance of bidding for the contracts, some of which are said to be worth $800 million.

COCOM is a voluntary organisation, which has no legality. It operates a sound principle of standing up against the dangers of exporting to Warsaw pact countries, but there can be no rationale for refusing to export commercial standard micro-electronic circuits, which can never be used in military applications, to China.

We recommend an increase in staffing and in the quality of staff available at our embassy in Peking, our consulate in Shanghai, and our representation in Hong Kong, which covers much of south China. Government support should follow trade opportunities. To look at the size of China through the eyes of the Treasury may be a myopia which cannot be tolerated by British exporters. The Government must recognise the opportunities and the rewards that can come from backing our exporters with the support and services that only they can provide, and that the Chinese expect to be available to our exporters.

One is amazed at the volume of work that our people in China carry out to support our Government. If the Government, even a non-interventionist Government, choose to play the part of entrepreneur, they must be the entrepreneur and not stint themselves. If ECGD cannot back projects exporting to China, Turkey or anywhere where somebody wants to give a company a contract, I hope that the Government will look at the market, go to the City and encourage merchant bankers who, I understand, are eager to have the opportunity to get in there and support the export credit guarantee business.

It is my belief that Her Majesty's Government can and must provide accelerators of opportunity. The British Overseas Trade Board is a good organisation which deserves more support. The Export Credits Guarantee Department, which we examined in detail, is also a good organisation that deserves more support. The Overseas Development Administration and all the other agencies are working effectively. One could criticise them in some detail, but we should like them to be seen collectively and to be assured that they have the support of the whole of Her Majesty's Government. I have referred to soft loans. I merely reinforce my request that they should be acted on as an opportunity without which British exporters will lose out in the short term, and riot just the day after tomorrow.

The United Kingdom is a great commercial nation. We are innovative and constructive. None of us is other than eager to prove our capability in competition and our competitiveness in price, quality and delivery. That we have made known to the Chinese. They would welcome a further demonstration of it not only through the products that they have already contracted but through further bids. They are well aware of our capabilities and eager to work with us.

I should like to place a challenge before Her Majesty's Government to respond equally, to play the part that they must play to represent our commercial strength without qualification or hesitation but with favour to all those who now take their exporting talents into the new world of opportunity that China offers us, a world where we can gain in employment and mutual profit, and above all where we can gain in peace between two nations that want to live together.

4.31 pm

Mr. Stan Crowther (Rotherham)

I am happy to follow the hon. Member for Hastings and Rye (Mr. Warren). It may be appropriate for me to take this opportunity, despite our obvious political differences, to pay tribute to his excellent work as Chairman of the Committee.

It has been obvious for a long time that British manufacturers suffer from a variety of disadvantages compared with competitors in most developed countries. Like other hon. Members, I have drawn attention to them many times in the Chamber. For example, despite certain recent changes, energy costs are still a disadvantage to British manufacturers. Again, despite recent changes in the rate between sterling and the dollar, exchange rates are still creating problems. Many industrialists assure me that the pound sterling is still grossly overvalued against European currencies, and it is in Europe that our main competitors are based. Interest rates are also an intolerable burden on British industry.

However, even if the British manufacturer can overcome all those obstacles, he is still up against the fact that the British Government do not provide him with the backing in the export market that most other Governments provide for their exporters. That is the essence of the debate.

I get worried about the extent to which the British Government take the holier-than-thou attitude—that we must never step one inch outside the rules of international trade, whatever others may do. I am not urging the Government to go around the world breaking the rules, but I wish that they were as expert at bending the rules as others. That is all that I ask. If we compare the attitude not only of this Government but of others over the years with that of the French, German, Japanese and American Governments, we find that we are always the righteous ones. The others do not care very much. If they can get away with it, they will break any rule in the book, to the enormous advantage of their industries. That matter should be seriously considered. I make that point not only in relation to China, but in general, although I appreciate that the debate is particularly about trade with China.

The Government should be very worried about the fact that West Germany is exporting almost three times as much to China as we are. If the Government are not worried about that, they should be. If they are, I hope to hear from the Minister what they propose to do about it.

During the detailed inquiry carried out by the Select Committee, we learnt about the immense opportunities for increased trade with China. I do not wish to repeat what was said by the hon. Member for Hastings and Rye in his excellent speech, but I agree with almost everything that he said.

Certain things need to be done. We made a series of recommendations in our report on which I hope action will be taken. I should like to quote just one example of the sort of potential that there is in China. The Committee was stranded for a day in Dalian in north China. It is a huge industrial city with a population of 4.5 million. We were stuck there simply because a bit of mist came down on the airport. It was nothing serious, but it meant that flying was suspended because there are no radar installations in the airport. I do not know whether the General Electric Company, Marconi or other British companies in that business, which are already established in China, have noticed that. If they have, I do riot know whether they have tried to do anything about it. Most important—I do not know this, either—if those companies have tried to do something about it, have they been stopped by the COCOM restrictions? That is the most worrying feature. On the wildest stretch of imagination, no one could pretend that putting radar into Dalian airport could present a military threat to Great Britain. To suggest such a thing would he ludicrous. That is an example of the sort of thing that is now worrying me about our failure so far to take advantage of the opportunities that are there.

Mr. Dalyell

I should like to reinforce my hon. Friend's important point. My constituents at Hewlett Packard, which supplies precisely such communications equipment, are extremely worried about that, and the chairman of the company, Mr. David Baldwin, has brought the matter to the attention of the Department.

Mr. Crowther

I am grateful to my hon. Friend for his comment. No doubt he will have noticed our recommendation on that point in the report.

One area in which China is most anxious to develop is railway transport. There are tremendous opportunities for British industry. After all, Britain used to be the world leader in the manufacture of locomotives and other railway rolling stock. It is not an awful long time since the railway and ring rolled products department of the British Steel Corporation in my constituency had a substantial export market. Regrettably, it has contracted now; but here is a tremendous opportunity for increasing exports in a big way.

I should like to know what plans British locomotive manufacturers are making in conjunction with the Government to break into and take a big slice of the Chinese market. If they are not making such plans, they should be. If the Government are not helping them to make such plans, they ought to be. The essence of what I am saying is that there should be partnership between the Government and industry, because on that basis we can succeed. Industry cannot go out on a limb without backing from the Government and expect to succeed, because it is up against the far more effective operations of foreign Governments who look after their industries much better than we look after ours.

I hope I am wrong, but my impression is that Ministers do not know and do not care very much about this great potential market. I see little evidence so far that they have taken it seriously. Indeed, I see evidence that they are not taking it seriously. An example of that is the reduction in the resources available to the British Overseas Trade Board. That has caused concern to many British manufacturers, not only in relation to trade with China, but in other connections.

The British Materials Export Group has expressed serious concern about the reductions in BOTB resources. A flat rate has been set for the next three years, but in practice that means a cut over that period. The view of the BMEG is that overseas trade fairs are the most effective means of supporting small and medium-sized firms in new markets. We heard evidence in the Committee that resources for overseas trade fairs have been reduced and, as the BMEG points out, it is small and medium-sized firms which benefit most from this kind of activity; they are supposed to be the firms that the Government are most anxious to support.

In a written question on 24 June 1985 I queried the action of BOTB in withdrawing from the Interbuild exhibition in Birmingham. That is an important exhibition for people in the building materials industry, and the organisers were hoping for a substantial inward mission of buyers from all over the world, including China. Our overseas posts were led to believe by the BOTB, right up to the end of March, that BOTB resources would be available to help finance this inward mission to the Interbuild exhibition. But at the last minute the board said, "Sorry, we have no money."

The written answer which I received from the Minister assured me that the decision not to provide British Overseas Trade Board support for the inward mission to Interbuild '85 was based not on eligibility but on the availability of funds. That is precisely the opposite direction to that in which we ought to be going. We should be putting more resources into this kind of promotion. I am afraid that unless there is a substantial change in the Government's attitude towards organisations like the BOTB, all the reports of Select Committees are going to be a waste of time.

What is going to be done about the size of our embassy staff in Peking? All the members of the Select Committee were alarmed to find that only five people were employed in the commercial section of the embassy. China is the biggest country in the world and it has an enormous potential market. I entirely support the hon. Member for Hastings and Rye in his praise of the staff. They are excellent people, but there are too few of them. As a result, they are not able to get around that huge country to look for opportunities for British business. They sit in Peking, mostly on routine 'work. We made a recommendation about that in the report, and I hope the Government will take it seriously.

What is the Government going to do to increase the number of Chinese students in British universities? I read in the "British Council News" in June about evidence given by the director-general of the British Council to the Foreign Affairs Select Committee. He was drawing attention to the fact that there are 10,000 overseas students in Japan, and that by the end of the century it is planned to have 100,000, most of them from south-east Asia. I am sure that many of them will also be from China.

We ought to pay more attention to the long-term benefits of having overseas students in our universities. The Committee drew attention to that in a previous inquiry in connection with the ASEAN countries. There is not the slightest doubt that a student who has had the benefit of attending a British university and who then returns to his own country, which may be China. Indonesia, Malaysia or wherever, is likely, when he attains a decision-making position, to be influenced in favour of the country where he received his advanced education.

Dr. Godman

I support everything my hon. Friend has said on the need to attract Chinese students to our universities. The obverse side of that coin is: how many British students are studying Chinese in our universities? How many of the members of our embassy in China are Chinese speakers? One of the most formidable barriers to the export of knowledge, which was mentioned by the Chairman of the Committee, the hon. Member for Hastings and Rye (Mr. Warren), is language. How many of our people in China are fluent in Chinese?

Mr. Crowther

I appreciate my hon. Friend's point. There are many Chinese speakers in the embassy. As to the other part of his question about the extent to which people in Britain are learning Chinese prior to going to seek trade in China, I cannot answer that. However, it is an extremely important question and I hope we can find the answer to it.

It has been said many times in this House that Britain, once the workshop of the world, is now, for the first time in its history, importing more manufactured goods than it exports. It was made clear to the Committee during a previous inquiry on trade with the EEC that that fact does not worry the Secretary of State, but it certainly worries many people. It worried the Committee and it certainly worries me. It worries people who take a responsible view about the future of this country. I am one of those old-fashioned folk who believe that manufacturing is at the heart of wealth creation. As we have established, there are enormous opportunities for British manufacturers to play a crucial role in the development of the Chinese economy, and that would be to the great benefit of both nations. If the Government fail to give British industry all the support they can in every possible way, the Government will not only have missed a great opportunity, but seriously neglected the national interest.

