Britain Seeks Closer Links with China in a Post-Brexit World

Britain Seeks Closer Links with China in a Post-Brexit World

By Donald Gasper

It was Lord Palmerston, the Victorian-era British Foreign Secretary and Prime Minister, who said that nations had no permanent friends or enemies, only permanent interests. (The same man in 1841 famously dismissed Hong Kong as “a barren rock”.)


It is these “permanent interests” which seem to have triumphed in Sino-British relations after a minor hiccup which followed the Brexit referendum in the summer.


Things came to a head in September, 2016 when Jim O'Neill, the UK Treasury minister leading trade talks with China, suddenly resigned from the government in a row over relations with Beijing. Lord O'Neill is the former Goldman Sachs chief economist famous for coining the term BRICS to describe the emerging economies of Brazil, Russia, India, China and South Africa. He was angry at new Prime Minister Theresa May's apparent cold feet over the plan for Chinese participation in the Hinkley Point nuclear plant project. O'Neill was also afraid that she would sideline the Northern Powerhouse, another of his pet projects intended to attract Chinese investment. 


It was the former Conservative Chancellor of the Exchequer, George Osborne - the main architect of what was declared last year to be the “golden era” of UK-China relations — who had invited two Chinese state-owned companies — China National Nuclear Corporation (CNNC) and China General Nuclear Power Corporation (CGNPC) — to participate in the development of nuclear generating plants in Britain. They would be working alongside a state-owned French company, EDF, at Hinckley Point in Somerset as would be the sole operators of a nuclear power station at Bradwell in Essex. This had been one of the key agreements trumpeted during President Xi Jinping's state visit to the UK in October, 2015.


In the situation of uncertainty following the Brexit referendum in June, 2016, it seemed at one point that the Cabinet had succumbed to a barrage of propaganda from an unholy alliance of anti-nuclear environmentalists and anti-China Tory backbenchers who accused the Government of “kow-towing” to Beijing. The Government announced, much to China's annoyance, that it was temporarily freezing the project while it double-checked the “national security” implications of a foreign government, a Communist one to boot, being involved in such a sensitive area.


Eventually, the overwhelming economic advantages to the UK were seen to outweigh any other considerations and the Government announced that it would go ahead with the project. 


“The hesitation as to whether to continue with the Hinckley Point nuclear plant is more ‘cock up’ rather than ‘conspiracy’,” says Rupert Gather, chairman of InvestUK. “Calling it in for review was quite sensible and whilst I don’t agree with the conclusion it was pretty predictable that it was going to be approved. The mistake was not to tell the Chinese what was going on. It was very poor form and I’m not surprised that the Chinese were upset. Anyway I think it will calm down now.”


A similar view is expressed by Lord Sassoon, chairman of the China-Britain Business Council: “It is not surprising that people worried about the impact of the delayed signing of the Hinkley Point nuclear power station, but China seemed to accept that this was an understandable review by a new prime minister.”


And Osborne is also relieved: “I thought that it was extremely encouraging that after looking at the facts and the details of the Hinckley Point nuclear power decision, the current government decided to proceed with that deal that I'd worked on with China and with France, as a great example of how China and the West can work together,” he told China Daily earlier this month in what was only his second interview with the press since he left office in June.


The former Chancellor insisted that the UK must achieve the closest possible relationship with the EU after Brexit if it was not to deter Chinese investors. He made the point that many Chinese businesses invested in the UK because it was a “jumping off point” to gain access to Europe.


For the past several years, the UK has been China's favoured trade partner in Europe precisely because it was a convenient entry point to the European Union for Chinese banks and other businesses.


Almost a third, or US $5.1 billion, of the US $18 billion Chinese investment in the EU in 2014 went to Britain.


However, in a recent EY Global Capital Barometer survey, 53 per cent of Chinese respondents said they were now less confident about investing in the UK.


“We now need to do everything we can to avoid some of the dangers and difficulties that Brexit might offer up to our country,” said Osborne. “And one of those things is making sure it doesn't deter foreign investment, including from China.”


Gather of InvestUK, which seeks to attract foreign investment to the UK, says that it has not been affected by any adverse official Chinese view on Brexit. “We were very pro-Brexit as we believe that in the medium term it will allow UK to have more distinctive and attractive international case for inward investment,” he explains.


Now that it is likely that Brexit will lead to Britain losing the tariff advantages of being a member of the 28-nation bloc, London is desperate to sign trade agreements with countries outside the EU. That was the main reason for Theresa May's visit to India this month — which does not seem to have met with the success she was hoping for.


This is why the idea of signing a Free Trade Agreement with China, the world's second largest market, is suddenly so attractive for Downing Street.


“We are already preparing the ground for a possible future UK-China free trade and investment agreement,” says Sassoon. He admits that such an agreement won't be easy, with UK firms lobbying for greater access to invest, for example, in the mainland's expanding services market. 


But according to a new report by economists Alicia Garcia-Herrero and Xu Jianwei, an FTA with China will be neither as easy nor as clearly advantageous as portrayed by Brexit supporters. Even if the UK reaches an agreement with China, the UK cannot serve as a back door for Chinese products to enter the EU, because the EU is very likely use rules of origin to close any such loopholes, the report says.


Moreover, “the more the UK reaches an independent favourable trade agreement with China after Brexit, the harder it will be for the UK to strike a good deal with EU.”











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