The UK has no plan for China. This post represents Guanlidao’s current summary of the UK Government’s trade policy towards China with specific interest in how this might influence cross-border M&A, VC investment, enterprise and technology exchange. Like most Guanlidao posts, it is updated from time to time to remain current..
“If the growing rivalry between China and the US is set to define the geopolitics of the next century, then the UK is asleep at the wheel. Today, London finds itself caught between the two powers … without so much as a plan” said The Banker on 24 September 2020.
“The UK needs a single, detailed document defining a national strategy towards China, endorsed at Cabinet level” (Clause 127) and “There does not appear to be a clear sense either across Government or within the FCO of what the overarching theme of a new policy towards China should be” (Clause 126). So concluded an inquiry by the UK Government’s Foreign Affairs Select Committee which started on 21 November 2017 and concluded 4 April 2019 and which serves as one of our best references on the UK’s China policy.
The bottom line from Guanlidao for all participants in M&A and VC investing is this: everything is viewed through the lens of “national interest” and “national security”. Trade is a mere subset of national security and the two things are talked of as one. This is most forcibly clarified by the National Security Strategy and Strategic Defence and Security Review 2015 Third Annual Report published July 2019 by the UK Government’s Cabinet Office. National Security is not defence or protection. Far from it. The UK’s National Security Objectives are: Protect Our People; Project Our Global Influence; and Promote Our Prosperity (Clause 1.4) with a strategy called “Fusion” which ensures that it embeds itself across every Government department. The rallying cry from the National Security Strategy and Strategic Defence and Security Review 2015 (SDSR), published 23 November 2015, re China was powerful: it cited three priorities for the coming five years which placed “Promote our prosperity, expanding our economic relationship with growing powers such as India and China, helping to build global prosperity, investing in innovation and skills, and supporting UK defence and security exports.” right up there with rules-based international law and dealing with terrorism. (Clause 1.4). That was 2015. The year of the Golden Era.
China’s Ambassador to the UK, said on 1 August 2020 “To our regret however, this relationship has recently run into a series of difficulties and faced a grave situation“. He also said some UK actions had “seriously poisoned atmosphere of China-UK relationship” He asks if the UK “see(s) China as an opportunity and a partner, or a threat and a rival? Does it see China as a friendly country, or a “hostile” or “potentially hostile” state?” (He said that the solution was respect, engage in mutually-beneficial cooperation and seek common ground – pretty much the ground that Guanlidao hopes to pursue),
What is the UK Government’s policy towards China today? It’s actually hard to say. It’s mostly negative. There are two parts: the one we rely on to guide us at a macro level is the formal and written policy towards China. This is not in one document, and usually comprises a patchwork of papers and statements from Government ministers through official channels. The other part is the informal one which can guide us at a macro level and which comprises the loud calls and quiet murmurings on the fringes of Government. This article takes a summary view of the formal policy:
- A quick summary of strategy leading up to the present day could theoretically be found in the 2019 Conservative Party Manifesto published on 24 November 2019 which pledges an independent trade policy post-EU, initially focused on US, Australia, New Zealand and Japan, and commits to free-trade, job-creation and new export opportunities which “enrich” the UK and its trading partners. No mention of China: that would be too much detail for an election manifesto. There’s a particular focus on service industry sectors such as architecture, engineering, accountancy, information technology, digital services, law and the creative arts. It says “we should open up trade in services, in which the majority of us work and where most new jobs will be created”. The six principles to underpin trade talks include: provide security, gain market access and lower the cost of trade, drive hard bargains, defend against dumping, and maintain standards (in environmental protection, animal welfare and food standards)”.
- The development of the UK’s post-EU independent trade policy seems remiss in the focus it fails to place on China. “The UK’s Independent Trade Policy: Global Britain” cites China as the UK”s third largest export market for good and services (after the EU and US) but goes no further in showing a direction for China relations.
