Forge connections

China

TOGY talks to Li Patrik, director of energy, environment, infrastructure at the China-Britain Business Council (CBBC), about the difficulties of the increasingly sophisticated Chinese market, relations between British and Chinese companies and how they can help each other. CBBC offers assistance to UK companies in China to develop and expand their businesses. The association has been active in China since 1950s.

What are some of the organisations achievements and milestones over the past two years?
The CBBC covers all industries that are important to the UK in terms of trade and investment. Under energy, we mainly cover three areas. The first is nuclear, where the relationship between China and the UK is quite strong. The second is offshore wind, which we have been pushing for the last four years. The last one is oil and gas. Within oil and gas, we are mostly looking at offshore oil and unconventional oil, including fracking and shale gas.
That is where the UK can really add benefit to existing solutions in China. We estimate that over the next ten years there will be roughly GBP 6 billion of potential trading volume possible between the UK and China in oil and gas. There is a potential of about GBP 43 billion in the energy sector, of which nuclear energy is a big part. Around GBP 6 billion will go to big players like BP and Shell. That is the estimate of UK Trade and Investment, or the Department for International Trade. It estimates there is a potential trading volume of roughly GBP 200 million possible for supply-chain players over the next ten years.
In terms of achievements, we are working with the UK Embassy in China as the delivery partner for anything trade-related, including research for UK companies interested in the Chinese market. We do bespoke research, market consulting and entry-level market studies. We also do events: we run all the events for the UK government in China and in the UK. For example, when you have a state visit to the UK, it is delivered by us. We also do one to one consulting. A company can call us to ask anything they want about energy, environment and infrastructure. We then use our network to provide them with the best support that we can. Our network includes 15 offices in China and 10 in the UK, and has specialists crossing all sectors.

Within the oil and gas industry, would you like to highlight any projects that you were involved in?
Our network of [more than] 1,000 Chinese and UK companies provides support through our events in both countries. We organise delegations with people interested in certain areas, everyone from local mayors to provincial leaders. We also support the UK government in producing reports on the Chinese market, such as the One Belt One Road initiative. Additionally, we support Scottish Development International with oil and gas reports.
We can help major oil companies, such as BP and Shell, by giving them visibility through their achievements. We arranged a ceremony for BP when they signed a 20-year contract with the China Huadian Group Corporation last year for the delivery of LNG to China. That is a massive deal for BP, one that they have been working on for many years. We gave them the platform to talk about [this agreement].

Can we elaborate on the opportunities for UK companies that add value to the Chinese oil and gas industry?
UK companies are very good at doing surveys, looking at safety aspects and training companies seeking to do exploration. They are very good at creating policy surrounding projects, including anything to do with Chinese companies and standards. Making sure Chinese companies adhere to international standards when abroad is one example of what they can do. That is where the UK is very strong.
The UK can bring a lot of soft skills into play. If we were to talk about this five to ten years ago, soft skills were very hard to sell in China. Engineering was what was needed most at that time. Soft skills were things that came with the package and Chinese companies were not willing to pay for them. Now, companies are getting more sophisticated which is opening new doors for UK companies with the required skills. There is now far more interest from the Chinese side in getting expertise into companies to help them to grow in a sustainable way.

Can we talk about some of the drivers behind this increase in sophistication?
As China’s onshore oil fields mature, companies are looking towards offshore fields. This is also true for the wind industry. They cannot just apply the technologies they have onshore to offshore sites. They need to up their game and the UK has lots of offshore oil experience in the North Sea.
The second driver is spending money on soft skills as a shortcut to [reach their] goals, especially to get outside expertise into your corporation. [This can either be done] through a merger with a company with those skills or by bringing people in for the education. This can help leapfrog the time that would have been spent building those skills organically.
Chinese companies are now going abroad, so they need to play by the rules. If they do not comply, they get a lot of pushback. This seems to be happening now and customers are not happy. In the end they are abroad for the long run so they need to pick up their game.

