Blog 006 - Chinese Take Away

After filtering out all coronavirus related news, the big story last week that holds a large potential impact to our industry is the mounting political pressure between the UK and Chinese Governments. After the UK announced that it would be unlikely to include China’s Huawei in the 5G roll out, China have been quick to respond with potential retaliation measures including the cessation of talks for a London based world HQ for “Tik Tok” and fears of withdrawals of funding for huge infrastructure projects such as Hinckley Point.

So what would an industry without China look like? The immediate issue would be the loss of overseas sales of new build apartments in central London. Whilst the industry is significantly bigger than overseas sales to China, it does form important sales and investment for the apex of the residential sector. The opposite side of this coin is the potential for new sales to all of the British National (overseas) passport holders n Hong Kong that may look to take residence in the UK under potential plans to offer citizenship. This would likely drive a short but welcome drive in UK sales.

The vast scale of China’s imports to the UK makes it hard to single out, for the purpose of this article, the specifics of the imported materials. However, it is very common place to import construction materials from China to the UK. Commonly with substantial lead times, its not unheard of projects waiting for sea or air freight to arrive to release critical path materials to enable construction to continue. The industry continues to avoid major materials such as steel amid safety concerns so there would be no anticipated shortages of steel which are more commonly sought from either the UK or Europe / Middle Eastern areas. It is more the typical manufacturing products that the UK imports to its construction industry, either components used in the M&E trades or finishings such as architectural ironmongery. All items could be sourced within the UK, Europe or USA, but at a substantial additional cost. Whilst the industry does still import it, timber based products from China are less common due to issues with sustainability certification.

According to UK Government briefing papers, the UK exports approximately £30bn of goods to China each year. This may seem like a large number, bt accounts for only 4% of UK exports Goods and Services, a relatively small market compared to, say the US which is 20%. However, the rate of growth of this market is the important consideration, with this market growing year on year for the past 4 years. The UK’s primary exports to China are gold, petroleum and cars, so aside from any wider economic effects, the construction industry and supply chain wouldn’t feel a huge direct effect from trade sanction with China. In terms of export services, HMRC recorded only £55m in construction and manufacturing services to China, a significantly small sum when compared to size of UK based orders for the same services.

Will the UK construction market struggle without trade from China? Put simply, yes. Is it insurmountable? No. All items purchased there are not exclusive to China. Sourcing elsewhere will likely be more expensive and will affect the lower end construction market more. It is the UK Governments role to workout ways to produce more of this product on UK soil or in locations where the Trade between the countries in terms on import v export is more equitable than that which we currently have with China. The UK construction market will suffer more from withdrawal of funding on infrastructure projects, the safe havens of the industry in times of economic uncertainty. As the UK looks for trade and investment beyond the EU for post Brexit Britain, we have to be certain that we will receive continuous and reciprocal trade to support or construction and manufacturing industries.

I urge all Trade Contractor’s to take a review of what materials or services you regularly procure to see which if any might originate in China. Preparedness for a shortfall in supply may be the difference between a Trade Contractor that meets his contractual requirements on a project and one that doesn’t. If you foresee a risk, start the conversations with the Main Contractor early about how best to manage this risk, its their project too and they’re more than likely going to want to help you in the best interest of the project.

If you are unsure of how your business might be affected by any Chinese trade sanctions or want help analysing your supply chain, drop me an email and we can talk.