Chairman Russ Shaw.

Ladies and Gentlemen.

I am delighted to attend this dinner hosted by the Marketing Group of Great Britain.

It is always a pleasure for me to have an opportunity to exchange ideas with British business leaders. Today, I much appreciate the invitation to talk with you about China-UK economic co-operation.

This is such an important theme that I have recently made two speeches on this topic. The first was to the Conservative China Group in House of Commons. In that speech I talked about opportunities for business with China in the years ahead.

At the Asia House yesterday evening, I analysed Chinese overseas investments from three perspectives including Chinese investment here in the UK.

My speech tonight will cover new areas, even though this will be my third speech in one week on the same theme. This evening I will approach China – UK economic cooperation from another angle. My aim is to build understanding on three questions.

The first question is how to expand British exports to China?

As you know boosting growth is a core objective of the UK Coalition Government. As part of the plan top priority has been given to expanding exports to China and other emerging economies. This policy effort is paying off.

British exports to China increased 28.8% last year. Despite the high rate, the volume was just 14.6 billion US dollars. It made up only 3.1% of total British exports.

I say 'just' 14.6 billion as comparison with other export markets strongly highlights the potential of boosting China-UK economic cooperation.

You may be familiar with one comparison with the BRICS countries - Brazil, Russia, India, China and South Africa. The UK's total exports to all the BRICS countries is not as much as Britain exports to Ireland.

Another way to look at the potential is this. In world country economic size China ranks second and Britain is seventh. Given the size of our respective country economies, clearly the figure of 14.6 billion points to the immense potential for increasing trade.

Analysis of the top ten British export products to China show only a modest share in the Chinese market. China buys a lot more of these products from Germany. Again this comparison shows great potential.

So how to increase British exports to China? I personally suggest the UK step up efforts in the following three areas:

First, export more high-end products to China.

Significant opportunities lie in the economic strategy that the government has set out. An important part of China's effort to shift its growth model is to boost consumption, in particular consumer spending. In the 12th five-year plan period, which is between 2011 and 2015, China's imports are expected to reach 8 trillion US dollars. Some bold analysts have even put it at 10 trillion US dollars.

Britain will have to compete with other countries in this huge marketplace. To win the competition, you need to outdo others in branding, design and technology. Maybe I am being too frank, but Britain needs to learn from France and Germany in marketing and product promotion. Here are some examples:

· Louis Vuitton, or LV, is much more famous in China than Burberry.

· The sales of Scotch whisky in China hit a record high last year. But, sales of French wine are way ahead of whisky.

· Branding is key in China. BMW is translated as 'precious horse' in Chinese and Land Rover as 'tiger on land.' Though in Chinese culture, the tiger is much more powerful than the horse, BMW is hugely more popular in China than Land Rover.

Second, export more technologies to China. Another way of restructuring the Chinese economy is industrial upgrading. With advanced technologies, China will be able to move up the value chain.

The UK is a world leader in science and technology. But there are constraints in the UK to exploit these strengths with a population of 60 million. China with a population of 1300 million could make some British technologies much easier to commercialise. For example, Britain has developed many technologies in renewable energy, low carbon economy and environmental protection. They will generate huge economic and social benefits if used in China.

In terms of high-tech exports to China, Britain comes fifth among EU members after Germany, France, Italy and Sweden. Perhaps this ranking suggests Britain is being too 'conservative' with the international exploitation of its strengths in science and technology. The opportunities are there in China but success needs open minds and keeping pace with the changing times.

Third, the UK needs to export more products of creative industries to China. The creative industries are a specialty of Britain. They contribute 7% to the British economy. That is as much as the financial sector. Creative Industries are a most dynamic sector and will be a great global growth area in this century

China wants to turn itself from a production base into a design centre. To achieve this goal, it needs to develop creative industries with a powerful momentum. In recent years, the value-added from creative industries in China has grown at an annual rate of over 17%. That is much higher than that of China's GDP. The creative industries have become a major source of growth for China.

Both China and Britain have great pride in their distinctive cultures. Our economies have a lot to offer each other. So co-operation in culture and creative industries between us is blessed with a solid foundation and great potential. It will become another highlight of our economic cooperation.

Let me now turn to the second question I want to address this evening. This is how Britain can attract more Chinese investment.

My British friends often tell me that UK is one of the Western countries most open to Chinese investment. One sector in particular is UK infrastructure.