Can you please discuss some of the challenges that UK companies can face working in China for the oil and gas industry?
The biggest challenge is the fragmentation of the market. Although big market players are state-owned, and we have contacts with the CEOs and presidents of these companies, finding opportunities and getting contacts for companies in the Chinese supply chain is extremely difficult. You cannot just make cold calls to an engineering company in China and ask to talk to an engineer. It just does not work like that.
Also, the decision-making process is so different. The people in china who have knowledge of the processes are not the ones who are making decisions. A lot of decisions are made by politicians who do not know much about the matter. For us, it is really hard to convince UK companies that it is not for a lack of opportunities in China that they cannot get jobs and projects. It is the lack of transparency in the market that really hinders the process.
A lot of small and medium Enterprises (SMEs) in the UK might have 20 to 50 people working on the UK market and a team of five working globally. That team of five might have one person who comes to China to generate business. However, everyone on the team would need to work day and night to create something out of that one trip. Most companies cannot afford to spend on trips to China to properly explore the market and get acquainted with the key players there for the next five years.

What are some of the challenges in the geographical fragmentation China’s oil and gas industry?
China’s National Oil Companies (NOCs) have international and local arms. They basically have the whole supply chain covered. We know the resources we need are in those companies, but the top down approach used does not work. For example, the CEO does not know what is happening in their sub-companies in Sichuan, so we cannot try to work from our office there to approach them as they will probably revert us back to the HQ in Beijing.
There are also no tenders out for international bidding and the websites for tendering are mostly in Chinese, so UK companies cannot access or understand them. The time for handing in your tender bids in china is extremely short and can be anything from a weekend, to a week, to two weeks’ notice. You need to generate a great of paperwork, which most UK companies are not used to doing. It is a local tendering process with the word international attached to it. If you do not have local staff used to collecting all the information and stamps needed, you will never be able to get the bid ready in time.
There is a lack of transparency and a lack of adherence to international procedures, which means there is a steep learning curve for UK companies that want to work in China.

What are the opportunities that China going global generates for UK companies?
UK companies have been working for a long time on third market oil and gas exploration and production [E&P] projects in Commonwealth companies, such as on the African continent. They have built up a lot of networks and connections there. The local knowledge they have gathered over the last 50 to 80 years could be very beneficial to a joint corporation. They know the rules of the market and the way to approach stakeholders and they have accumulated a lot of engineering experience over the years.
By using their diplomacy and soft skills acquired over that time, and combining them with engineering skills from Chinese companies, there are excellent opportunities [available] to deliver projects of the highest international standards. This is one of the reasons the UK government signed an agreement with the Chinese government for international co-operation, called the Infrastructure Alliance. It began last year (2015), after the visit of Chinese Premier Xi Jinping to the UK. [The agreement] has now been formalised and is slowly being put into motion. The combination of soft skills and engineering skills will really be of benefit to stakeholders in the third market.

What are some of the challenges of the global initiative that China is undertaking?
[The initiative] touches on the soft skills side which China still somewhat lacks. Having worked in China for a long time, Chinese companies do not always adhere to international standards or processes either. This could become an issue, especially on paper as the projects you are undertaking have to be for the benefit of both local and Chinese companies coming in.
What we have seen so far is some of the projects undertaken on the Chinese side are making up most of the workforce. It is actually taking work away from local companies that are very excited about getting involved in China’s [One Belt One Road] initiative. This is a major challenge moving forward. We have to show Chinese companies that they have to engage and open up for co-operation, otherwise the vision of a new Silk Road is probably not going to be there for the long run.
This is where UK companies going into projects with Chinese stakeholders will make a big difference. They understand the subtleties of involving local communities and showing how their co-operation would be beneficial to them: new jobs, wages, the opportunity to work with Chinese companies. Some Chinese companies will have to make progress in this area.

How would you increase collaboration between UK and Chinese companies in China and overseas?
We would continue what the UK government has been doing and what we are already doing on the behalf of companies: engaging with and working on the network we have created, ensuring both sides understand each other’s needs. Making sure they are open to having conversations that are not just nice and courteous, but also ask the right questions.
We have seen UK companies be very direct in asking hard questions, not in oil and gas but in discussion around the nuclear supply chain. They ask: “What can we actually do in China?” and similar questions to the Chinese. “You do not really need us, but if you want to work with us in supply chain talks, please tells us where the opportunities are.” They challenge them directly.