4.49 pm

Sir Peter Emery (Honiton)

The first two speakers in this debate so far and the report illustrate the considerable help that the fairly new structure of Select Committees can be in highlighting certain factors, not only for the House but for the country as a whole. The real benefit is that we were able to investigate with and talk to manufacturers and exporters in Britain. In China we were able to see what is being achieved and how, I am afraid to say, some things are not being achieved. We were then able to analyse why that is so, and investigate what can be done to improve the situation. Therefore, if ever there was proof of the usefulness of Select Committees, this report is it.

The greatest opportunity for British industry to expand its exports massively lies on the mainland of China, and I am sorry that British industry is not taking up the challenge. It is not often that a nation is given an opportunity such as that now available to Britain. I say that because, before the settlement in Hong Kong, Britain was, if not the least favoured nation, quite a long way down the league table in trade with China. But, since the Hong Kong settlement, the opportunities are greater than ever before. The reason lies not only in what Britain has to provide. Another factor is involved. The Chinese Government, having escaped from the Red revolution and having had many of the tenets of Marxist Communism questioned, are considering the trading aspects of a Socialist economy. The Chinese have seen the problems caused by Russian imports into their industry, and they do not want to see America and Japan taking the place of Russia as a dominant factor in their industry. For that reason, they are more than welcoming to Britain and to British industry. We now have a honeymoon period of perhaps 18 months or two years in which that will remain the position. If we do not grasp the opportunity with both hands, we shall be extremely foolish.

I reinforce the views expressed both by my hon. Friend the Member for Hastings and Rye (Mr. Warren) and by the hon. Member for Rotherham (Mr. Crowther). There are three factors that British industry has to understand fully if it is to gain Chinese business. The first is the importance of the financial package attached to any business that they propose. The second is the technological input of that business. The third is the training that that business can bring.

There is no doubt in my mind that Britain has suffered because the Chinese have not thought that the British Government were really keen on doing business with them. Britain is the only major country to have done nothing to provide any soft lending to the Chinese Government. Finland, Denmark and Italy all provide soft funding arrangements to encourage business. Those arrangements are tied to industrial expansion in their countries. Yet the British Government have done nothing. The criticism from the Chinese is understandable. Whether it be with Government funds or whether it is done with some of the International Development Association and International Bank for Reconstruction and Development lending that is available and much of which has not been taken up, the Government could take a lead in trying to ensure that British firms were encouraged to trade overseas.

The second factor that will benefit any company trying to do business with China is to show that it is willing to share with the Chinese the technology that it is bringing into China. The criticism that I heard again and again was that the Chinese told this to the Japanese and American companies, but that they did nothing. We must show that we are willing to share that technology—I am talking not about the highest-tech defence equipment but about medium and moderate technology which we have had for many years and which the Chinese will get in six or 10 years regardless of whether we help them. Why should not we help them and gain the industrial benefit?

It is obvious that we could take a lead in this way from some of our competitors, and I urge that it should go hand in hand with training. When we talk about exporting to China, we want to tie into the package the willingness of the exporter to take Chinese people and train them in marketing, in the technologies of the industry and in project management—a subject which they are still coming to understand. We should be offering the Chinese a degree of co-operation that they have not seen from many of the other firms trying to do business with them.

That ties in with the excellent contribution by the hon. Member for Rotherham about the need to ensure that we encourage Chinese students to come here. Nothing would please our universities more than to be given a little assistance from the Government so that this might be done.

I believe that the Government should be doing more, and I draw the attention of the Minister for Trade to an amendment proposed in the Committee but unfortunately not carried. It contains a considerable amount of sense because it underlines that aid ought to be tied to the business that we can obtain in China, especially in the next two years. If the Department of Trade and Industry cannot win the battle with the Treasury—it is not the DTI's wish not to get the money; the opposition is from what is frequently described as "the damned Treasury"—it may be that in conjunction with the Foreign and Commonwealth Office, even if the Committee's strong recommendations cannot be accepted, an expansion in aid to China could be made by the Government reallocating existing funds even if, for the next two years, it is done at the expense of the Commonwealth. I know that that will not be a popular suggestion, but we need to increase the aid that we give if we are to see the increase in industrial strength and the creation of wealth which will in turn enable yet more aid to be given. If we have not got that industrial strength, the amount of aid will decline. I have always believed in the advantages of tying aid to business.

British industry must realise the difficulties in its way. Reference has been made already to the language problem. In addition, the distance is considerable. Account must also be taken of the cost of living and maintenance in China. What is more, doing business in China is not simply a matter of getting hold of a potential customer and agreeing on a deal. One has to realise that central planning ministries have major importance. Further, the deal must be understood and accepted by the Treasury or the Finance Ministry. One has to realise that the deal must be acceptable to the Ministry with responsibility for the industry in question, and then one has to deal with the firm or organisation. That is why there is a time factor, and why many people have gone to China not understanding these problems and have come away disappointed. That is why it is important that we should spell out in the report exactly what has to be done.

However, I believe that the benefits are considerable. I believe that there is a special encouragement that the Chinese Government will be wanting to give to Britain in the next two years. They will riot give us anything—let us not believe that. It has to be a proper business deal. But I believe that, while in the past we have not been able to obtain the business, in future we will be able to do so.

I refer now to something which has not been mentioned so far in the debate, the aspect of joint ventures in China, which I believe the Chinese Government are very keen to stimulate involving the development of British industry' in China. I am not saying that we will be there for ever. I believe that, like most countries, in time the Chinese will want to take control of the totality of that joint venture, but if that joint venture is for a 10-year period or an 8-year period it ought to be a considerable benefit to Britain and, if properly structured, a considerable benefit to the firms that enter into it.

With regard to the great advantages and benefits that we have, we have Hong Kong business, which is already structured within Red China. I was amazed to find that some members of the National People's Congress of Red China had a visiting card giving the full title of a member of the People's Congress and another card which was the business card of a Hong Kong business man. Indeed, they were only too delighted to encourage one to come and see them and use their facilities for trying to do business in China. We have great friends in Hong Kong who are crying out to assist British business in parallel with their own expansion. But there is so much more that British business can do. Let us please realise the benefits that Hong Kong could provide as a permanent feature, enabling business to be carried on. That would help overcome some of the financial difficulties that people resident in the region experience in keeping full-time staff.

I believe that there is one factor that is an innovation. It is an innovation I welcome, and which should be trumpeted fairly hard. The Select Committee has decided to produce a guide, a small pamphlet. It will set out not the whole of the report but, as guidance for any person who wishes to consider doing business in China, the pitfalls, the advantages and many of the points which have been, and I know will continue to be, made in speeches in the debate.

I end as I began. The report is an illustration of what the Select Committees can do. We are innovating by producing direct assistance, as a Select Committee in the name of the House, enabling British business to achieve more exports. China is an area of great possibilities for expansion.

5.3 pm

Mr. James Wallace (Orkney and Shetland)

As the first Member to speak in the debate who is not a member of the Select Committee, I wish, I am sure on behalf of other Members not on the Committee to thank the Chairman and the members for this valuable report and to welcome the opportunity to debate it.

It has already been said that considerable importance must be attached to future trade with China, particularly because of its large market. I share the view of the hon. Member for Rotherham (Mr. Crowther) that it is a matter for concern, not complacency, that we are dipping into deficit on the balance of trade of manufactured goods. Because of the size of the population of China, there are clearly considerable opportunities.

I was a member of the all-party group which visited Japan in February this year. It was clear to us that Japan has recognised the potential of the Chinese market and is making every endeavour to take advantage of all the opportunities it offers.

We now have further opportunities because of China's open-door policy. We have reached an agreement with the Chinese Government on Hong Kong. As the hon. Member for Honiton (Sir P. Emery) said, our relationship with Hong Kong gives us particular advantages in being there on the doorstep, and we should take advantage of the settlement on Hong Kong.

There are particular opportunities for exports in high technology. China is in the process of modernisation. It is seeking to expand its telecommunications network. As has already been mentioned, it is developing its energy resources. The hon. Member for Greenock and Port Glasgow (Dr. Godman) referred to our potential, as a country that has already developed offshore oil resources, to export some of our offshore technology to China. When one considers the advantages Norway has taken from developing its offshore techniques. I sometimes regret that British industry has not latched on in the same way. None the less, there are still opportunities at home and, given the development of these technologies, for export to a very important market in China.

While there are obvious advantages and opportunities, there are also problems, some of which have already been mentioned. There is the basic problem of distance. There is also the question of culture—an oriental culture and a culture of a system based on centralised planning. The effort and time taken in achieving export orders in China will be much greater, for example, than is the case in trading relationships with our partners in the European Community. Nevertheless, I believe time and effort will be well spent. There is a tradition in the Chinese culture that, if a relationship of trust and good faith is built up and established, and a market developed over the years, they will be loyal to the products, if we give them high quality products.

The problem of language has been referred to. That is probably even more of a problem as one gets into the provinces of China and away from the main city centres. Japan clearly has certain advantages over us because of its proximity, and because it does not have quite the same language difficulties. The United States has certain advantages because it has within it second generation Chinese who perhaps fled from China but who are now going back with a knowledge of the culture and of the language. We can perhaps overcome some of our disadvantages by encouraging Chinese students to come and study in our universities. I think that that is one of the most effective ways in which we can promote trade in the longer term, as well as encouraging some of our students to learn Mandarin and Cantonese.

I do not want to overestimate the problem of language, but I discovered on my visit to Japan, and it may well be the same in China, that while in our embassy in Tokyo we have people who are very skilled linguists—and it is appreciated by the Japanese that those people have taken the time and effort to learn the language—they do not always have great commercial expertise. A lot more can be done to ensure that in the embassies, in particular in Beijing, our representatives not only are skilled in languages but also have a certain commercial nous.

