President Xi Jinping’s state visit to the UK showed British pomp and pageantry at their grandest, complete with 103 gun salutes and royal coach rides.
While some pundits say these are more form than substance, they symbolize the importance accorded by both the British government, and the Crown to relations with China.
The two countries do bring strategic value to each other. With US$3.5 trillion in foreign exchange reserves and a vast market of middle class consumers, China is Britain’s dream business partner.
Chancellor of the Exchequer George Osborne’s stated ambition is to make China his nation’s second largest trading partner by the end of the decade. Other governments hedge their bets on China, but the UK aims to be China’s “best partner in the West” to build “a golden relationship with China that will foster a golden decade for this country (the UK).”
While Western media has reported extensively on the slowdown in the growth rate of the Chinese economy, Osborne noted: “Even as China’s growth slows, it will continue to be a powerhouse for the global economy. There will be many new opportunities for the UK.”
Osborne is certainly right and should be complimented for his strategic thinking.
Consider the role of London as the European hub, and indeed the largest international hub outside Hong Kong, for offshore renminbi, and the opportunities that will bring to the City of London.
London has long benefited from its role as the Euro-Dollar hub. Now, the internationalization of the renminbi is poised to become the next big thing in international finance.
Already the RMB is the second most important trade finance currency, surpassing the euro. More than 18 percent of China’s trade is now settled in renminbi, and that figure is expected to approach 35 percent by 2020, with more than US$1 trillion in trade finance in RMB predicted by that year.
Similarly, foreign exchange transactions involving the Chinese unit are expected to exceed US$1 trillion by 2020, making it the fourth most traded currency globally, behind the US dollar, the euro and the Japanese yen and ahead of the pound sterling.
Imagine the opportunities created by being an international hub for offshore renminbi. If we in Hong Kong are not careful, we may even risk falling behind London as the leading international hub for offshore renminbi.
Consider as well the £40 billion (US$62 billion) that China agrees to invest in the UK, on everything from nuclear plants to infrastructure to real estate. That comes at time when European economies are facing hard times, and the Russians, who are also big investors in the UK, also find themselves in difficult economic circumstances due to sanctions, low commodity prices and a weak currency.
With the focus on innovation and entrepreneurship that Premier Li Keqiang is emphasizing, British technology, whether it be in TMT, new energy, new materials or life sciences, can find a vibrant market in China.
Politically, a close relationship with China will enable the UK to be less of a junior partner in the Special Relationship with the US than it has had to settle for since the end of World War II.
Britain’s decision to join the Asian Infrastructure Investment Bank (AIIB) was a strategic decision taken despite Washington’s misgivings. That decision showed Britain as having considerably more character and independent ownership of its national interests than the Japanese.
For China, the UK is a core member of the Western camp and a Permanent Member of the UN Security Council.
As such, it’s a good partner to have on the other side, considering the tensions with Obama’s Washington, despite Xi Jinping’s initiatives to build a new type of major power relationship, and the irritation it must feel with tension stirred up by American client states in China’s neighborhood.
The UK is also a major EU economy, and thus a good friend to have in that important community in addition to Germany and France.
The UK is a perfect partner at the other end of the One Belt One Road: it is the first major Western power to join the AIIB, geographically at the Western end of the land and maritime Silk Roads, and a major hub of the internationalizing renminbi.
Add to that British prowess in international finance, technology, logistics, culture and entrepreneurship, and you will see a historic alignment of national interests taking shape.
Thus, President Xi’s state visit should be celebrated as a diplomatic triumph of global proportion, and the beginning of a golden era for both countries.
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