The UK wants to reinvent its relationship with China in the age of Brexit

Which side are you on?
Which side are you on?
Image: REUTERS/Andy Wong/Pool
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In February 2016, when Boris Johnson was still mayor of London, he wrote in The Telegraph newspaper that if the UK voted to leave the European Union, its government would be embroiled “for several years in a fiddly process of negotiating new arrangements” on trade and business with other countries. As prime minister, Johnson has just made that process much harder for himself, by picking a very public fight with China, one his country’s largest economic partners.

Relations between Europe and China have soured over the last few years. Beijing and Brussels regularly butt heads over Hong KongTaiwan, and human rights violations in Xinjiang. Last year, the European Commission called Beijing a “systemic rival” in a strategic outlook paper (pdf, p. 1). With Covid-19, things have only gotten worse.

The UK mostly stayed out of the fray, having declared in 2015 a “new golden era” in relations with China. But with Johnson at its head, Downing Street has become more aggressive and vocal lately on at least two issues: Hong Kong and the Chinese technology giant Huawei. As Johnson attempts to restructure the Sino-British relationship in the wake of Brexit, it’s not clear what leverage he has, or who could step into the void if China chose to reduce the scale of its investments in the UK.

UK-China relations

When Johnson was chosen to succeed Theresa May as prime minister, he said his government would be “very pro-China.”

Times have changed.

The first major turning point was the US-China trade war, and the accompanying pressure on Britain to choose a side. Economically, the choice is stark (pdf, p.6). In 2018, Washington and London traded £201.6 billion ($255 billion) worth of goods, while trade with China was worth £68.3 billion. Exports to the US represented 18.8% of the UK’s total exports that year, compared to 3.6% for China. The US was the UK’s top trade partner, and China was the fifth.

At first, it appeared like the UK was willing to defy Washington on at least one issue: Huawei. The US believes that Huawei is a security risk, and has threatened to withhold intelligence from countries that use the company’s gear in their core 5G networks. But in spite of intense lobbying by American officials, in January, the UK government declined to ban Huawei from its network.

Then, the novel coronavirus started spreading around the globe. Evidence emerged that, when the first cases of Covid-19 were detected in Wuhan, Chinese officials covered them up, and later delayed releasing information about the virus to the World Health Organization. The pandemic shed light on how dependent the world is on China’s factories, which produce up to 85% of the world’s supply of face masks. It also made clear that Beijing is willing to use its economic might as a political bargaining chip: After Australia called for an inquiry into the origin of the virus, Beijing slapped tariffs on its barley and stopped buying meat from its major abattoirs.

As a result, anti-China sentiment has risen in Britain, where it was already quite high. According to a survey conducted by the British Foreign Policy Group (pdf, p. 6), only 18% of UK citizens trusted China to “act responsibly in the world” in May, down from roughly 21% in January.

Downing Street has also become more hawkish on China. Johnson is reportedly drawing up plans to cut Huawei out of the UK’s 5G network entirely by 2023. And the government is attempting to speed up plans for a bill that would tighten controls over Chinese corporate takeovers, after British intelligence warned lawmakers in April that they needed to restrict Chinese influence over strategic industries.

“What we’ve seen is the UK being shaken out of its complacency,” says Kerry Brown, director of the Lau China Institute at King’s College, London.

Another major turning point came in mid-April, when Beijing imposed a new security law on Hong Kong that restricts the city’s independence. Setting itself apart from the EU, which simply issued a statement, the UK announced that it would create a pathway to citizenship for nearly 3 million eligible citizens of Hong Kong who were born before Britain handed the city over to China in 1997. A spokesperson for China’s foreign ministry threatened “countermeasures.”

Some in the UK also find their government’s move incomprehensible. Brown, who doesn’t mince his words, qualified Johnson’s decision to “hand out passports like confetti in Hong Kong” as “fatuous, gestural grandstanding politics.”

The future of UK-China relations

When he was campaigning for Brexit, Johnson sold his supporters a vision of a “truly global Britain,” which hinges on the country’s ability to deepen its financial ties with Beijing. Now, says Thomas des Garets Geddes, a junior analyst at the Mercator Institute for China Studies, “the prospect of an imminent Sino-British free trade agreement already seems rather remote.”

Last year, the UK was the second largest recipient of Chinese FDI by volume. China also represents the world’s largest consumer market, with a middle class expected to grow to 550 million people by 2022, according to McKinsey.

That is a tough hole to fill. Johnson has previously expressed an interest in deepening economic ties with members of the Commonwealth, a 54-nation group of mostly former British colonies. But Brown argues that it’s “not really very likely that the Commonwealth is going to be a coherent and cohesive market.” Britain’s attempts to lay the foundation for a bilateral trade deal with India, the Commonwealth’s largest economy, have stalled in the past.

Peter Lu, an expert in mergers & acquisitions who leads Baker McKenzie’s China practice in London, represents Chinese investors wanting to buy or invest in European companies. He says recent developments in the UK-China relationship have given his clients pause. “It’s very hard for the key decision-maker to invest in a country which is not friendly,” he explains, “because faith is a very important factor in Chinese culture and they can’t justify investing a lot of money in hostile countries.”

Some argue Downing Street’s newfound hawkishness is little more than a distraction from Johnson’s domestic troubles over his widely-criticized handling of the pandemic and scandal-prone senior advisor, Dominic Cummings. But Geddes says “the growing hawkishness vis-à-vis China that is emerging across the UK’s political spectrum is very real and unlikely to disappear any time soon.”

That, argues Brown, is a strategic mistake. “The danger is that we shoot our mouths off now about Hong Kong and about all these other issues and back ourselves into a corner,” he says. “If the economy is as bad as it looks it’s going to be in a few months time, then the UK can’t really be picking and choosing” who it does business with.

“Beggars, unfortunately, can’t be choosers.”