The Select Committee report mentions the problems of exporting high technology, with particular reference to COCOM. There is no legal basis for COCOM and no treaty has been ratified by the House. Indeed, I do not think that COCOM's functions have ever been debated in the House. I have no doubt that there is merit in keeping from our potential enemies in the Eastern bloc information that is important to our security. However, the worth of an organisation such as COCOM must be called into question if it is abused by other countries. As the hon. Member for Rotherham said, we always stick to the letter of the law, but other countries manage to bend it. Sir Peter Matthews told the Select Committee: The goalposts get moved from time to time and they are usually moved by the Americans at strategic moments when they are just about to score a goal in the new position. The first four annual reports of the export administration division of the United States commerce department showed that licences issued for computers and semi-conductor manufacturing equipment and electric test equipment between 1981 and 1983 resulted in substantial exports from the Unted States to China, totalling $98 million in 1980, $117 million in 1981 and rising to $143 million in 1983.

We should investigate whether the United States has been trying to get round the COCOM rules to establish a market in China at a time when pressure was being put on British-based companies, such as ICL, not to export. The American figures do not show the multi-million dollar deals done by American companies on the very day in 1983 when the Reagan Administration announced a significant relaxation in what they were prepared to allow to be exported to China. That included one deal of $800 million.

My hon. Friend the Member for Yeovil (Mr. Ashdown), who has looked into the matter in detail, has established that the Foreign Office was not advised of that relaxation and did not know about it until April 1984. The House is entitled to ask why the Foreign Office did not know and what liaison exists with the Americans, with whom we are supposed to enjoy a special relationship, and between the Department of Trade and Industry and the Foreign Office. Our exporters have been blocked, whilst last year IBM took four floors in the biggest hotel in Beijing for two months to offer a full range of IBM machines to the Chinese Government and officials. That is scarcely fair competition.

The House will be interested to hear from the Minister for Trade how the Government view the COCOM arrangements. Will he explain what has been happening in trade with China over the past three or four years? Why does the United States always get away with it, at the expense of our industries? Can the Minister confirm that the COCOM agreement is to be extended to cover software, in which we have particular expertise, and thereby further hinder the development of our export opportunities?

I welcome the Select Committee's recommendation that there should be a liberalisation of COCOM rules for trade with China. It is important that the Government ease trade relations with China, particularly for trade in high technology, but they must take other action, including the provision of soft loans and assistance to enable our industry to seize the opportunities that are open to us.

Even a Government committed to the free market must realise that in trying to build up trade relations with China we are not dealing with a free market. The aid and assistance given by our Government must be commensurate with the size of the opportunities open to our exporters.

5.14 pm

Mr. Richard Page (Hertfordshire, South-West)

A much more illustrious public speaker than I—which includes most public speakers—said that if one wanted to get a message over, one had to be like a hit record and keep repeating the theme time and again.

I am more than willing to follow up the theme that I developed in an Adjournment debate in the early hours of 1 April when I stressed that there had to be greater support for British exporters if we were to stay in the world of the manufacturer and provide jobs for our people.

I welcome the opportunity to re-emphasise some of the points made in that debate, and I endorse the thanks given to the Select Committee for its report, which will be a valuable talking point and shows the direction that we should follow.

In the world of exporting, we take about 8 per cent. of the market, but we take only 1 per cent. of the Chinese market. As my hon. Friend the Member for Honiton (Sir P. Emery) said, we are not taking advantage of the tremendous opportunities that are open to us. We have recently gone into surplus with our trade with China, but the opportunities still stretch ahead of us and could provide us with almost an El Dorado if we make the necessary efforts.

We must be careful and clever in going into the Chinese market. My hon. Friend the Member for Hastings and Rye (Mr. Warren) said that the Chinese had poor purchasing skills. They have already spent up to the hilt in their 1985 budgets and they will have problems providing any more orders for the rest of the year. We know that there is a five-year plan in China. Only the companies that get in early in the game will get the contracts. Those that hang around or come in late and those whose Governments do not support them early enough will lose out.

I welcome the provision of the £39 million in the Estimates, but I doubt whether it will be adequate to tackle the whole Chinese market. Over the past few years, the Japanese have put £3 billion into that market The Japanese are good at exporting. They have taught us one or two lessons and we should be wise to take the hint from them.

We do not realise the problems and the competition confronting us. Recipient countries are demanding that a support mechanism, such as soft loans, should be put up front when the tender is submitted. I understand that the Indonesians have passed a decree that no company can pre-qualify for tendering without agreeing to 25-year loan terms, grace periods and certain interest rates. I understand that China is making demands for similar terms. I have some evidence that the Japanese are offering 30-year loan terms, seven-year grace periods and 2.7 per cent. interest rates. We must stop trying to match those offers and initiate offers ourselves if we are to get the contracts.

Efforts have been made in the City to produce a private financial package. I welcome those efforts with all my heart, but whatever financial mechanisms are developed for soft loans, I doubt whether private sector arrangements will be enough.

If we are to make a worthwhile impact in China, it will cost us about £50 million annually. The Select Committee has recommended that funds should be increased so that resources for China are not diverted from other markets. We have to retain a world presence as well as taking the opportunities in China. That implies that we cannot eat into the aid and trade provision of £66 million.

I emphasise what I said in my Adjournment debate. We must increase the flexibility of the aid and trade provision. It must roll on from year to year. and we must end the rigid divisions between sectors. We must not lose contracts because of various quirks of timing.

The Select Committee pointed out the value of establishing a presence in the Chinese market. It said: there can be longer term advantages of establishing UK exporters in a growing Chinese market, where the repeat orders can make the loss leading worthwhile. The value of additionality is not always fully taken into account when the Treasury does its tight and careful calculations.

The role of the British Overseas Trade Board in world markets has been mentioned. A striking fact is that the bulk of our overseas trade is in the hands of major corporations, but 80 per cent. of the users of the BOTB services are firms with fewer than 200 employees. The majority of contacts by the BOTB in 1984 were with small firms, which took advantage of the springboard offer to bring them into the export market.

We must make small profitable firms producing quality goods aware of the export opportunities and the services available. Too often when Ministers attend business functions they are told by small firm owners that they know nothing about the BOTB or about moving into the export market. In the next few years we must plan a modest increase in the BOTB's budget of £27 million a year to ensure that small companies are aware that they can almost piggy-back into the export market.

Earlier this month my hon. Friend the Under-Secretary of State for Trade and Industry said that 1 per cent. of our world trade creates 250,000 jobs. If we lose that world trade, the jobs will be lost. The converse also applies. For every 1 per cent. increase in our world trade, we shall gain 250,000 jobs.

The opportunity exists to do business with China. My hon. Friend the Member for Honiton made that point forcibly and ably. I welcome the extra support, but I hope for flexibility within the Treasury and the Department of Trade and Industry so that we can react quickly to opportunites to seize contracts.

5.22 pm

Mr. Tam Dalyell (Linlithgow)

I agree with the hon. Member for Hertfordshire, South-West (Mr. Page) that quick reactions and flexibility are of vital importance.

I echo what the hon. Member for Orkney and Shetland (Mr. Wallace) said about paying tribute, where warranted, to the work of our parliamentary colleagues on both sides of the House who are Members of the Select Committee. I willingly pay that tribute because the report that we are discussing is of high quality. It is clear that hon. Members from both sides worked hard on the report and when they were in China. Such trips are not joyrides but hard work. I thank our parliamentary colleagues.

I strongly agree with the Chairman about the need for old friends. I understand that one can get nowhere with the Chinese unless they are old friends. I organised and went with the Scottish Council for Trade and Industry delegation to China 15 years ago. It was the first delegation to go there. I might be asked why the Scots went. It was partly because some of us tried hard with Mr. Pei, the charge d'affaires. I shall believe until my dying day that there was some confusion about the Scots being like the Albanians—a small and oppressed group which should be encouraged. I do not kid the House when I say that we were taken to the Sino-Albanian friendship commune. It was a good delegation, which included Louis Portman of Leyland and a small mink farmer from Midlothian who is still in business. Since then I have counted myself as an old friend of China, albeit with ups and downs. That is my reason for taking part in the debate.

I could not agree more strongly with my hon. Friend the Member for Rotherham (Mr. Crowther) who eloquently expressed his feeling about the holier-than-thou attitude about which many of us have been worried for a long time. As my hon. Friend said, others seem to be more adept at bending the rules and cutting the corners than we are and we lose out time and again. That hits work and employment in Britain.

I wish to raise a specific point. Bluntly, I have a constituency axe to grind. Hewlett Packard has been in South Queensferry for two decades. Mr. David Baldwin and Mr. Denis Tompkins and their colleagues have pleaded with those who represent constituencies in which Hewlett Packard factories are based, and with the hon. Member for Wokingham (Sir W. van Straubenzee) who represents the area in which the firm has its headquarters, to do someting about the COCOM regulations. The subject was debated yesterday, and the Minister said: Exports to China were mentioned by the hon. Member for Dagenham (Mr. Gould) and many of my hon. Friends. We are playing a leading part in talks in COCOM … My hon. Friend the Member for Orpington (Mr. Stanbrook) referred to Professor Ashworth's letter, to which I shall of course reply."—[Official Report, Fifth Standing Committee on Statutory Instruments, &c., 17 July 1985; c. 25.] I tabled a written question yesterday to ask the Secretary of State for Trade and Industry, what conveniently available figures he has for the average time it takes a British exporter of high-technology equipment to receive a decision or a COCOM application, compared with the practice by Governments in Germany and Italy. The answer was: I regret that this information is not available. I make no complaint about that reply because, as I said on Friday, I am against asking questions which lead to statistics which are expensive to find. If I am told that it is too expensive to find an answer to a question, in most circumstances I accept that.

Reputable people at Hewlett Packard say that their German and French colleagues receive much quicker answers than we can expect here. They say that the reason might be shortage of staff in the Department, but, whatever the reason, we must react more quickly. This is an all-party occasion, and I agree with the hon. Member for Honiton (Sir P. Emery) and others that flexibility and quick reaction are of great importance.

I hope that the House will forgive me if I quote three of Professor Ashworth's arguments. He said: The British Government should urge COCOM to lift restrictions on trade in goods other than those which genuinely meet military applications. The word "genuinely" should be emphasised. He went on: The fact is that almost any civilian product or process technology could with time and determination be re-engineered to military use. But that is an argument for no trade and is being used to restrict market opportunities for British firms. If lines are to be drawn let the restrictions apply to technologies which realise military applications rather than ones which could inter alia enable such applications. Surely there can be no objection to that.

