Challenges for UK ‘golden era’ ties with China

Challenges for UK ‘golden era’ ties with China
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Last week, Xi Jinping concluded his first official visit to the UK. The tour ended with a series of deals worth $60 billion. While business investors are looking to deepen trade relations, challenges remain ahead of the ‘Golden Era’ in UK-China partnerships.

The UK’s lavish red carpet welcome for China’s first state visit in a decade was garnered with mixed reception. While the meeting drew support from the business community, it also engendered criticism from London’s traditional allies, human rights activists, and the opposition.

Despite said criticism, both Prime Minister David Cameron and Chancellor of the Exchequer George Osborne are willing to take the risk in order to boost the British economy. Xi was treated well during his four-day visit, many trade agreements were signed, and both sides issued a joint statement promising deeper cooperation.

Xi’s visit deepens UK-China bilateral relations

During Xi’s visit, a series of bilateral trade deals worth £40 billion was signed. The UK will soon become China’s top European investment destination, overtaking Italy. The most notable deals include the Hinkley Point C nuclear power project (of which China will hold a one third stake), the largest single Chinese investment in the UK. Other industries benefiting from the trade agreements include financial services as well as the education, energy, and tech sectors.

This deepening of bilateral ties could see the UK – a leading power within the EU – use its position to facilitate better relations between China and other EU members. In fact, the UK has been an active facilitator in the China-EU free trade agreement process.

The UK’s pragmatic and mercantilist approach towards China will also set precedents for other European countries, such as the UK being the first Western country to join the China-led Asia Infrastructure Investment Bank (AIIB). On the heals of London’s ascension to the AIIB, other European countries quickly followed suit.

While the visit may have initiated the ‘golden era’ of Sino-UK relations, challenges remain ahead for the bilateral ties.

Hurdles for the Golden era in UK-China ties

Firstly, pressure from activists calling on London to challenge China’s human rights record and advocate for Tibetan issues will continue. During Xi’s visit, Cameron – at least publically – remained silent on human rights issues and on Tibet. This has earned Cameron condemnation from critics arguing that the PM has ignored said issues in exchange for favourable trade agreements.

How the UK handles these issues in the future will have an impact on bilateral ties. In 2012, when Cameron met with the Tibetan spiritual leader, the Dalai Lama, the political fallout froze bilateral relations. It was not until 2013 when Cameron visited China with an impressive business delegation that relations between the two sides began to warm up.

In the next year or so, the UK will vote on a referendum to decide whether or not to remain in the EU, and China is well aware of the possibility of a Brexit. Consequently, if a Brexit occurs London will lose out to France and Germany, as its facilitator role in EU-China relations disappears.

China is well aware that the influence of the UK in the EU will be reduced should this happen. Xi has urged the UK to stay in the EU, but France and Germany, while against a Brexit, would be more than willing to step in to fill said position.

China still a minor investor in Europe

The development of a closer relationship comes at a time when growth in China has slowed down. Business specialists have reacted differently to the possible implications of a Chinese slowdown for UK growth.

Some experts worry that the increasing likelihood of a ‘hard landing’ in China amid stock market turbulence, combined with greater exposure to the Chinese economy, will have substantial effects on the UK economy. Others see the UK economy as more diversified and stable than investors from emerging markets and thus better equipped to handle Chinese economic turbulence.

The trade deals reached during Xi’s state visit is a drop in the ocean, given that the world’s second-largest economy is only the ninth-biggest investor in Europe. The UK and China still have huge opportunities for cooperation. The UK has long specialised in financial and business services, including regulations, accountancy, and consulting.

As China switches from consumption to investment, and from manufacturing to services, the UK is in a strong position to benefit from China’s transition. But human rights violations, Brexit, and China’s unclear growth trajectory will challenge Sino-UK bilateral relations over the next decade.

Categories: Economics, Europe

About Author

Qingzhen Chen

Qingzhen is a GRI Senior Analyst and a research analyst for an international information company. Her research focuses on China and the Asia Pacific. Previously she was a market researcher for PwC. She has gained regional knowledge from internships with the UNDP, China Policy, and the Royal United Services Institute. She holds a BA in Politics and East European Studies and an MSc in Security Studies from University College London.