The UK’s national interest is best served by engaging with China and avoiding a new Cold War, rightly stated James Cleverly in his 2023 Mansion House speech.
Cleverly’s stance reflects the cautious tightrope walk of recent British policy, as evidenced by the updated Integrated Review Refresh.
This approach seeks to maintain trade relations and acknowledge China’s growing influence while also leaving room to address human rights issues. In other words, Cleverly’s position benefits from the hard-won equilibrium achieved after years of vacillating between extremes.
Cast your mind back to 2015, when George Osborne, former UK chancellor enthusiastically heralded a ‘golden era’ in relations with China. There was a consensus amongst people that the UK’s China policy at the time was focused on the economic benefits of a relationship with the state.
Things then took a turn when the government banned Huawei technology from the UK’s 5G public networks as well as TikTok from government devices sometime later. The UK’s policy towards China became more discussed and more contested, causing a ‘reset’ in attitudes.
Retrospectively, China’s emergence as the world’s second-largest economy is arguably the most important geopolitical development of the last four decades.
As such, cooperation with the state can be pragmatic, particularly to achieve continued, sustainable economic prosperity in the UK.
The latest figures recorded show that the total trade in goods and services between the UK and China was £111.0 billion in the four quarters to the end of Q4 2022, an increase of 18.3% or £17.2 billion in current prices from the four quarters to the end of Q4 2021.
What is more, China was the UK’s 4th largest trading partner in the four quarters to the end of Q4 2022, accounting for 6.5% of total UK trade.
Even during the Covid-19 pandemic, China remained a reliable and steadfast market for UK producers. Despite the challenging circumstances, the UK witnessed a 2.3% increase in the value of exports to the country in 2020 (excluding crude oil and non-monetary gold), amounting to a total of £12.9 billion.
The UK’s close partners provide further evidence that closer economic ties with China and adopting an approach that may not be as tough as some Conservative backbenchers want should be the way forward.
As an example, China is Germany’s largest biggest trade partner and an important destination for foreign investments in several industries that are the backbone of the Mittelstand. Its role as a crucial business partner, a vast consumer market, a manufacturing hub, and a source of technological innovation, has contributed to Germany’s successful economic growth throughout the years.
According to the British Chamber of Commerce in China, there is a window of opportunity for the UK to deepen these economic links with China in the time ahead.
China’s rapidly growing urban middle class, which has been estimated to have grown from 44 to 374 million people between 2010 and 2018, creates a favourable environment for UK exports to thrive in sectors such as education, food and drink, creative, consumer and retail, and life sciences.
Harnessing the benefits from these opportunities will help to support job creation, wage expansion and the advancement of economic equality across the regions and nations of the UK.
A less strident approach toward China focusing on enhancing trade by reducing market access barriers for British businesses and increasing liberalisation should be a priority.
Yet, given the growing public perception of the state and the escalating tensions in an already-troubled region, there is no doubt that this is no easy task.
In the US, the National Defense Authorization Act 2019 (NDAA) prohibits government contractors from acquiring new products and services from a list of Chinese companies. These include telecoms firms like ZTE or tech companies such as Hikvision and Dahua. The 2020 Holding Foreign Companies Accountable Act imposes obligations on listed companies operating in China to make their financial auditing practices accountable to US regulators, effectively limiting their ability to be listed in the United States.
While in Europe and the UK listings like the NDAA have no effect and countries have declined to follow the US’ lead, these approaches can be alarming for companies and traders relying on China for business.
Similarly, data protection and intellectual property (IP) remain a concern for UK companies operating in China. Luckily, the IP protection landscape is changing with fewer and fewer businesses marking it as a significant challenge since 2018. In addition, dedicated IP courts in China now exist, where companies are able to get protection if faced with theft.
As the UK continues to pursue a trade deal with Washington as well as cooperation in various areas, walking this fine line entails risks.
However, the attitude embraced by Cleverly avoids demonising China, safeguarding the further escalation of tensions. Striking this delicate balance is essential to fostering mutually beneficial relations with the state whilst elevating the UK’s future economic prosperity.