Professor Ashworth continued: Apart from trimming the lists to the minimum, the interpretations of whatever restrictions are agreed in the issuing of export licences should be liberal. The presumption should be that the trade should proceed unless a sound argument is advanced for prohibition. Are we sure that we do not tag on to the Americans from time to time? Professor Ashworth went on to say: The industry fears that the possible deliberate or inadvertent confusion and/or combination of COCOA restrictions with the US 'extra-territoriality' laws will operate to the detriment of UK industry interests. What is the Government's attitude? I realise, of course, that the Minister may be giving a thought-out reply in a letter to one of my colleagues. I should have thought that the right hon. Gentleman could have made some reference to this matter in his reply. It was obvious that it would come up in debate. I am aware also of the answer given in the other place to Lord Hatch.

I declare an interest in that I am a National Union of Railwaymen-sponsored Member of Parliament. I should like to follow what my hon. Friend the Member for Rotherham said about railway equipment. The Yugoslavs have signed a series of trade agreements with Argentina. Among the areas for planned trade and co-operation is electrification equipment for the Argentine railways. As these railways were originally built almost entirely with British capital and technology, there is a certain poignancy in this, although the decline of Britain's role in South America began long before 1982. I am not making too many assumptions about the conflict in the south Atlantic, although it had some effect on that decline.

The same goes for China. Many of the railways which we saw 15 years ago were British-made. Although the Chinese are developing a considerable railway industry, do we not have a part to play? To what extent were British Railways workshops consulted by the Government, as the Swindon works was, before its closure was announced, and other works would have been had there been any other Government? That is what the French and Germans do so differently.

Recently, the Siemens offshoot, KWU, agreed to build the second stage of the Atucha nuclear energy plant in Argentina with West German finance. That was not necessarily a project in which the United Kingdom could have been involved, but it showed how other countries are developing their trade with Latin America and China. We have heard that German participation in China is three times greater than British participation. How did that come about? It is heart-rending in view of the efforts that were made to establish a British presence in China when it opened up again in the late 1960s

Britain is now very much behind the rest of its European partners. The reason why Britain is very much behind has a great deal to do not only with soft loans but with the Overseas Projects Board. Following the comments of Mr. Roy Withers about Britain's willingness to give loans compared with that of our competitors, I asked the Minister in a written and an oral question about the Overseas Projects Board. What is the right hon. Gentleman's attitude towards that board? Are the implicit criticisms by Mr. Roy Withers justified? Is this a matter that we should examine? What is the board's role in relation to the Chinese?

One of the great universities of Europe, the university of Edinburgh, has a distinguished school of Chinese studies under Dr. Chinnery. As with many other departments, there is a danger that that department will be cut back and back. I know that the Minister for Trade is not an Education Minister, but I must ask him, given the special circumstances, the need to understand China and the need for certain British people to speak Chinese, what is the input of the Department of Trade and Industry into the question of university cuts? If we do not take this whole matter in the round and have an overall policy, Britain's trade with China, where our competitors are formidable and keen, will not get very far.

5.34 pm

Mr. Martin Stevens (Fulham)

My right hon. Friend the Minister for Trade has not invited me to help him to draft his speech in reply to the debate, but there is no reason why I should wait to be asked. My right hon. Friend will tell the hon. Member for Rotherham (Mr. Crowther) that our increased diplomatic staff in China has the best record of Chinese speakers of any mission in Beijing. He will refer to the reintroduction of the consulate in Shanghai. He will mention that, as a result of our mission, the Chinese Deputy Premier authorised his statisticians to sit down with our mission staff to reconcile the argument whether our trade was in balance with China or whether, as the Chinese claimed, there was a trading balance in our favour of £300 million. My right hon. Friend will tell us that money is invested in a new and improved transmission system in Hong Kong for the BBC. The quality of reception of Chinese language broadcasts was one of the deficiencies that was most frequently drawn to our attention. Nothing could less expensively increase our influence in the People's Republic of China.

My right hon. Friend will speak of the intention to increase the number of Chinese students in Britain and will point to the scholarships offered by Lloyd's of London. He will point to the significant increase—from a low base, it is said—in trade with China so far during 1985. I had better not go on or my right hon. Friend will sit in silence at the end of the debate, with nothing left to say. I have made those points because it is not right for us to act and speak as though the Government have done nothing and do not care about China. That is not so.

I should like a slightly different approach to be taken. I should like greater flexibility, as other hon. Members have said, in the Government's attitude to any overseas market. We shall be said to be besotted with trade with China because the Select Committee has just returned. People who visit another country always return home thinking that our relationships with that country are the most important items on the international horizon. Our commercial relationships with China is one of the most significant factors on the commercial horizon. I should like the Government to adopt a market-oriented approach to China and other countries, rather than what might be called, in a business, a product-oriented approach.

If one is going into the business of selling, the old adage—the customer is always right—is correct. We must tackle the Chinese market on the basis of meeting and matching their desires and not simply saying, "We have a lieutenant-colonel as military attaché in Paris. It would be embarrassing to have an officer of higher rank in Beijing." That stereotyped bureaucratic approach is the reverse of the approach that business people should adopt towards countries in which they want to sell their goods.

I should like the Government to consider new initiatives. One of the most important ways to enter the Chinese market is to offer to carry out a feasibility study. The United States will get the contract to build the new airport in the special economic zone adjacent to Hong Kong because it has spent $750,000 on a feasibility study. This is not a huge sum in political terms. Nevertheless, it is not a sum to be tossed lightly into the pot. Why are the Government not much more ready to provide the money for feasibility studies? Why do they not say, "If you get the contract, my dear fellow, we shall want our money back"? That does not seem to me to be a wasteful approach. Because of the way that they do business in China, not because of the way that we do business, it would help to bring in contracts that we should otherwise lose.

The hon. Member for Orkney and Shetland (Mr. Wallace)—I hope that I am not putting words into his mouth—said that the Chinese have the happy quality of not forgetting their friends. That is true. The only way for the British Government and British industry to approach the Chinese market is on the basis of a continuing relationship. My hon. Friend the Member for Honiton (Sir P. Emery) spoke of an eight or 10-year period. One ought not to look at this as quite such a brief flash in the pan. When we met him the deputy Premier referred to trade with China in the middle of the next century.

Sir Peter Emery

Indeed.

Mr. Stevens

What?

Sir Peter Emery

Indeed.

Mr. Stevens

I am so unused to the unstinted endorsement of my hon. Friend that I felt that I must have committed some blunder or social offence. I thank him for his endorsement. What was I saying?

Sir Peter Emery

Perhaps I may help my hon. Friend along the route of his argument. Reference was made to joint ventures. I suggested that even if joint ventures were for as short a period as eight or 10 years they were worth doing, but I endorse entirely my hon. Friend's point that they could continue for 30, 40 or 50 years. Trade with China will be very considerable. That was his line of argument when I so rudely interrupted him.

Mr. Stevens

Having tipped me off the rails, my hon. Friend has gracefully replaced me on the tracks. We asked the deputy Premier whether by the year 2050 the Chinese, having sucked in all the technological transfer that they so ardently desire from the West, would use their very low labour costs to "do a Japan" on us and flood western markets with their own products at a fraction of the price. He, like all the Chinese leaders that we met, was clearly aware of these anxieties and told us that, with a population of 1 billion, the overwhelming bulk of the goods that China produces in the next half century will be needed for the consumer requirements of the Chinese people. As a nation, China has a wretchedly low standard of living. Indeed, some of our Opposition colleagues were busily photographing their dwelling houses for use in their next general election addresses over the caption, "Thatcher's Britain". Much progress needs to be made before the living standards of the Chinese people begin to match those which we in the west take for granted. Their leaders know this perfectly well. Ours was not a political mission. It was no part of our job to talk about the political future of China. However, one may speculate about whether the present political institutions will remain unchanged at the end of 50 or 70 years of free enterprise economics.

The Chinese are making enormous efforts to welcome people to China from all over the world. In 1984 there were 12 million tourists, of whom 11 million were people of Chinese origin who were returning to China to visit relatives and perhaps to provide help. The building of new hotels was proceeding apace. It was almost a question of hotels being erected the day before we arrived to provide appropriate accommodation for us. As a team, the Select Committee is austere. For its members a bowl of lentils is a feast. Toss in a turnip and it becomes a banquet. However, some of the hotels in which we stayed in Communist China offered a degree of luxury, service, elegance and cuisine that I have never experienced anywhere else in the world. That may also be an attraction for some of our fellow countrymen for whom the fleshpots hold out a greater inducement than they do for parliamentarians.

The Chinese were very explicit about the list of goods that they hope to sell in Britain and the list of goods that they hope to buy from us. They want to sell electrical machinery, motors, generators, hand tools, labour-intensive goods that we on the whole are gradually ceasing to produce, cotton piece goods, tea, bristles, rosin, textiles, tungsten, minerals, such as antimony, rice and canned vegetables. They are already buying coal mining equipment and know-how, aircraft and offshore oil expertise, but they want to buy 300 Mw and 600 Mw power stations, rubber goods—I cannot supply the details—and telecommunications goods. There is no reason why our Government cannot make sure, as no doubt they have already made sure, that the people in this country who deal in such goods know that these items are desired by China. However, several major British firms that are involved in the activities in which the Chinese are interested do not appear to have visited China, and their absence was sorrowfully commented upon to us by British business men who are already in China.

I said earlier that I should like the Government to be imaginative and flexible when responding to the special needs of the Chinese market, and I mentioned the funding of feasibility studies. One might also mention the emulation throughout the Pacific basin of the Japanese trading house system, which has been so successful and which has brought into those markets many firms that are too small to enter them on their own. The Chinese do not expect British business men to outsell their rivals on every point. We must be price competitive. They told us that the French are the most expensive but that we run them a very close second. We must offer soon to China some form of soft financial provision. We must also offer to transfer know-how and technology. We are very good at that. We are much more liberal than some of our competitors in those matters. From that it follows that the firms that are most likely to build up and sustain long-term relationships with our Chinese friends are those that are developing new technologies every year. There is nothing new in that as a system but it is new for the Chinese. They accept that we shall sell them last year's know-how while we are ourselves perfecting next year's. There is a great deal of scope and long-term opportunity for those who grasp that point.

I should like to add a few words about the Chinese as people. They certainly think of us as people. They have not, over the centuries, been any too keen on foreigners, but now that circumstances compel them to open their doors to foreign business people they are beginning to compare us with the others who are entering their markets. We shall be comparing them with others in whose markets we are trying to sell.

