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Luke Morris, Corporate Finance Partner, looks at the impact of the relationship between China and the UK on East Anglia’s manufacturing businesses.
I recently spoke at an event where the theme was all things “China”. We discussed the Chinese economy, how global trade patterns are shifting and what that really means for businesses on the ground, particularly manufacturers and the logistics networks that support them.
The conversations focused on four connected themes: China’s economic direction, the evolving UK–China relationship, how manufacturing supply chains are being re‑engineered, and what all of this means in practical terms for logistics and freight operators.
What this means for the East of England’s freight, logistics and manufacturing sector
China enters 2026 at a clear turning point. Once defined by relentless growth, industrial scale, and seemingly unlimited domestic demand, the world’s second‑largest economy is now operating under far more complex conditions. Consumption is weaker. Prices are under pressure. Demographics are moving decisively the wrong way.
These issues do not stay neatly within China’s borders. They shape global manufacturing economics, squeeze margins, and force hard decisions about where things are made, assembled, and moved.
For manufacturers in the UK and across Europe, this matters because China remains deeply embedded in global production. It’s not just a supplier of finished goods, but a critical upstream provider of components, materials, and industrial capability. So, when China slows, shifts strategy, or exports deflation, it ripples straight through factory cost bases and supply chain planning.
At the same time, the UK–China relationship is being recalibrated.
Prime Minister Keir Starmer’s visit to Beijing in January 2026 was the first by a UK leader in eight years and signalled a deliberate attempt to stabilise relations after a prolonged period of tension. That does not mean a reset to the old model. Strategic competition, national security concerns, and political differences remain very real. But it does suggest a more pragmatic phase, particularly where trade, investment, and industrial cooperation are concerned.
Against this backdrop, global manufacturers are continuing to rethink how and where they produce. “China+1” has quietly become “China+multiple”. Production is no longer being ripped out of China wholesale. Instead, manufacturers are spreading risk by keeping core capacity in China while adding assembly, finishing, or parallel supply lines in places like Vietnam, India, Eastern Europe, and Mexico.
This has direct consequences for freight, ports, and regional logistics hubs. Volumes fragment. Routes multiply. Reliability becomes as important as cost. For the East of England, sitting at the heart of the UK’s containerised trade, these changes create both opportunity and pressure.
China’s 2026 outlook: Slower growth, softer demand, and manufacturing at the centre
China is still growing, but it is no longer growing easily.
Forecast growth of around 4.5 percent in 2026 sounds respectable until set against the scale of the economy and the expectations baked into global manufacturing planning over the last two decades. Growth is being propped up by state intervention and targeted stimulus, but the underlying picture is more fragile. Property remains weak, consumer confidence is subdued, and productivity gains are harder to come by.
For manufacturers, the key point is not the headline growth rate. It is where that growth is coming from.
Post‑pandemic China has doubled down on manufacturing capability. Industrial policy is no longer subtle. The state is actively backing sectors it views as strategically essential. Electric vehicles, batteries, renewables, shipbuilding, pharmaceuticals, and advanced industrial equipment all sit high on that list. In many of these areas, China is not just competitive but dominant. Scale, cost, and speed remain formidable advantages.
This matters for UK manufacturers in two ways. First, competition is intensifying, particularly in capital‑intensive and mid‑tech manufacturing. Second, China’s industrial machine is exporting deflation. Factory‑gate prices have been falling for years. For importers, that can look attractive in the short term. For manufacturers producing into global markets, it puts relentless pressure on pricing and margins.
China’s demographic trajectory only sharpens this picture. A shrinking and ageing workforce means labour is no longer the cheap, abundant input it once was. Over time, this pushes China further towards automation, capital investment, and high‑value manufacturing. It also accelerates the need for manufacturers elsewhere to reassess how dependent they are on Chinese inputs, particularly where resilience and continuity of supply matter more than unit cost.
There is also a growing question around data and transparency. Official figures paint a picture of stability. Independent analysis often suggests more volatility under the surface.
For manufacturers making long‑term investment decisions, this reinforces the need for caution, diversification, and contingency planning rather than blind faith in any single set of numbers.
UK–China relations: Trade reality meets strategic caution
Trade between the UK and China remains substantial. China is still one of the UK’s largest trading partners, particularly on the import side. The imbalance is well known. The UK imports far more goods from China than it exports, while services help narrow but do not close the gap.
For manufacturers, the composition of that trade is more important than the headline value. UK goods exports to China have been under pressure, particularly in sectors such as automotive. At the same time, the UK continues to import large volumes of manufactured goods, components, and industrial equipment from China.
Politically, the UK’s stance is deliberately nuanced. China is viewed simultaneously as a partner, a competitor, and a systemic challenge. That framing reflects reality on the factory floor. Many UK manufacturers compete with Chinese firms in global markets while relying on Chinese suppliers somewhere in their production chain.
The Starmer visit signalled an attempt to manage this complexity rather than pretend it does not exist. For business, that means selective engagement. No return to dependency, but no blanket disengagement either.
Manufacturers that understand where China fits into their value chain, and where it should not, will be best placed to navigate the next phase.
For businesses navigating these shifts – whether investing in capacity, reshaping supply chains, securing funding, or considering acquisition or exit – the commercial implications are significant.
We’re here to help
Our Corporate Finance team works with freight, logistics and manufacturing businesses across East Anglia to help turn strategic uncertainty into informed, confident decisions.
Get in contact with one of the team by calling 0330 058 6559 or email hello@scruttonbland.co.uk
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