After years of strained relations, the UK has turned to China in an effort to address its pressing economic challenges. This article will explore the current state of UK-China relations and examine what the UK seeks to achieve in its relationship with China. It will also address the challenges currently facing the UK economy.
UK- China Past Relations
During the tenure of the UK’s Conservative government, with Rishi Sunak as the last Prime Minister, relations with China soured due to alignment with U.S. policies. Under Donald Trump, and exacerbated by the COVID-19 pandemic, the UK, along with other G7 countries, adopted aggressive stances towards China, issuing statements critical of Beijing’s policies. This approach strained relations with China, which had previously maintained strong ties with European nations, including the UK, France, and Germany.
Emerging Relations
UK Chancellor of the Exchequer Richard Rees recently led a high-profile delegation to China, accompanied by business officials, CEOs, and bankers, underscoring the UK’s serious intent to rebuild relations with Beijing. Rees met with China’s Vice Premier and Vice President, marking a restoration of UK-China ties after six years of mutual criticism. The Labour government sees realignment with China as a strategic move following strained relations during the Conservative government.
What Caused Shift in Policy
The shift was driven by domestic and international threats faced by UK. Keir Starmer’s government faces challenges both domestically and internationally. Domestically, the priority is economic recovery. They view China as a crucial partner for the UK’s economic recovery. While on the global front, challenges include navigating trade tensions with figures like Donald Trump and Elon Musk. On a broader foreign policy level, the UK seeks to achieve strategic autonomy, moving away from blindly following US directives, as was often the case under previous Conservative administrations.
International Challenges—Shift in US Foreign Policy
The Biden administration’s approach aimed to antagonize China in various ways, such as its policies in the South China Sea, the Pentagon’s task force on China, and efforts to rally G7 countries against Beijing. In contrast, Trump’s tariffs policy applies broadly, with a focus on imposing 20% tariffs on friendly nations and 60% to 100% tariffs on China. Trump has openly stated that the US will not even spare the UK in its trade war, and Musk, a Trump ally, has been also critical of Starmer. This divergence in US policy has also created significant uncertainty in the global market.
Domestic Challenges
Domestic challenges faced by UK include Challenges to its economy and public services.
Economic Challenges
Brexit has left the UK’s economy in turmoil, with reduced exports to both China and Europe. The UK economy is facing a severe economic crisis. The government is considering raising taxes further, despite having already increased them in the recent budget. They are also contemplating cuts to public spending, both of which could prove disastrous. Borrowing rates have surged close to the 2008 levels, a time of global recession. However, current borrowing rates remain lower than recession-era rates, resulting in stagnant growth and development in the country.
Public Services Challenges
UK is also grappling with a decline in public services. The National Health Service (NHS), for example, is plagued by long waiting times, with appointments scheduled months in advance, leaving the average citizen frustrated. Improving public services and reviving the economy have therefore become the government’s top priorities.
To address these challenges, the UK is seeking closer economic ties with China, which has expressed a willingness to collaborate with Western powers. The current Labour government, led by Keir Starmer, recognizes the necessity of re-engaging with China to address the UK’s economic difficulties. Prime Minister Keir Starmer’s government aims to achieve growth, create jobs, and avoid additional tax hikes.
A New Economic Approach
Historically, the UK’s economic strength has been built on its banking sector rather than natural resources. Since the 19th century, UK banks have played a pivotal role in driving economic growth. Now the government seeks to bolster this sector with Chinese investments in UK banks. In exchange, Chinese companies would benefit from access to the UK’s banking infrastructure, which could serve as a launchpad for global expansion.
Amid US sanctions, London could position itself as an ideal location for providing financial services to Chinese companies aiming for a global footprint. Cooperation between Beijing and London in the financial sector is already strong, and the UK hopes to attract even more investment from China. Those Chinese companies aiming to create global footprint and expand beyond China have opportunities in London. In return UK benefits from receiving investments.
China Proposal for Using its Local Currency
China has proposed using its local currency in bilateral trade with the UK, a move that London views as a strategic advantage amid financial sanctions from the U.S.
Huawei’s Global Expansion and the UK’s Dilemma
A significant point of contention between the US and China is the telecommunications sector, especially the race to dominate 5G and 6G technology. Huawei, China’s largest telecommunications company has been expanding globally, gaining traction in several Middle Eastern countries. The US previously pressured the UK to avoid adopting Huawei technology due to security concerns, and UK security agencies have warned about potential espionage risks. Although the UK initially hesitated, China has once again proposed collaboration in telecommunications. Despite security concerns, the government insists that trade relations will be developed without compromising national security.
UK Seeks Chinese Investment in Artificial Intelligence and Green Bonds
The UK is also keen on investing in artificial intelligence (AI) and seeks Chinese investment in this area. Furthermore, the UK hopes China will issue its sovereign green bonds in the UK. Currently, China is the UK’s sixth-largest trading partner, and the government emphasizes the importance of maintaining strong ties despite opposition concerns.
The Deal
Following a recent visit, the UK Chancellor announced agreements worth £600 million with China, projecting an economic benefit of $8 billion. The government views this as a secure and beneficial deal. The two countries have also signed agreements to enhance cooperation between their markets, creating trading opportunities for businesses on both sides.
Exploring other Ares of Cooperation
China has already been moving toward economic liberalization, and both nations aim to sign free trade agreements and open their markets to one another. They are also exploring deeper financial connections, such as linking capital markets, wealth management schemes, exchange-traded funds, and stock market trading between the two countries.
Additionally, it hopes to attract Chinese investments, particularly in areas such as clean technology, energy, life sciences, digital technology, and financial services.
This collaboration explains the presence of top officials, CEOs, and bankers as part of the delegation.
Moving towards economic Liberalization after Lessons from Brexit
The UK, has aligned with China to foster free cooperation in economic matters. As two of the world’s largest economies, they discussed multilateralism and economic globalization. While the UK was previously against Brexit, its exports have sharply declined since leaving the EU. To address this, the UK is now focusing on diversifying and liberalizing its economy.
A Pragmatic Approach to Diplomacy
The UK plans to pursue a stable and pragmatic relationship with China, addressing mutual interests while maintaining the ability to express disagreements on issues such as the Russia-Ukraine war and human rights concerns.
Europe rapprochement with China
Not only the UK but the entirety of Europe relies on China for their economic growth as well as strategic partnerships. Last year, French President Emmanuel Macron and the EU President visited China, signalling a gradual re-engagement with the country. This shift may also invite reactions from Trump, as the era of Europe openly criticizing China, driven by President Biden’s agenda, appears to be fading. Biden encouraged European countries to take a strong stance against China, but for Trump, the priority is always “America First.”
Conclusion
The UK’s decision to realign with China marks a pragmatic shift in its economic and diplomatic strategy, aiming to address pressing domestic challenges while navigating an increasingly complex global landscape. By fostering stronger ties with China, the UK seeks to revitalize its economy, boost investments, and explore opportunities in finance, technology, and green energy. This renewed partnership is not without challenges, as the UK must carefully balance collaboration with its commitments to national security and global values. However, by pursuing a stable and mutually beneficial relationship with China, the UK positions itself for economic recovery and growth while striving for greater strategic autonomy on the international stage.
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