The Chinese are extraordinarily tough in bargaining but extraordinarily agreeable as human beings. Their sense of humour is comparable to ours. Even in Beijing, which is the most Communist city, where the little blue suits, caps and macs are most frequently seen as the uniform of all men and women, the children are beautifully dressed and cared for. If sentiment were to be our only guide, there would be even more reasons for seeking to do business in China than those to which reference has been made in the debate.

The Select Committee, as has been kindly said by colleagues who were not members of it, worked very hard. I endorse everything that was said in the magisterial opening statement of our Chairman, my hon. Friend the Member for Hastings and Rye (Mr. Warren). I hope that the debate today will be heard and echoed among those who it is most important should respond actively and positively to what we are saying in the House this afternoon.

Several Hon. Members

rose—

Mr. Deputy Speaker (Sir Paul Dean)

Order. The wind-up speeches are expected to begin at 6.20 pm. There are four hon. Members hoping to speak. I hope that they will co-operate so that they can all be called.

5.53 pm

Mr. Barry Porter (Wirral, South)

If I cannot be brief, Mr. Deputy Speaker, I will be as rapid as possible. It is always a great pleasure, if not a challenge, to follow my hon. Friend the Member for Fulham (Mr. Stevens) whose erudition and depth of detail in research are an example to every hon. Member.

While I concede that there was an element of work in our trip to China, I rather enjoyed it, and the bowl of lentils and the odd turnip were not obvious to me by their presence. There were many 13-course banquets. If my hon. Friend casts his mind back to Canton, Shanghai and other delightful places, he might just recall the odd sea slug and other things that we enjoyed at that time.

On the general question of public expenditure, which is what the debate is supposed to be about, I might be regarded as a hawk rather than as a dove and as a dry rather than as a wet. I fully recognise the need, in the context of the Government's financial strategy, for restraint and for resistance to special pleading, except where there is a medium-term or long-term benefit to the economy from that public expenditure.

In the past we have all seen mountains of public money thrown at various industries here or abroad that were either dying on their feet or had gross over-capacity, and could not possibly ever again achieve a competitive position. Often that expenditure has been justified on social grounds, but in my judgment the reasoning has been essentially short-term, without any hard thinking about the longer future. Surely it must be much more sensible to invest public money where there is a likelihood of success than to use money that we can ill-afford in trying desperately to stave off failure. I make those general points in relation to my own attitude only to indicate that I have taken considerable persuasion to reach the conclusion that the Government are spending too little in developing our trade with China.

In so far as anything is certain in this uncertain world, first, it seems to be true beyond peradventure that there is a huge market in China of which at present we have far too small a share. Secondly, that market is growing rapidly as the present Chinese Administration expands the economy. Thirdly, other countries have realised the potential and have decided to put their money where their mouths are and, as a result, are obtaining footholds in that market. It will be very difficult to supplant them once they are established.

Whether the companies involved are admitting any profit in the ventures undertaken up to now is a matter for conjecture, but certainly the companies and the Governments concerned have made a judgment that returns in one way or another will be there in the future. That is especially true of the Japanese but equally Of various European countries, even Denmark.

If we stand back—here I agree with the hon. Member for Rotherham (Mr. Crowther)—and take a lillywhite attitude to providing soft loans, cheap credit or whatever is the description, my judgment is that in 10 or 20 years—and I gather that the hon. Gentleman agrees with me—we shall bitterly regret it.

If in some other way British industry and trade could establish itself in China without Government assistance, I should be delighted, but, to coin a phrase, there is no alternative. If we take the long view, a partnership between British industry and the Government in China can and must be the only way. I think that the Government have come to recognise that. Their recent decision, on similar arguments in relation to Indonesia, as the Chairman of the Select Committee pointed out, underlines the point that the pragmatic approach to rapidly expanding markets is already Government policy.

Obviously, the detail of a soft loan policy is a matter for discussion. I hope that it would not take the form of general cheap credit. I hope that it would be on the basis of stringent examination of individual ventures, which should pass the test of ultimate profitability.

There are, of course, risks and difficulties, not merely economic but political as well. If I may take issue with my hon. Friend the Member for Fulham, I think that it is the responsibility not only of the Committee but of the House to try to make some judgment about the political future. The open-door policy has been of relatively short duration, certainly in the Chinese scale of thinking. When we inquired about China's population control policy, we were told that it had been decided to bring down the population from 1.8 billion to between 600 million and 700 million in the year 20400. We said, "Surely you mean 2040," and they said, "No, we mean 20400." That is the scale of thinking; that is the time scale in which they see the future of their country. Ten years of an open-door policy and of an expanding economy is like a flash of light.

I shall not enter the game of Chinese euphoria, but the open-door policy and the policy of general economic expansion have already run into some trouble, and there is no point in British industry and the British Government not being aware of it. The scope and the pace of the reforms are already being re-examined.

Imports of refrigerators, cars, television sets and motor cycles are apparently, according to recent reports, clogging the seaports. Railways are so seriously congested that there are grave coal and steel shortages. One factory in four throughout China is idle because of electricity cuts. It seems clear that there will not be an easy progression of 7 per cent. a year of economic growth. Even an old horse like me is willing to urge the Government to spend more money supporting British industry and trade because the Chinese leaders accept that there are difficulties. In a conversation with Trinidad's Prime Minister, Deng Xiaoping said that, although there were difficulties, I believe that our policy will succeed. If one method proves ineffective, another will be used. I was sceptical about whether Chinese political society will be such in the next 10 years that people can expect a return on capital. Having met people in China, I believe that there is such a prospect, in spite of the difficulties. It would be entirely wrong not to expect difficulties—there could be difficulties for a considerable time. We must bear it in mind that a society that has already turned 180 deg in the past 10 years could quite possibly turn another 180 deg in the next 10 years.

Even the special economic zones are not terribly successful at the moment. We went to Shenzhen, which is now described as an experiment, although it was not so described previously. Only one third of production is being exported, and investment has been terribly disappointing. Moreover, the area is notorious for its currency black market and smugglers. It sounds just like the West, doesn't it? Whatever the difficulties, however, there is enormous potential. We should not think that British industry and trade will be transformed overnight, because it will not be. However, given the circumstances that I and others have outlined, the Government have a duty and a responsibility to do something quickly.

When I look at the Estimates, which are supposed to be the basis of this debate, I see that we are not spending much, not merely on China, but on anything. The sums involved seem, even to a wicked old monetarist like me, rather like back pocket money. I can think of ridiculous things on which we spend money, yet cases such as this deserve money but do not get it. If I am asked to pick a figure out of the air, I would say double it for starters and see how we get on.

6.2 pm

Dr. Norman A. Godman (Greenock and Port Glasgow)

I am not a member of the Select Committee and I should like to offer my compliments to the Chairman and his colleagues on producing a useful report with sensible recommendations. I hope that the Government will examine it most carefully.

I should like there to be a growth in our trade and friendship with China but I cannot foresee the day when lots of Chinese fishermen fish for salmon on the Tay. Of course I should like more Scotch whisky to be exported to China. I should like other indigenous products such as salmon and knitwear to be exported there, but I shall confine myself to the offshore oil and construction industry. I should like to hear what the Minister has to say about the prospects for that industry in the growing Chinese market.

The offshore oil and gas industry is a significant element in the Scottish economy, and hence in the United Kingdom economy. The industry will have to continue to change rapidly if it is to remain the wealth earner and employment generator that it is at the moment. Scores of thousands of people in Scotland are employed in the industry and the emphasis will have to switch to export-led demand.

Our yards are now among the best in Europe. I include in that Scott Lithgow, which is in my constituency, UIE, which is on the Clyde, and Methil, which is in the east of Scotland. We now have the experience and knowledge to seek exports to China, and we need as much help as we can get from the Government. I appreciate the work being done by the Minister of State, Department of Energy, the right hon. Member for Kincardine and Deeside (Mr. Buchanan-Smith), who has made at least one journey to China in an attempt to increase exports.

Because of developments in our offshore industry, we must develop our exports. Scott Lithgow and Ferguson's in my constituency are actively involved. Ferguson's has just won a remarkable export order for two offshore supply vessels for Canada to work in the Beaufort field. The management and work force of Scott Lithgow are at one in their endeavour further to develop work in the design and construction of semi-submersible rigs. What are the prospects for such structures in the Chinese offshore industry?

As Scott Lithgow is a front runner in that technically advanced field, it is essential that it is given all possible aid to sell its products in China and elsewhere. The managing director, Mr. Fudge, who is perhaps the most inappropriately named manager that I have met—there is nothing soft-centred about this laddie—and Mr. Duncan McNeil, the convenor of the shop stewards, are working in the closest co-operation further to develop the reputation of the company.

What are the Government doing to encourage the export of such structures, not the intellectual property which goes with the design and construction of them? It is an important industry to Scotland and hence to the United Kingdom. It is essential that that export market is developed in the next 20 years.

6.8 pm

Mr. Michael Morris (Northampton, South)

I too am not a member of the Select Committee and would like to compliment the Committee on its report, not least because it is succinct and makes clear recommendations. I shall not repeat what I said on 5 July.

Since I have been a Member of Parliament, we have had major export drives to the Soviet Union, when Lord Wilson of Rievaulx was Prime Minister, to Iran and to Nigeria. All three of those have gone wrong, but for different reasons.

My plea to my right hon. Friend, therefore, is that we treat trade with China as a topic on its own. We should give it its own budget. We should analyse the work that is put into that trade and what we get out of it. Nigeria went foul on us and every other export market suffered. If something goes wrong with the China trade other export markets will suffer. If we get our act together—the report helped to pave the way—I hope that whichever Prime Minister and Government are in power in five years' time will see the success that follows from a concentration of resources and good marketing and agree to make resources available for other world markets.

I know Singapore reasonably well. We have worked closely and successfully with the Chinese there. The same applies to Hong Kong. No one has as good an entreé to Hong Kong as we have. We should be able to do something there.

