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For Britain the Road to China Runs Through Europe

Chinese and UK flags merge together.

Britain and China have been developing a closer relationship.

China and Great Britain have had a long but often fraught historical relationship with each other. The UK has been accused in recent years of sending the signal that it is willing to compromise its democratic values in its eagerness to deepen Chinese business ties with Britain.

Meanwhile, as a rising China has become the world’s second most powerful nation, the American-Chinese relationship has become more competitive recently, with pacts such as the Trans-Pacific Partnership (TPP) seemingly designed to exclude China from membership. In turn China has launched its own charm offensive, the so-called ‘One Belt, One Road’ Eurasian development strategy, which it believes will see more Asian and Western countries follow in Britain’s footsteps and join Chinese-friendly institutions and trading blocs.

The UK wishes to participate in both China’s One Belt, One Road projects and remain close to America on matters such as European security or cross-Atlantic trade like the proposed Transatlantic Trade & Investment Pact (TTIP). While China’s rise is complicating the position of unbroken hegemonic authority the U.S. has enjoyed in East Asia for the last 70 years, Britain relinquished Hong Kong, its last significant position there, in 1997. It no longer possesses the strength to substantially alter the balance of power in the region and has more to gain from staying out of the numerous security disputes littering East Asia.

Above all the UK needs to avoid being dragged into controversies such as America’s hostility to China’s naval expansion in the South China Sea. Although Beijing’s position on the issue is in violation of the UN Convention on the Law of the Sea (UNCLOS), which it has ratified, such territorial disputes should remain confined to the regional states which sustain them.

America and China will continue to compete with each other over security arrangements in the East Asian region and for economic influence globally. Despite the renewal of conflict in the Middle East and the return of Russian adventurism there and in Europe, in the longer term China is the state actor that matters and Asia is the battlefield of 21st century superpower rivalry.

East Asian relations in particular are often seen through a U.S.-China lens, with Beijing’s foreign policy interest towards European nations such as the UK thought of as being limited. Therefore the UK’s recent moves have surprised Western observers: London shocked its U.S. ally when it unexpectedly joined the Asian Infrastructure Investment Bank (AIIB) in March 2015. The UK government has made improving Sino-British relations a priority ever since 2013, when Beijing put UK-Chinese ties into the deep freeze in response to the Dalai Lama’s visit to Downing Street.

While the UK government has correctly gauged that China is an indispensable global partner, it has miscalculated the relative strengths of the two sides’ bargaining positions. The willingness of the UK government to allow Chinese investment into the UK in sectors such as nuclear power, ease visa restrictions, and reduce criticism of human rights has been causing increasing unease at home and abroad. As a second-tier global power Britain will exercise significant political influence with Beijing only if it works through its partners in Europe to negotiate the terms of its engagement there. The present solo negotiation with China, whilst trying ineffectually not to annoy its main America security partner, is a fragile policy which will crumble at the first serious crisis it encounters.

Instead the UK would achieve more of what it wants, and give away less political capital in the process, if it managed Anglo-Sino relations through a European mechanism such as the EU-China summits at Brussels. Much as Europe has come together to deal with Russia’s use of gas as a strategic weapon, this slow but collective foreign policy method is a surer way of dealing with an economically indispensable but politically awkward nation like China.

The UK remains a key financial centre for Chinese businesses and its firms still have close ties to the Chinese overseas territory of Hong Kong. But it is the European Union as a whole which is China’s largest trading partner, and Beijing is the EU’s second largest partner after the US. After Asia, Europe was Chinese people’s biggest destination for overseas travel, receiving 3.43 million Chinese visitors, an increase of 10.4%.

The EU has become China’s biggest source of imports, now trading at well over €1 billion a day. In short it is Europe as a whole, rather than any individual member state, which is an influential partner in Chinese eyes. While China is trying to diversify its economy away from reliance on manufacturing, the size of the EU’s market makes it too important for Beijing to simply ignore.

Britain has already been a great beneficiary of China’s economic rise over the past three decades and it is in the UK’s national interest for this blossoming relationship to continue. Over ten years alone imports grew from £11.4 billion in 2004, to £37.6 billion in 2014. China has become the UK’s second largest import partner behind America, now accounting for 7.0% of all UK imports in 2014, compared with just 3.3% in 2004.

As Beijing opens up its service sector to foreign investors, analysts have predicted Britain’s foreign direct investment (FDI) assets in China could rise hugely in worth from £6.6 billion in 2014 to a possible £25.6 billion by 2020. Indeed the UK’s Chancellor George Osborne has set himself a target of making China Britain’s second biggest trading partner by 2025.

China and Britain therefore have a joint interest in developing greater Sino-EU integration, despite the history of trading rows between the trading bloc and the superpower. The UK has been supporting Chinese efforts to develop the yuan as global trading currency, anticipating British financial services will be one of the main beneficiaries of the appearance of off-shore yuan trading markets.

Reflecting this, the UK government has proposed schemes to study connecting the stock markets in Shanghai and London, and to reach a free-trade pact between Beijing and the EU. Analysts speculate that with the UK’s specialization in financial services, health care, clean technology and life sciences, Britain is well positioned to gain from Beijing’s shift towards a more services- and consumption-based economy if Britain can leverage its position within the EU to tie China and Europe closer together.

By choosing the European route instead of the bilateral one to negotiate its trading relationship with Beijing the UK maximizes its leverage with both its European partners and China, which is useful for a medium-sized ex-colonial power. By minimizing the concessions it needs to make to China on sensitive issues such as Tibet or Xinjiang, Britain can also avoid alienating other important partners like Washington.

Irritants such as the long-running dispute over the South China Sea have been inflaming the US-Sino discourse again and hostile attitudes are always easy to find in a period in which US politicians are running for the Presidency. Beijing has also complicated matters for itself by adopting a strident and an uncompromising tone over its territorial issues that has alarmed its neighbors and international opinion in recent years.

China remains a difficult nation for Western governments to deal with politically, but a vital one for their companies and economies. The greatest diplomatic challenge for the EU in the 21st century will be how to harmonize Chinese-European relations without alienating America. London can play a pivotal role in this as the channel through which China’s currency and businesses reach the global status that its leaders crave for reasons of national prestige.

But in order to have the political muscle to do so it will have to work with other European leaders on the continent instead of seeing them as competitors for Chinese investment. For this reason Britain’s leaders may find their China goals achievable only if they focus their flexible bargaining skills much closer to home and ignore the temptations to head straight to Beijing to cut deals ahead of their European partners and rivals.

 

Author

Neil Thompson
Neil Thompson

Neil Thompson is a freelance international relations analyst whose work has appeared in the Diplomat, the International Security Network, Geopolitical Monitor, The Independent and various other publications. He holds an MA in the international relations of East Asia and has lived in China for three years and is presently based in London.

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