Currently, Chinese non-financial investment in the UK totals around 4 billion US dollars. I must say that though this figure is almost double that of last year, it is far from gratifying. The reason is during the 12th five-year plan period, China's total outbound investments will pass 500 billion US dollars.

So how is Britain to get a bigger share of this outward investment pie? I have the following suggestions for you:

First, on policy and legal services. These need to be high quality but simple and clear. Britain has a sophisticated legal system. At the same time, it is very complicated. British law has rigorous requirements for companies in benefits, safety and finance. This will discourage many Chinese investors not familiar with British system.

So Britain needs to attract Chinese investors through welcoming policies. In addition, support for solving practical problems with quality services on the ground. In very few cases, Chinese investors may slip up because they are new in this country. As the host, Britain should be understanding and tolerant.

Second, diversify means of investment. A traditional way of Chinese investment in Britain is to set up branches or subsidiaries here. But it has some drawbacks:

· It is slow.

· It takes a long time to get returns.

· It has legal and management risks.

That is why Chinese companies are now more interested in joint share holding and merger and acquisition. For example:

· Earlier this year, China Investment Corporation bought nearly 9% stake in Thames Water.

· Also this year, China's Huawei completely acquired CIP.

Third, lower the threshold. A wide concern of Chinese companies making investment here are visa applications. It is impossible for Chinese companies here to recruit only British people. Flexibility is needed as Chinese business in UK will always need some foreign employees.

The issues of visas is a challenge for some Chinese state owned enterprises or SOE's. They need to bring some staff from headquarters in China. The British government has laid many restrictions on visas, such as English language proficiency and minimum wages. These restrictions have affected the SOE HR policies and internal transfers. My point is Britain needs to facilitate travel of Chinese company staff to optimise success in economic co-operation.

The UK has great strengths in financial services. This leads to third question for you this evening: How can London become an off-shore centre for RMB trading?

There have been three important developments for RMB trading in recent months:

· In the fourth China-UK Economic and Financial Dialogue last September, Chancellor Osborne set out his proposal of making London a Western RMB centre.

· In January this year when Chancellor Osborne visited Hong Kong, Her Majesty's Treasury and the Hong Kong Monetary Authority signed an agreement.

· Last month, the City of London launched the initiative to strengthen London's position as western hub for international RMB business. The current members are Bank of China, Barclays, Deutsche Bank, HSBC and Standard Chartered.

· Also last month, HSBC issued RMB bonds in London for the first time. The original plan was to issue 1 billion RMB. Yet, the immense interest and great demand from the markets raised the sum to 2 billion RMB.

In the long run, RMB internationalization is a must. Progress in this regard depends on both domestic and off-shore markets. Hong Kong, Singapore and London are vying for this position.

London as an off-shore RMB centre is a win-win for China and UK. It will open a new dimension for our cooperation in trade, finance and investment.

So can London beat other competitors? Let me give you an overview of its strengths and weaknesses.

London has some natural advantages:

· It is the leading global financial centre.

· It is the world's largest forex market.

· It boasts many prestigious financial institutions.

· It is known for sound regulation and developed infrastructure.

· It has historical links with Hong Kong.

· And it has a time zone advantage.

If these are London's assets, then I will point out to you its liabilities:

· On RMB deposits. The latest City report shows that total amount of London customer, institutional and inter-bank RMB deposits is in excess of 109 billion yuan. Customer deposits has reached 35 billion yuan. This indicates that a pool of RMB liquidity is being established. But compared with Hong Kong, it still has a big gap to close. By December last year, Hong Kong's customer RMB deposits had totaled 589 billion yuan.

· On RMB supply. RMB is not fully convertible yet. China and UK have no currency swap agreement. So Britain can not expect to see large RMB inflows in the near future.

· On RMB demand. British companies are not very receptive to RMB. Some financial institutions are interested in RMB either for hedging or for financing. That is not real demand.

· On RMB settlement system. This is a technical problem. It takes time for the system to be built, tested and improved.

London has great potential to become a centre for international RMB business. Yet as a Chinese saying goes:

"The road to happiness is not lacking in setbacks."

So, London needs to overcome the current shortcomings and meet the challenges from other financial centres.

These are some of my thoughts on the three issues that currently stand out in our economic ties.

In conclusion, I am confident that China-UK economic cooperation enjoy boundless opportunities and broad prospects. I do hope all of you will seize the opportunities and achieve greater success.

Thank you.

I am glad to take your questions.