Paragraphs 58 and 59 of the report say a great deal about soft loans. It is not surprising that we have difficulty competing with Japan, Belgium, the Netherlands, Denmark, Germany, Austria, France, Sweden and Italy. They all give soft loans and we do not. I am a member of the Public Accounts Committee. Problems of overexpenditure and funding come before that Committee. I should like to see a report from the Comptroller and Auditor General illustrating the competition that we face as a result of other countries offering soft loans. We must have a significant soft loan budget for China. That budget must be allowed to be rolled over. The Public Accounts Committee recommended that the defence budget be rolled over. I recommend that a soft loan budget be rolled over.

We must be able to make decisions reasonably quickly. I am not asking for decisions within one, four or eight weeks—they should not take more than eight weeks—but at the moment we go on, month in month out, waiting for decisions. My right hon. Friend will not want me to mention a certain dam.

The Minister for Trade (Mr. Paul Channon)

My hon. Friend will be pleased to know that good news is on the way.

Mr. Morris

That is even better. Soft loans are the key to improved trade.

The Export Credits Guarantee Department is important. The Public Accounts Committee received written evidence from Northern Engineering Industries plc. I shall quote one sentence: The crucial requirement for success is that the supplier should be internationally competitive in cost terms to exactly the same extent as his competitors. Northern Engineering Industries plc said that it would not have obtained £500 million of business if it had not had support from ECGD. That was good hard evidence. It is rubbish when Mr. Byatt and his colleagues say in their report that there is no evidence of a follow-on employment benefit.

I am sorry to have to mention the Bosporus, but I have a letter from a friend in Bedford who says that as a result of failing to secure the second Bosporus bridge and the Saudi airport terminal contracts, 50 redundancies are being made at Redpath Dorman Long. The key point is that that company is to be wound up and the staff and expertise in that hitherto British-dominated specialty in world terms disbanded. We cannot afford such things.

My hon. Friend the Under-Secretary of State for Trade and Industry told me in an Adjournment debate that each 1 per cent. trade gain or loss represented 250,000 jobs. That is a sign of how important our export trade is. One GEC major contracting subsidiary had 7,000 suppliers. The majority of those suppliers are in the black country, the north-west and the north-east. That is why capital goods companies are vital to this country's future prosperity.

My right hon. Friend must respond to the report within 60 days. The recess is ahead of us. I am sorry to make him work ever harder than he normally does during the recess, but I should like to see the response in a form different from that which is normally made to a Select Committee report. I should like to see a marketing plan for exporting to China as the response to this imaginative document.

6.14 pm

Mr. Mike Woodcock (Ellesmere Port and Neston)

As the Committee's final contributor this afternoon. I realise that, having only five minutes in which to speak. I must be brief.

China is committed to fast economic growth and peace. It is presently undergoing a controlled revolution which will be more far-reaching in its effects than the cultural revolution. Whilst China remains a Socialist country—if Socialism means the state ownership of the means of production, distribution arid exchange—it is also a country where collectivism, central control and doctrinal Communism are being rapidly replaced by individual responsibility, the profit motive and reward for effort.

Capitalist principles are being applied and the economy is taking off. People are becoming more prosperous, and that heralds tremendous opportunities for British exporters. We have already heard about many of those opportunities—raw material development, transport, commercial services, tourism and consumer goods. They all provide opportunities for British exporters.

Whilst I was in China, I kept an eye open for export opportunities for people in my constituency. They were many and varied. Companies in my constituency have a great deal of expertise to offer on oil exploration. We can offer refining equipment—even second-hand refining equipment. We have a redundant refinery which could easily be sold to the Chinese. We can assist with lead additives. The Chinese Government have not been as foolish as our Government in seeking to take lead out of petrol. The Associated Octel Company has already made plans to attend the trade fair in Peking. It hopes to do substantial business there.

Nuclear enrichment offers opportunities. China has a booming nuclear industry and nuclear power generation requires enrichment. We have an enrichment facility. We have already signed contracts with the Soviet Union, and I am sure that similar contracts could be signed with China.

There are opportunities for chemicals and fertilisers. Chinese agriculture is booming. There is an enormous need for chemicals and fertilisers and for the plant to manufacture them.

We have a great deal of coal expertise to offer. China has a great deal of coal to get out of the ground.

Even in an industry as outdated as water transport, we have something to offer. The Chinese need to develop water transport to move raw materials to the industrial centres.

Those are some of the opportunities available to firms in my constituency. Those opportunities are repeated hundreds of times across the country. If we could ensure that everyone who goes to China returns to preach the message of the opportunities available, British industry would see that they are tremendous.

We have heard a great deal about the barriers to trade in China—the distance, the difficulty of the market, the need for long-term commitment. the high cost of offices and hotels, the poor telecommunications, the Government's unwillingness to provide soft loans—although I note what my right hon. Friend has said—the difficulties faced by commercial staff in our industries and the COCOM restrictions. Despite all that, business could do a great deal to capitalise on the available opportunities.

Some large companies are doing well. Members of the 48 club are doing well. All companies that wish to export to China must recognise that country's different cultures and values. Those companies must be prepared to go there and negotiate locally over a long time scale and to maintain a local presence. They must be prepared to take advantage of the unique joint venture arrangements in China and of the special economic zones. If they do that, they will soon reaise that China can be an excellent base for exports to all the countries in the far east.

Only three hours ago I talked to Gerry Boxhall, the chief executive of Vickers Defence Systems—a company that has concluded many successful deals in China—and he is flying to Peking on Saturday to talk about a possible joint venture. I asked him what advice he would give to British exporters, and he said that four things are essential. First, take time to ensure that one deals with the right man. It is easy to choose the wrong man and to spend a long time going down the wrong tunnel. Secondly, find out what the Chinese want. A company should not enter China with its perspective of what the Chinese want; it should listen to them. Thirdly, as has already been said, send the top man. The Chinese will not do business with anyone other than the top man. Fourthly, beware of "Mr. Fixits"—the many agents who purport to be a good link between Britain and China.

What can the Government do to help? We have already heard a plea for increased staff in the commercial section of our embassy. It is absurd to have only between five and seven commercial staff in Peking to service a country' that has 25 per cent. of the world's population. It is also absurd to have only three British members of staff in Shanghai to service an area that is bigger than the EEC. The Government should also press to liberalise COCOM rules. I say no more about that, because it has already been mentioned several times. The Government must provide soft loans to China. In that respect, we welcome what the Minister said. Perhaps through our embassy, the Government could do something to provide collective office facilities in Peking from which small business men can work without having to pay the high costs of offices there.

I end with a warning. China needs technology, and we need profitable exports. We have the basis of trade to our mutual advantage. But some—perhaps the cynics—may say that the Chinese want cheap, or even free, technology transfer, capital goods at uneconomic prices and soft loans on extended terms, which almost mean payment out of profits. It could be argued that, if we are not careful, we shall export technology on terms that destroy jobs in the United Kingdom for little commercial gain. United Kingdom firms may be lured into uneconomic business, believing that a foot in the door will lead to profits later. However, that door may be closed when the transfer of technology is completed.

My visit to a Shanghai factory, where workers were earning less than £30 a month producing shirts with Van Heusen labels, gave me a vivid insight into the possible effects of technology transfer on British jobs. I offer those thoughts not as a deterrent, but as a warning to companies to ensure that the business they do in China is profitable and advantageous to them and to United Kingdom interests.

In the long term, Britain can compete with China only if it is ahead in technology and if it has better management and marketing skills. Let us look to China with optimism, but with realism.

6.23 pm

Mr. Bryan Gould (Dagenham)

I, too, congratulate the hon. Member for Hastings and Rye (Mr. Warren) on his report and on the speech with which he opened the debate. It has been universally agreed in the debate that the report is valuable and has been an extremely useful spur to a greater and proper recognition of the immense opportunities offered by the Chinese market. Many contributors to the debate bore witness to the immensity of that market, to the prospects for growth and to the political changes, which mean that there is a new readiness to open trade doors.

In 1978, I had the good fortune to visit China at an interesting moment in its history. The cultural revolution had just ended, and Deng Xiaoping had not yet properly asserted himself, but there were extremely high hopes about the prospects for trade with China. It must be said that, almost immediately, those hopes were dashed. For about three years after 1979, trade with China suffered severely. The Select Committee report makes clear that Britain now enjoys only 1 per cent. of the Chinese market for imports.

That is worrying, because Britain of all countries should have the inside lane. We have a long involvement with Hong Kong which, in turn, gives us a privileged commercial entree. In the wake of the political agreement to settle the future of Hong Kong, we bask in the warmth of a new glow of friendship and approval from Peking. It is entirely appropriate that we should now try to reverse what is, in all conscience, a disappointing trade performance so far. I am sorry to disturb the welcome, all-party consensus that has dominated the debate, but it must be said that that disappointing performance is of a piece with our general trade performance. My hon. Friend the Member for Rotherham (Mr. Crowther) and others have said that. from 1983 onwards, we have had a deficit in our trade in manufactured goods that is growing rapidly and disastrously.

The report makes clear that British industry could do much for itself. I am sure that industry' will read the report with interest, and will look forward to receiving the handbook which, interestingly and innovatively, the Select Committee intends to produce.

However, the debate is primarily about the Government's responsibility for promoting exports to and trade with China. I am in a slight difficulty here, because whenever I tax the Minister with the fact that our trade in manufactured goods has declined, he usually replies, "What are you worried about? We are balancing our trade. We could not continue to produce goods and rack up great surpluses. In any case, the Government can do nothing about the loss of trade in manufactured goods."

The Government are being inconsistent. On the one hand, they argue that the decline in our trade has been the inevitable consequence of North sea oil and other factors. On the other hand, the Minister and others rightly lay considerable emphasis on the need to improve competitiveness and productivity. What is the point of doing that if no improvement in our trading performance is possible? However, if it is possible, by improving competitiveness and productivity, to improve our trading performance, those are matters for which the Government must take some responsibility.

On export support and promotion, the Government's position is sometimes similarly confused. On the one hand, understandably, and with the support of most hon. Members, the Government express outrage at an episode such as the loss of the Bosporus bridge contract. On the other hand, the Government, wedded strongly to their free market ideology and their dislike of subsidy and public spending, are tempted by the thought that they should stand aloof from efforts to support our exporters in those difficult markets. From time to time, there is a worrying element of what one could call unilateral disarmament in the Government's position.

