UK-China Relations: Will Economics Trump Security Concerns?
The idea for linking Shanghai and London stock exchanges was mooted by Chinese President Xi Jinping. (Photo: China Daily)
By Tridivesh Singh Maini

UK-China Relations: Will Economics Trump Security Concerns?

Jun. 27, 2019  |     |  0 comments

The UK and China’s economic relationship has witnessed a significant rise in recent years. Bilateral trade between the UK and China is estimated at GBP 66 billion (USD 86.2 billion). China’s cumulative investment in the UK ever since 2000 is estimated at USD 81 billion. This is way below what some see as the actual potential. Former Prime Minister David Cameroon had used the term “golden era” (a term coined for promoting President Xi Jinping’s visit to UK in 2015) to describe the bilateral relationship between London and Beijing. During her visit to China in 2018, Prime Minister Theresa May had also stated that she was keen to deepen bilateral ties on key economic issues. May also said that she wanted to “intensify” the “golden era” of bilateral relations.

While it is true that in terms of economic engagement, the UK may not be China’s first priority (it is China’s fifth largest trading partner), the UK has become important as a consequence of Beijing’s ties souring with not just the US (as a consequence of trade disputes, differences over BRI and the ban of Huawei) but also with Australia, which like the US has blocked Huawei from providing equipment.

A reasonable relationship with the UK, and support from the UK for the BRI as well as for Huawei would benefit China. Similarly, a good economic relationship with China would benefit the UK in a post Brexit world. Apart from strategic and economic issues, soft power plays an important role in the relationship. As of 2018, there were over 95,000 Chinese students in the UK (China happens to be the biggest source of international students).

Chinese Vice Premier Hu Chunhua’s UK trip was being observed very carefully. Both countries clinched trade deals worth GBP 500 million (including in areas like energy, environment, financial services and technology). Hu and the British Chancellor of the Exchequer Philip Hammond attended the launch ceremony of the Shanghai-London Stock Connect. Through this arrangement, Shanghai-listed companies can list on the London Stock Exchange through Global Depositary Receipts (GDRs) issuance, while British companies can issue China Depositary Receipts (CDRs) on the Shanghai Stock Exchange. The idea for linking Shanghai and London stock exchanges was first mooted by Chinese President Xi Jinping during his UK visit in October 2015.

This is a significant step towards opening up China’s capital sector while also giving a boost to bilateral cooperation between UK and China. British Chancellor Philip Hammond dubbed the stock connect as an important step, saying that it was a “strong vote of confidence in the UK market”. There are strict eligibility criteria however, as a consequence of which the number of Chinese companies which may be able to participate in this initiative will be limited. The first company to take advantage of the stock connect is the Alibaba-backed Chinese securities broker Huatai (already listed in Hong Kong and Shanghai).

The Chinese Vice Premier and the UK’s Chancellor of the Exchequer also chaired the 10th China-UK Economic and Financial Dialogue where a gamut of issues related to trade, global economic governance and financial markets were discussed. While Hu called for greater financial cooperation between Britain and China and to play a greater role in global economic governance, Hammond spoke about the need for both to work jointly on multilateralism as well as the multilateral trading system. Hammond called China a “crucial bilateral partner” in this context, and also said that it was important to have a robust relationship which was beneficial for trade and investment.

The UK’s ties with China may have grown in terms of trade and foreign direct investment, but there are differences on a number of issues. In recent years, due to its economic dependence upon China, UK may have not asserted itself forcefully enough.

What was interesting to note was Hammond’s praise for the Belt and Road Initiative (BRI) and his statement that UK must participate in the project. Britain has not signed up for the project, but it has clearly said that British companies will participate. While speaking at the Belt and Road Forum summit in Beijing in April 2019, Hammond had supported the BRI, dubbing it as an “extraordinarily ambitious vision”. He also stated that “the UK is committed to helping to realise the potential of the BRI and to doing so in way that works for all whose lives are touched by the project”.

While as a consequence of Brexit, Britain is going ahead with pushing economic ties with China, there are clear divisions within Theresa May’s Cabinet with regard to ties with China. Then Defense Secretary Gavin Williamson in February 2019 said that the Royal Navy would not shy away from continuing Freedom of Navigation operations in the South China Sea and upholding the “rule of law”. Williamson’s remarks resulted in strong reactions from Beijing. He also drew criticism from within his own party, with many saying that his remarks were uncalled for. Hammond who said that Williamson’s comments were damaging for the UK-China relationship, especially at a time when Britain was exploring trade deals with countries including China. Former Chancellor George Osborne for instance accused Williamson of “engaging in gunboat diplomacy of a quite old-fashioned kind”.

There have also been differences over whether or not Huawei should be allowed in Britain’s 5G network. The US and Australia have imposed a ban on the telecom giant. During a visit to Ukraine, Gavin Williamson while commenting on Huawei, “I have grave, very deep concerns about Huawei providing the 5G network in Britain. It’s something we’d have to look at very closely.” Williamson also referred to the stand taken by the US and Australia vis-à-vis Huawei. Williamson was later sacked for allegedly leaking the reports of a National Security Council meeting in which May had given clearance to Huawei for being “…involved in ‘non-core’ elements of the 5G network such as antennas”.

More recently, former Conservative Leader William Hague along with Former Defense Secretary Michael Fallon urged the UK to follow Australia and the US in banning Huawei, and finding common ground with these countries. Current Foreign Secretary, and one of the contenders for the Prime Ministership, Jeremy Hunt has also been sceptical with regards to giving Huawei the licence. In an interview to the Daily Telegraph, Hunt stated that given the interference of the Chinese state in Chinese companies, the UK needed to be more cautious with regard to Chinese investments.

It is not just Huawei but also the UK who is in an awkward situation, because the Chinese Vice Premier’s visit came at a time when massive protests took place in Hong Kong against a bill which may allow extraditions from Hong Kong to China. On June 16, 2019, nearly 2 million people participated in a mass demonstration. May raised the issue with the Chinese Vice Premier.

The UK’s ties with China may have grown in terms of trade and foreign direct investment, but there are differences on a number of issues. In recent years, due to its economic dependence upon China, UK may have not asserted itself forcefully enough. This dependence is likely to rise, but on issues like Huawei and human rights, there are strong lobbies in the UK which are likely to press the British government.

For China, relationship with the UK is important not just from an economic standpoint, but also symbolically. The UK’s support for the BRI as well as its approach towards Huawei at a time when frictions between Beijing and Washington are increasing is significant. Statements of Conservative leaders like William Hague who are urging closer coordination between the UK and Australia and the US are also important. It remains to be seen whether economics can trump security concerns.

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