Ten years ago, the eyes of British firms were firmly on investing in China, primarily as a production base in which to manufacture standardized goods for export to the advanced markets.

Britain's trade relationship with China mirrored this strategy, with increasing import volumes of manufactures, often owned by British and other advanced economy firms and produced in Chinese factories.

What has changed is that Chinese firms have matured from apprentices into exporters in their own right, and most recently into foreign investors. These, in a nutshell, are the changes that we have seen. And, for the most part, trade and investment relations have been highly cordial, to say the least.

But we are now poised to take the next step forward in cementing our commercial relations for the future. Rather than China being a production base for foreign-owned exports, British and other advanced economy firms now seek a presence in China to cater to the local, and increasingly affluent, market. This market is one of final consumers, but also of businesses seeking professional services of the caliber that the West has enjoyed for so long.

As an advanced economy, the trade and investment interests of the UK and its firms span a very broad range of sectors from exports embodying advanced technology, and premium consumer goods, to the services sector. As a member of the EU, Britain's trade policy is highly open, and has long been so. It is when we turn to investment, by which we mean foreign direct investment, that the challenge is most apparent. FDI occurs when a firm sets up productive activities, possibly shared with another firm in the form of a joint venture, in a host economy. Economists and governments use the amount of FDI to gauge the level of this productive activity operated by firms from one economy in another.

FDI is of rising relevance and importance particularly for countries separated by considerable distance and transport costs. In effect, FDI is a way of integrating economies, and variously carries with it enterprise, technology, capital and skills that, quite simply, exporting and importing cannot. It enables the firms that China has spawned to internationalize, upgrade and expand their businesses more effectively in foreign markets. Even or perhaps especially for an advanced host economy such as the UK, inward investment by dynamic entrepreneurial firms, some with significant capital, is just what the doctor ordered.

To clear the way for increased mutual investment, action is needed on both sides to reduce the barriers to increased commerce. In the UK, up to very recently, we have never had to visit how it must feel for a firm originating in an emerging economy such as China to try to set up business in an advanced country. The UK is one of the least encumbered economies in which to start and do business, according to the World Bank, and so has been an attractive host for Chinese investors within the EU's single market. This is borne out by the figures. The UK in 2012 was the recipient of 5.4 percent of all Chinese FDI stock in the EU.

Chinese investors in the EU face no discrimination; they are treated the same as any European investor. But firms from China readily admit their lack of knowledge about regulations and cultural aspects abroad, on top of being uncertain how best to exploit market opportunities. And because Chinese firms have only very recently become international, there is not yet a pool of homegrown Chinese expertise experienced enough to run international operations. Add to this the need for all firms to do due diligence on investing abroad, and it becomes clear that Chinese investors need advice and guidance on how to make a success of overseas projects. This is where Britain's professional service firms make an invaluable contribution, along with the government's investment promotion agency UK Trade & Investment and membership organizations, such as the China Britain Business Council and 48 Group Club.

Looking at trade and investment from Britain to China, we see that the opportunities center on improving market access, which is governed largely by the policy and institutional environment in China. In 2012, UK firms accounted for 7.4 percent of all EU FDI into China but it could, and should, be even higher.

British firms' commercial aspirations, particularly in the services sector, are limited by the access obligations set at the time of China's entry into the World Trade Organization. Fortunately, there is a real prospect of progress here, under the negotiations between the EU and China toward a comprehensive EU-China Investment Agreement. Such an agreement would provide a framework within which improved market access in China is matched by improved investment facilitation and certainty for Chinese investors within the EU. And it would release the potential for a vigorous round of new investment between our two nations, as befits economies whose watchword is growth.

The author is director of the Centre for International Business, Jean Monnet professor of European integration and international business management.

(China Daily European Weekly 06/13/2014 page11)