The Select Committee has served a useful purpose in drawing attention to the undeniable fact that such a policy will get us nowhere in our trade with China. For the Chinese, soft loans and extended credit terms are essential. They are an intrinsic part of the deal, on the basis of which the Chinese will decide whether to give business to us or to our competitors. With the Select Committee, I welcome the belated step the Government have announced that soft loans will be extended to China. However, we must remember that that step will be taken within the present limits of the aid and trade provision. Therefore, it is a diversion of resources rather than an increase. Aid will be provided on existing terms, which in many cases will not match those offered by our competitors. As the hon. Member for Hastings and Rye said, there seems to be a lack of urgency in introducing the new regime. I urge the Minister to make clear that he sees the urgency of what is required and that he will move rapidly to make sure that our exporters are not at a disadvantage in this important matter.

The problem for the Government is that some years ago they commissioned the Byatt report, which was produced from within Whitehall. Although the report was published, it was never debated. It purported to show that there were serious lapses in the reasoning to support export promotion. Its conclusion was to the effect that such promotion was undesirable and probably unnecessary and impracticable.

Understandably, that report created anxiety and led to some uproar among the business community. That must have been increased by the signs that the Byatt report philosophy had taken root to some extent. For example, the Chief Secretary to the Treasury, in a speech made over a year ago to the association of engineering employers in the west midlands, referred to the report in approving terms.

However, what seems acceptable to civil servants and Ministers does not necessarily commend itself to firms engaged in the actual business of trying to obtain such orders. Not surprisingly, industry has reacted strongly, sharply and critically to the Byatt report. The Government's own Overseas Projects Board published its fourth report in April this year. It said that the Byatt report was "seriously flawed". It continued: recently we have become very concerned at the Government's apparent ambivalence as reflected in delays in handling ATP cases, some curtailment of the ECGD's facilities and pressure on ECGD to adopt a more cautious attitude to 'country risk' than that taken by many of the UK's competitors. These developments leave a feeling that the Government may not fully understand industry's needs and serve to undermine confidence". That body was set up by the Government and consists of leading industrialists and financiers, so it is not normally critical of the Government. Therefore, I trust that the Government will take some notice of what it had to say.

Mr. Wells

What does the hon. Gentleman understand by an increase in soft loans and the place in the budget from which it comes? I understand that the Labour party believes that the ODA's budget should be expanded and that the ATP should not take an increased share of that budget. I understand that his proposal, and what he is approving, is an expansion of the ATP, but without expanding the ODA budget. In that case, we shall be in serious difficulty in other sectors of export support, as 70 per cent. of the ODA's bilateral budget goes to the acquisition of British goods and products.

Mr. Gould

The hon. Gentleman is right to draw a distinction between the ODA and the ATP, but I assure him that, while we would wish to see, and have argued persistently and strongly for, an expansion of the ODA budget, we are entirely in support of industry and many of the bodies that I am about to cite when we say that an increase in the ATP is also required. I hope that there will be no misunderstanding on that.

After the Overseas Projects Board report, the next blow was struck by the National Economic Development Office report, which was a response to the Chancellor's challenge to produce some evidence of follow on. That report is a full and detailed rebuttal of the reasoning underlined by the Byatt report. It gives in more than adequate detail, chapter and verse, example after example, of follow on business being obtained. For example, Balfour Beatty in Indonesia, with the aid of £15 million worth of provision, has secured over the past 12 years £317 million worth of business That point is reinforced by the Select Committee when it emphasises the need for British firms not just to fly in and out of the market but to stay in it and expect to develop business over a long time.

The next response from industry was the formation into a group of 13 major British contractors employing 394,000 people, and underpinning thousands of sub-contracting firms and all the jobs that depend on that. The group has been brought into being to make the case for this form of export support on the ground that it is the essential element in obtaining an important part of the business on which they depend.

What is now needed—here I am happy to echo points already made—is for the Overseas Projects Board, the major British exporters and everybody else who has looked at the subject to agree on a substantial increase in ATP. We have to get away from the idea that we are talking about subsidy when we are talking about an essential Government effort to match what other Governments are doing to support their industry. The Japanese have an ATP budget of 40 times ours. Even the French have a provision that is 10 times as great as ours. In 1984–85, it is estimated that ATP of £59 million produced orders of £222 million. That is good value for money in anybody's terms.

As the hon. Member for Northampton, South (Mr. Morris) said, it is nonsense that accounting rules prevent us from spending money that is available under this provision. We need a roll-over provision because I understand that, over recent years, £16 million worth of this provision has not been spent, and that is nonsense.

There is also the point, made by Conservative Members, that we need to initiate the provision of help. Too often, we send our exporters into battle inadequately armed. They go in and get some interest in a contract, but then they have to come back to ask whether they can match the terms offered by foreign competitors. That gives a bad impression to start with, and inevitably leads to delay and catching up because we are lagging behind.

Something has to be done about procedural delays, as is universally agreed. There are too many bodies in Whitehall tossing ideas backwards and forwards. We had the disastrous experience of the Bosporus bridge contract.

We looked to be in danger of repeating that experience with the Samanala Wewa hydro-electric dam in Sri Lanka. I know that the Sri Lankans are keen that British firms get that contract, but there is a danger that we shall lose it. I was delighted to hear the Minister's cryptic intervention. I hope that he has some good news for us and that that good news has not come too late. It is running things rather tight to have left that project to simmer away in Whitehall for so long. It would be useful if the Minister could tell us what is happening to the shake up of the export promotion effort, which was written up in one of the Sunday papers about four weeks ago and on which we were promised results by the end of the month, although these have yet to come. Is there more good news in the pipeline?

The ECGD has faced difficult trading conditions, and unnecessary political uncertainty engendered by the process of the Mathews report and the internal departmental report, and so on. Industry is clear about the fact that we need more resources for the ECGD, particularly for its ability to cover things such as tender for contract cover.

As the Select Committee points out forcefully, there is the problem of the reduction in real terms of the British Overseas Trade Board's budget. That is a strong example of penny wise, pound foolish and it calls into question the Government's seriousness of purpose when they are willing to cut the budget of the major body designed to encourage British exports.

As a former second secretary, commercial, in our embassy in Brussels, I have considerable sympathy with the Select Committee's strictures about the staffing of our embassy in Peking. Five to seven commercial staff is simply not good enough. Three full-time staff in Shanghai is ridiculous for an area as great as the EEC, as hon. Members tonight and the Select Committee have pointed out

There are other matters. One could go on with a long list, starting with the BBC external services and Chinese students coming to Britain—all important projects through which we could engender the relationship with China that would make the task of our exporters so much easier. Unfortunately, yet again the Government are cutting back the budgets for those projects, and doing so quite unrealistically.

I have only a minute to deal with the important and vexed question of COCOM. We had an excellent debate in Committee yesterday on this subject. The Minister for Trade was kind enough to say that he recognised the force of the argument that the rules of the COCOM arrangement should be substantially relaxed in the case of China, something for which my hon. Friend the Member for Linlithgow (Mr. Dalyell) argued forcefully. I am glad that he is aware of that point, and is negotiating even now to secure that relaxation. The problem of trade with China consists of all those matters, and the underlying lack of competitiveness of British industry. As the Select Committee said, the Chinese will buy from us only if we are competitive.

I shall conclude on a tendentious but accurate point. Despite ministerial rhetoric, we have lost competitiveness. Every index of competitiveness shows that we have lost ground during the past five years. Day by day the problem is exacerbated by the Treasury-dominated Government, who are using high interest rates to force up the value of the pound. This is destroying our competitive position against our most dangerous rivals. Until the Minister and his colleagues get to grips with the Treasury and persuade it that trade matters are of immense importance to our economic future, we cannot take seriously the Government's intentions for the trading opportunities with China.

If the Select Committee has done even a little to remind the Government of the immense importance and opportunities of what beckons us in China, it will have done a good job.

6.40 pm

The Minister for Trade (Mr. Paul Channon)

I intend to base my remarks wholly on the draft given me by my hon. Friend the Member for Fulham (Mr. Stevens). In future I shall use him exclusively as my speech writer. I agree with all hon. Members who have said what a splendid report the Select Committee has produced. The Government congratulate my hon. Friend the Member for Hastings and Rye (Mr. Warren) and his colleagues on their impressive report.

The hon. Member for Dagenham (Mr. Gould) introduced general points, and I am tempted to spend time replying to him, but that would be unfair because I want to deal with China. Nevertheless, first I shall reply to some of those generalities. My hon. Friend the Member for Northampton, South (Mr. Morris) has been the most fervent advocate of the Samanala Wewa project. The Government are delighted to offer ATP—aid and trade provision—for that project and I hope that it will be a success. We are delighted to initiate ATP in suitable cases, and there is no inhibition about that. We shall certainly try to reduce any delays that may exist, and we are constantly taking steps to improve the workings of ATP. Indeed, as the hon. Member for Dagenham rightly pointed out. ATP has been underspent in recent years. It will not be underspent significantly this year, and we have taken steps to ensure that it will not be underspent significantly in future.

I return to the specific points about China. We have had the report only since Monday, and I hoped to reply to it all this afternoon, which would be a record. However, I am slightly put off by my hon. Friend the Member for Northampton, South, who suggested that I should reply to it in a different form later this summer. Nevertheless, I can say something about some of the recommendations this afternoon. We shall consider the report carefully and reply in the normal way when we have the time to consider it more fully. If I do not have time to answer all the points raised this afternoon, I shall write to hon. Members.

The debate and the report are well timed. Large numbers of hon. Members are well aware of the opportunity for expanding our trade with China, which is a view widely shared outside the House. Why has China become such an important topic in terms of trade recently? First, we have entered a new phase in our political relations. The United Kingdom-China joint declaration on Hong Kong was signed during the visit of my right hon. Friend the Prime Minister to Peking in December, ratified on 27 May, and followed by the welcome visit to Britain last month by the Chinese premier, His Excellency Mr. Zhao Ziyang. It has been announced that Her Majesty the Queen will make a state visit to China next year. During Premier Zhao's visit, both Governments reaffirmed their wish to see United Kingdom-China co-operation develop even faster in the years ahead.

The second main reason for renewed interest in trade with China is that the development of China's economy during the next two decades offers real opportunities for many British companies, as the Select Committee pointed out. Perhaps the greatest opportunities are in China's economic priority sectors of energy, transport, telecommunications and industrial modernisation, in which we have great expertise. There are also opportunities for co-operation in areas such as agriculture, health care, electronics, information technology, defence sales and transport. British aircraft companies have had considerable success recently. China recently signed contracts for the delivery of 10 BAe146 aircraft worth some $150 million, and eight Short Brothers SD360 aircraft.

