UK struggles to find coherent China policy
Following its departure from the European Union, Britain is struggling to find a coherent China policy.
The government of Boris Johnson is caught between the demands of Washington and anti-China hardliners in his Conservative Party and a powerful business lobby that does not want to lose access to the world’s second largest economy.
The imposition of the National Security Law in Hong Kong in June 2020 and Britain’s response have further complicated his dilemma.
What a far cry from October 2015, when British Prime Minister David Cameron declared a “golden era” in trade and investment between the two countries.
His Conservative government welcomed Huawei as an important investor in its new 5G system and granted China General Nuclear Power Group (CGN) a 20 per cent stake in the proposed Sizewell C nuclear power plant in Suffolk in eastern England.
In 2017, nearly 60 per cent of Chinese FDI in the EU went to the UK, including the acquisition of logistics company Logicor by the Chinese sovereign wealth fund for US$14 billion. Even in 2019, Britain was the second largest European recipient of Chinese FDI by volume.
How much has changed since then.
In late September, the Financial Times reported that the government would remove CGN from the 20-billion-pound project and block its plans to build another nuclear plant in Bradwell-on-Sea. The government will have great difficulty finding investors to make up the shortfall in a project that will take years to build and is certain to have cost overruns.
The removal of CGN followed intense U.S. pressure, which was also the reason why, in November last year, the government ordered British telecom firms not to install new Huawei kit after September 2021.
All this is not what was offered by advocates of Brexit. They said that, free of the European Union, Britain would be free to reach its own trade agreements, especially with major partners like the U.S., China, India, Brazil and Canada.
Attracting Chinese investment, students and tourists was supposed to be a key element of the post-Brexit strategy. But the souring of relations between China and the West since 2018, over Hong Kong, Xinjiang, the South China Sea and Taiwan, has changed everything. Ignoring the strong opposition of Beijing, London is offering up to three million Hong Kong people who hold BNO passports the right to emigrate to Britain.
In retaliation, Beijing said it would not recognise the BNO passport as a valid travel document or for proof of identity as of January 31 this year.
In late September, for the first time since 2008, a UK warship, HMS Richmond, sailed through the Taiwan Straits. The next day Britain said it would start formal negotiations with Japan to deepen their defence relationship.
Condemning the voyage, the China Daily said in an editorial that Johnson’s government was suffering from “puffed-up jingoism” and fishing for “rule-Britannia support” at home. “It should abandon its colonial-style pretensions and ensure that the UK acts as a responsible member of the international community,” it said.
Within Johnson’s Conservative Party, there are two factions, one anti-China and one pro-China. One leader of the latter group is MP Richard Graham, chair of the All Party Parliamentary China Group.
“If the UK is going to succeed after leaving the EU, it is going to have to remain incredibly attractive and open to FDI from all over the world,” he said. “This includes strong trade and investment links with and from China. The UK has always had the most open investment approach of all Western countries and we took the ‘Wimbledon view’ – if we were hosting the world’s best tennis tournament, it did not matter so much who the winners were – the event was happening in the UK.”
John McLean, chair of the Institute of Directors of the City of London, said that, as Britain has left the EU, it must look East. “In a post-Covid era, China will be an engine of growth,” he said.
Following the bans on Huawei and CGN, London’s position now is that Chinese firms are welcome to invest in non-strategic sectors of the economy.
At a news conference on October 20, Zheng Zeguang, China’s ambassador in London, said Britain needed to improve the investment environment for mainland companies. “Chinese and British firms could work together in areas ranging from green technology and finance to civilian nuclear energy and electric vehicles,” he said.
Before Brexit, the UK was the favoured destination for mainland companies setting up European headquarters. It uses English, the main foreign language spoken by mainland Chinese; it was familiar because many had studied and worked there: and they liked its independent judicial system.
But now Paris, Frankfurt, Amsterdam and Dublin are competing fiercely for such investment by Chinese firms that want to be based within the single EU market.
Boris Johnson faces a most difficult challenge to square the circle and balance the competing interests of its historic Atlantic ally, the U.S., and the factions within his party.
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