- The UK Parliament’s “China and the Rules-Based International System” from the UK Government’s Foreign Affairs Select Committee in April 2019 references Xi Jinping’s visit to the UK in 2015 and the Golden Era in UK-China relations and said “this remains the preferred phrase”, noting that the UK Prime Minister in January 2018 committed to “intensify” the Golden Era.
- On 19 December 2019, the Queen’s Speech announced the review of the SDSR “An Integrated Security, Defence and Foreign Policy Review will be undertaken to reassess the nation’s place in the world, covering all aspects of international policy from defence to diplomacy and development“
- One of the boldest statements of UK commercial engagement with China, and still a pivotal reference point, was the commitment on 15 November 2015 for the UK to join the Asian Infrastructure Investment Bank with the UK Government commenting: “Joining the AIIB is a further step in the government’s plan to build a closer political and economic relationship with the Asia region and maximise opportunities for British businesses”
- The UK’s Ambassador to China is Dame Barbara Woodward (though Caroline Wilson will replace her imminently) and her most recent published speech was on 25 February 2019 – that in itself is telling. Why the low profile? The speech, entitled “UK-China in 2019” was measured, not committal or bold or particularly clear: she called for “innovation in multilateralism“, using the brilliant phrase “considered engagement of the centre ground” and recommitted to the importance of multinational bodies such as the UN, WTO and G20.
More recently, the UK’s voice on China is more about applying pressure on China [than constructive engagement. human rights, the South China Sea:
- The UK was a signatory on the 6 October 2020 “cross-regional joint statement” on behalf of 39 countries delivered to the UN General Assembly Third Committee which stated there was “grave concern” about the human rights situation in Xinjiang and recent developments on Hong Kong.
- HM Trade Commissioner for China, John Edwards said on 21 September 2020 that in attending the China International Import Expo, the UK would “ensure interactive, accessible and dynamic ways for Chinese and British businesses to collaborate“.
- Gerry Grimstone (Lord Grimstone of Boscobel), a minister at the Department for International Trade and the Department for Business, Energy and Industrial Strategy, stated on 1 July 2020 “We continue to implement a comprehensive and co-ordinated approach to China, which identifies and pursues UK interests. I have to say that we take a very clear-eyed view of the challenges and risks from China. In many areas, we have a strong and constructive relationship with China but, equally, we are very aware that items may not coincide with our national security. Our approach to China is co-ordinated across government. The FCO is at the heart of the cross-Whitehall strategy approach to China, and the importance of this is shown in that the work is led by the National Security Council and the China National Strategy Implementation Group. We will continue to implement a comprehensive and co-ordinated approach to China that identifies and pursues UK interests in these areas and, of course, engage our like-minded international partners as we do so.
- Andrew Bowie MP (a vice-Chair of the Conservative Party and former Royal Navy officer) said on 3 September 2020 that the system of “international law and … rules-based international order” was “under attack and under threat like never before … in the South China sea and “our values and the values of the free world are very much under threat on those waters.” He also said “Without freedom to navigate, fish and explore, there is no free trade … which is why I am raising this issue on the Floor of the House this afternoon” and called for a multinational fleet to sail with HMS Queen Elizabeth into the Indo-Pacific.
- Nigel Adams MP (Minister for Asia) said on 30 June 2020 he was “disturbed by reports of militarisation, coercion and intimidation in the South China sea” and restated the UK’s position was “We do not take a position on competing sovereignty claims. Our commitment is to international law, particularly to UNCLOS and to freedom of navigation and overflight. We call on all parties to refrain from activity likely to raise tensions, including land reclamation, construction and militarisation, and we urge all parties to exercise restraint and behave responsibly in accordance with their international obligations. Our commitment to upholding UNCLOS is a global matter, and we will continue to raise concerns with other nations where their interpretation of UNCLOS differs from ours. We are committed to working closely with allies and partners to uphold the primacy of UNCLOS in the South China sea“.
This article refreshes from time to time.