In energy, our coal mining industry has a long history of co-operation with China. Premier Zhao visited Anderson Strathclyde, one of our major suppliers of coal mining equipment. I hope that the hon. Member for Greenock and Port Glasgow (Dr. Godman) feels that Scotland got a look in on that visit. Negotiations on the Guangdong nuclear project are now at an advanced stage. I hope that GEC will shortly receive the turbine generator contract when outstanding issues have been resolved.

In telecommunications, Cable and Wireless has entered into joint ventures to develop the telecommunications system in south China, and is holding discussions about co-operation in other parts of China. Other major projects are under negotiation—for example, in steel and nonferrous metals.

There are also good prospects for growth in invisibles, which were not mentioned during the debate. The British Invisible Exports Council held an extremely good seminar in Peking, and the chairman of Lloyd's recently led a successful mission to China with the aim of further developing Britain's large reinsurance business with China.

In recommendation 5 the Select Committee suggests that we should ensure that information about tenders is disseminated effectively, and we shall certainly do our best to ensure that. Incidentally, I have received no complaints about that. For the world aid section, which is an important part of the World Bank's programme of lending to China, we shall continue to ensure that details are available as early as possible. Although the present position is not wholly satisfactory, as hon. Members pointed out, there are good prospects for the future.

There have been good exchange visits at Government level. The visit of my noble Friend Lord Young, Minister without Portfolio, who led a high level business mission earlier this year, opened up an enormous number of valuable opportunities. Later this year my right hon. Friend the Minister of Agriculture, Fisheries and Food will also visit China. We have had visits from the Chinese Ministers of Agriculture and of the Environment. A great deal has been going on and the momentum must be kept up.

As the Committee stressed, China is not an easy market. It remains a state trading country where doing business can be expensive, difficult and slow. The language and cultural barriers need to be overcome. Reliable market information is hard to obtain, and it is not always easy to identify potential Chinese customers. The present pace of change has added to the difficulties.

It is essential for business men, especially newcomers to the market, to understand the potential problems and to seek advice on how to overcome them. They will need patience and perseverance, and to be competitive. As my hon. Friend the Member for Honiton (Sir P. Emery) and others pointed out, business with China can take a variety of forms and the transfer of technology is extremely important. We have a much better record than the Japanese and nearly every other country on that. Wherever I go—I have just returned from the far east—it is pointed out that the United Kingdom is much better at transferring technology than Japan. When hon. Members go abroad, I hope that they will point that out, because it is the truth.

Joint venture agreements are a further promising area. Some companies selling to China, especially medium-sized and smaller ones, would do well to form links with one of the large international trading companies with offices in China, or to work with a Hong Kong partner experienced in trade with China.

The official export services are one important source of advice and help. I think that the Committee saw our publication entitled "Selling to China". We shall await with great interest the Committee's own publication.

In recommendation 7, the Committee made a plea for greater resources to be devoted generally to promoting exports. There are already the export services of the BOTB, the ECGD, the ATP and the trade promotion work of British diplomatic posts abroad. Up to 75 per cent. of the users of BOTB services—the figure may be even a little higher—are small firms with fewer than 200 employees. Helping large companies to win orders benefits many smaller companies through sub-contracts and equipment orders.

I understand the Committee's desire to see an increase in the funds available to the BOTB. I note that that seems to be the view of the House. The funds have been held constant in cash terms. The House will know that the resources available to the Department of Trade and Industry are, unfortunately, finite, but my right hon. Friend the Secretary of State will examine the Committee's recommendation carefully when considering other conflicting claims on his budget.

When we have debates on other issues such as research and development, compelling demands are made, sometimes by the same hon. Members, for an increase in that budget. Others say that Government expenditure should be held steady or reduced. However, that is a very important matter, and my right hon. Friend will pay the closest attention to the views of the House.

The hon. Member for Rotherham (Mr. Crowther) was, uncharacteristically, a little unfair when he said that the Government were not interested in China, or words to that effect. In fact, BOTB spending last year in support of exports to China was over £1 million, more per pound of exports than was spent on any other market in the world. Expenditure this year will, again, be at a high level. BOTB expects to support British groups at 12 international exhibitions. I shall not read out the whole list, but I can give it to those hon. Members who are interested.

The board also expects to support 11 outward and inward missions. It will pay a grant in aid to the Sino-British Trade Council. We are pleased that Sir Eric Sharp has become the new president. I am sure that everyone will wish to thank Sir Peter Matthews for his work as president of the council for a very long time.

Increased resources for the BOTB in China were mentioned, but we must look at the priorities elsewhere. The Committee was keen on western Europe and the countries of the Association of the South Eastern Asian Nations. We must consider whether it would be better to spend more money in western Europe, the United States, China or elsewhere. There are good cases for all of them.

Diplomatic posts are mainly a matter for my right hon. and learned Friend the Foreign Secretary. When I was in China not long ago, we did not have a consulate general in Shanghai, but we do now. That is a major step forward at a time when other posts are having to be closed. The Committee was informed in evidence given by the permanent under-secretary to the Foreign and Commonwealth Office that the staff in Peking has been increased by adding a new first secretary responsible for energy matters.

The commercial staffing in China numbers 10. That is larger than that of any of our European rivals. Only Japan and France have more. Therefore, our number is higher than that of the United States of America, West Germany, Sweden and Italy and is not out of line with that of many others. However, again, that is a matter of priorities. Many requests come to the Foreign Office for posts in places such as Miami. There is a strong case for reopening there, for the important market in South America referred to by some hon. Members. We are asked to put more resources there or in other places. My right hon. and learned Friend the Foreign Secretary will study the points made in the debate about staffing.

Credit terms have been mentioned on many occasions. China is eligible for the full range of credit facilities from the ECGD. There is no shortage of cover. I do not think that firms should be deterred on that account. Until recently China has not been eligible for support under the ATP. However, the Government have decided that in future ATP support will be available for China. That is a considerable step forward. At present that is only on the usual ATP terms of a mixture of grants with export credits, and the funds available are limited.

Therefore, it is right that we should discuss with the financial community the mechanisms that might be devised for providing soft loans. That will be equally true in Indonesia as well as China, as was announced a little while ago. My hon. Friends the Members for Hertford and Stortford (Mr. Wells) and for Hastings and Rye dealt with that matter. We shall proceed speedily with those talks. I cannot say what the conclusions will be today. The announcement was made only on 9 July, but when the House returns in the autumn I hope that my hon. Friend the Member for Hastings and Rye will table a question on the first day. I know that if he does not receive a satisfactory answer he will create havoc.

Resources will still be limited and most of our exports to China will continue to be paid for either in cash or on normal credit terms. Reference was made to increasing the ATP budget. I note the views of the House about that. They will be considered carefully by my right hon. Friends in the public expenditure round.

Technical co-operation has also been mentioned. Among other things, the ODA contributes to the cost of consultancies. The hon. Member for Linlithgow (Mr. Dalyell) talked about British consultants. We hope that that contribution will lead to commercial benefit for Britain. The ODA also contributes to the costs of Chinese students coming to Britain for further education. The number has trebled from a low base, as my hon. Friend the Member for Fulham said. The Committee recommended that ODA funding should be increased, and that recommendation will be considered carefully. Many companies make arrangements to bring Chinese people to Britain for training, and I hope that other companies will follow their example.

The COCOM countries have already agreed to apply controls to China more flexibly than to the Soviet bloc countries. On a British initiative, they have agreed to speed up the processing of applications for China. The possibility of further relaxations is under consideration. Britain is playing a leading role in the discussions. We have made clear to our COCOM partners the British view, which I think is widely shared, that there are several areas of high technology in which the West can contribute to China's modernisation without damage to our other interests. There will be further discussions in September, and the views of the House will be useful to us.

No applications have been made in regard to Dalian airport. I cannot see any reason why civil radar should be any problem under the COCOM rules.

The hon. Member for Greenock and Port Glasgow referred to offshore oil and gas. The prospects, which are considerable, depend to some extent on how soon oil is found in commercial amounts. British Petroleum is playing a major part in the search. Last year the Government supported a major oil seminar in Peking, Shanghai and Canton, arranged by the Sino-British Trade Council. My right hon. Friend the Secretary of State for Energy went there. He takes a keen interest in the subject.

Railways have been mentioned by several hon. Members. One company—Strachan and Henshaw—recently won a substantial order for coal unloading equipment. We are in touch with the companies connected with the industry and railway electrification. There may be opportunities in the not-too-distant-future in underground railways or metros.

The hon. Members for Greenock and Port Glasgow and for Orkney and Shetland (Mr. Wallace) will be interested to remember that it was owing to British persuasion that the China National Offshore Oil Corporation set up its European office in Britain despite strong competition from other parts of Europe.

The Overseas Projects Board is a valuable source of advice to me and my colleagues. We agree on the need to use the ATP flexibly and efficiently. The recent measures that have been taken will, I hope, help greatly in that respect.

The hon. Member for Dagenham (Mr. Gould) referred to the Byatt report. It provided an interesting input to thinking on this important topic. It has not met with unanimous support. It never represented Government policy. That is shown by the fact that we are already taking steps to improve the ATP. With regard to soft loans for China, we are the only country that does not have them.

There is a host of ways in which we can increase our trade with China, which I know is the wish of the whole House. Our exports to China are at a low level, but they have increased considerably in the past few years. A few years ago they were worth about £110 million. I remember going to Cyprus when we exported more there than we did to China. The hon. Member for Dagenham may criticise us for many things, but when he is talking about trade with China he is on a weak wicket. Trade with China has gone up considerably. Even taking the freakish figures for last year, which included some erratic exports, it has more than doubled. Prospects for expansion of trade are good.

The Committee has done a useful job and we shall be answering its report fully in the usual way. We are aware of the importance of exports to China and we shall do our best to expand trade. I know that the House will be vigilant to ensure that the Government take the necessary steps towards that end. But, above all, it will be for business to seize the initiative. I am sure that industry will be grateful that we have had this debate today.

It being Seven o'clock, the Question was deferred, pursuant to Standing Order No. 19 (Consideration of Estimates) and to order [4 July].