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THE WALL STREET JOURNAL: Brown Seeks Closer U.K. Business Ties With China on Trip

By ANDREW PEAPLE and LAURENCE NORMAN
January 18, 2008

BEIJING — U.K. Prime Minister Gordon Brown is the latest in a string of European leaders to beat a path to China looking for stronger commercial ties.

The British leader was scheduled to arrive Friday, though his departure from London Thursday was delayed by the emergency landing at Heathrow Airport of a British Airways jet arriving from Beijing.

The European Union is now China’s top trading partner and European governments are keen to attract trade deals and investment from the Asian powerhouse. Mr. Brown’s visit follows those by French President Nicolas Sarkozy and European Commission President Jose-Manuel Barroso in November, as European leaders step up the frequency of their contacts with the Chinese government.

Mr. Sarkozy signed $30 billion of trade deals in China, including a contract for European plane maker Airbus to provide China with 160 aircraft and for the French company Areva to build two nuclear reactors.

But the delicate nature of relations between Europe and China is clear. European politicians worry about the bloc’s growing trade deficit with China and the yuan’s depreciation against the euro.

China has its own sensitivities: in November, a planned visit to Beijing by German Finance Minister Peer Steinbruck was canceled after Chancellor Angela Merkel met with Tibetan spiritual leader the Dalai Lama in October.

The U.K. remains the biggest investor in China among EU nations, although the figures are distorted by the large sums plowed in by oil firms like BP PLC and Royal Dutch Shell PLC.

But it has fallen behind other leading EU countries in terms of exports, as the U.K. economy is more biased towards the service sector. German companies, by contrast, still produce a large amount of capital goods, which China has swallowed up during its recent years of rapid economic expansion.

The U.K.’s goods-trade deficit with China was £12 billion ($23.55 billion) in 2006 and had reached £13.5 billion by November 2007, according to the U.K. government’s statistics office. That is helping to fuel a ballooning U.K. trade deficit and feeding into a current-account deficit that, in the third quarter, amounted to 5.7% of gross domestic product.

Mr. Brown, accompanied on his trip by several U.K. business leaders, is keen to press Beijing for deeper commercial ties between the two countries. A Downing Street spokesman said that the aim of the visit is to take the U.K.-China “strategic relationship…on to a new level.”

The U.K. government believes British companies’ expertise in service industries can complement China’s booming manufacturing sector. “There’s a beneficial marriage between the two economies” that needs to be taken advantage of, the spokesman said.

Also, the British government may hope that its generally conciliatory tone toward China will eventually reap economic benefits. By contrast with policy makers in the U.S. and the euro zone, U.K. economic-policy leaders have refrained from criticizing China’s exchange-rate policy, which some see as giving Chinese companies an unfair advantage in international trade.

The U.K. is reaping some benefits from closer cooperation with China. Beijing recently allowed domestic investors to put money into mutual funds that can invest in U.K.-listed companies. The U.K. is the first region outside Hong Kong to be accorded this status.

During Mr. Brown’s visit, the London Stock Exchange will open a representative office in Beijing. It already has 68 Chinese companies listed on its various markets, the highest number of any foreign market.

It will be Mr. Brown’s first visit to China since becoming prime minister in June.

Write to Andrew Peaple at [email protected] and Laurence Norman at [email protected]

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