China Power

The UK’s China Experiment

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China Power

The UK’s China Experiment

UK Prime Minister David Cameron is in China this week seeking to advance the economic relationship between London and Beijing. In case there was any doubt about the focus of his visit, Cameron was accompanied by around 100 UK business representatives, including executives from Jaguar Land Rover, BP, Barclays, HSBC, and GlaxoSmithKline. Cameron met with both Chinese President Xi Jinping and Chinese Premier Li Keqiang on Monday, and will travel to Shanghai and Chengdu before returning to London on Wednesday.

During his visit, Cameron expressed his support for the further opening up of trade between the UK and China. He even advocated for a free trade agreement between the European Union and China, although he acknowledged that this was a long-term goal. Currently, the EU and China have agreed to discuss a bilateral investment treaty, but remain a long way from considering a full-fledged free trade agreement. A spokesman for the EU executive called it “premature” to talk about such an agreement. Still, Cameron promised to “champion an EU-China trade deal with as much determination as I’m championing the EU-U.S. trade deal.”

If a comprehensive agreement between the EU and China is years away, why would Cameron bring it up now? It seems that Cameron’s China strategy is to make the UK as welcoming as possible to Chinese investment while simultaneously pointing out the less receptive attitudes of other Western countries. “Some in Europe and elsewhere see the world changing and want to shut China off behind a bamboo curtain of trade barriers. Britain wants to tear those trade barriers down,” Cameron told the press in Beijing.

In a way, it’s better for Cameron’s strategy if the rest of the EU shuts down talk of an FTA with China. Then Cameron could continue to sell the UK as the Western country most willing to welcome Chinese investment. “Put simply,” Cameron wrote in an op-ed for both The Guardian and Caixin, “there is no country in the western world more open to Chinese investment, more able to meet the demands of Chinese consumers or more willing to make the case for economic openness in the G8, the G20 and the European Union.”

Indeed, in recent months London has proven itself more open to Chinese investment than many of its Western counterparts. UK Finance Minister George Osborne visited China in mid-October and made several announcements that allowed Chinese banks to operate more easily in London’s financial sector.  According to the Financial Times, before Osborne announced relaxed policies towards Chinese banks, China’s major banks had preferred to skip the hassle and avoid setting up branches in London. The new regulations turned this on its head in a bid to turn London into the leading foreign center for China’s renminbi currency. As China seeks to internationalize its currency, London hopes to reap the benefits by becoming a trading ground for the RMB.

In addition to the finance sector, Cameron’s government has shown a willingness to allow Chinese investment in sensitive sectors such as nuclear power and telecommunications. The case of Huawei, China’s largest telecommunications firm, is instructive. During his visit to Beijing in October, Osborne welcomed Huawei to invest £1.2 billion ($1.97 billion) in the UK, including the construction of a £125 million ($204 million) research base in Britain. This is a marked difference from the U.S.’s treatment of the company — in 2012, the U.S. House of Representatives’ Intelligence Committee issued a report classifying Huawei as a national security threat, effectively scuttling Huawei’s efforts to expand into the U.S. market. The UK has taken an entirely different approach, welcoming Huawei’s investment despite security concerns raised by Parliament’s Intelligence and Security Committee.

For Cameron, the choice to welcome Chinese investment seems to be an easy one.  As he writes in The Guardian, countries “can choose to see China’s rise as a threat or an opportunity. They can protect their markets from China or open their markets to China. They can try and shut China out – or welcome China as a partner at the top table of global affairs.” As a result of the UK’s willingness to open its markets to China, Cameron boasts that Chinese investment in the UK doubled in a single year. Now, Cameron writes, the UK has more investment from China than “than the next four most popular EU [investment] destinations combined.”

Chinese President Xi Jinping also praised the UK for its openness to foreign investment.  But the Chinese government still doesn’t appear entirely satisfied. Xi told Cameron that he hoped the UK would continue to proactively open its markets to China. During Cameron’s meeting with Chinese Premier Li Keqiang, Li specifically mentioned a hope for further “breakthroughs” in the fields of nuclear power and high speed rail projects. Interestingly, these same two areas were targets of Li’s negotiations in Eastern Europe last week, but the UK is one of the first Western European powers to accept China’s interest in these fields.

Not everyone has bought into Cameron’s dream of building “a partnership for growth and reform that can help to deliver the Chinese dream – and long-term prosperity for Britain too.” The Guardian called Cameron’s statements “a sign of Downing Street’s determination to appease Beijing.” The Telegraph reported that Cameron’s smooth visit to Beijing was only possible because he agreed not to meet with the Dalai Lama in the future (a May 2012 meeting between Cameron and the exiled Tibetan leader had caused a serious rift between the UK and China). Now some in the UK worry that Cameron’s current close relationship with China precludes any strong advocacy for human rights.

Further underlining these concerns, a member of the British parliamentary lobby accompanying Cameron to China was banned from attending an event where Li Keqiang and Cameron gave statements to the press. The reporter, Robert Hutton, represents Bloomberg, which is blocked in China. The incident somewhat marred Cameron’s visit by bringing an increased scrutiny of China’s restrictive treatment of journalists, just when Cameron was trying to avoid any emphasis on China’s human rights record. A spokesman from the prime minister’s office called the move “completely inappropriate.”

Still, the trip kept its economic focus. Cameron argues that China and the UK can be “great partners in making the case for economic openness and free trade across the world.” He seems determined to forge close economic ties between the UK and China despite domestic opposition and raised eyebrows from other Western leaders. In fact, Cameron enjoys being able to paint the UK as China’s only true partner among the developed nations. This makes the UK’s China policy an interesting experiment. Should the UK’s economy benefit as Cameron believes it will, more Western governments will be tempted to follow suit and open their doors to China. However, should the detractors prove correct in their warnings about security concerns and a lopsided trade deficit, the UK could be both the first and the last Western country to welcome China so completely.