David Green
The omission generated confusion among journalists and some lawmakers, as the government’s prior press guidance had indicated the speech would include an announcement of sanctions under a law modeled on the Global Magnitsky Act in the U.S. During a later Q&A session with MPs, Raab said the government would keep the possibility of those sanctions “in reserve.” Iain Duncan Smith, a former leader of the ruling Conservative Party who supports the Magnitsky sanctions, asked in Parliament who in government might be blocking Raab from following through with the planned measures.
Whoever was responsible, the reversal was indicative of the absence of direction or guiding principles at the heart of the British government’s China strategy. Its last white paper on China was published in 2009—a lifetime ago considering the aggressively authoritarian turn the Chinese Communist Party has taken under Xi Jinping since he assumed power in 2012.
The softer tone of Raab’s speech also reflects Prime Minister Boris Johnson’s desire to keep his diplomatic options open as the U.K. assumes the annually rotating presidency of the G-7, and also prepares to host the next United Nations climate change conference in Glasgow later this year. For the past five years, the U.K. has been implementing a vaguely defined post-Brexit foreign policy that it calls “Global Britain.” Now, as it struggles to fill in the economic gap left by its chaotic exit from the European Union, Johnson’s government must decide how it accounts for China’s acts of moral turpitude, without closing the door on deeper trade and investment ties with the world’s second-largest economy.
Johnson is particularly leery of undermining relations with China as the British economy recovers from Brexit and the COVID-19 pandemic. China has an extensive track record of punishing geopolitical transgressions with commercial countermeasures. Recent Chinese tariffs on Australian imports of everything from wine to timber and coal, in retaliation for Canberra’s calls for an investigation into the origins of the novel coronavirus, are the latest example.
Some analysts believe that even as British leaders try to balance economic concerns, they are moving toward a firmer stance against China. Though Raab’s speech was overshadowed by the last-minute dropping of the Magnitsky sanctions, his strong criticism of the atrocities in Xinjiang could indicate “a substantive shift in U.K. government thinking on China” that suggests economic engagement is actually being deprioritized, said Sophia Gaston, managing director of the British Foreign Policy Group, a think tank in London. “The question is how this will be balanced… when crucial economic and infrastructure decisions are at stake.”
Bilateral trade between the U.K. and China totaled 80 billion pounds (roughly $110 billion) in 2019, and Chinese companies play a vital role in British infrastructure. The state-owned China General Nuclear Power Group holds a one-third stake in the Hinkley Point C nuclear power station, a 20-billion-pound project being built in Somerset, in southwestern England. Last year, Chinese steelmaker Jingye Group completed its acquisition of British Steel, for about 50 million pounds. Other Chinese firms have large stakes in British offshore oil fields, as well as transportation networks and utilities.
Ramping up criticism of Beijing not only risks deterring future Chinese investment, but could also undermine British businesses operating in China, according to Andrew Cainey, co-founder of Asiability, a business advisory firm that helps British clients access Chinese markets. “Slower licensing and customs clearance or tax investigations into U.K. companies are possible,” he said, while pointing out such retaliatory measures would also entail costs for Beijing. “China is wary of pushing the U.K. too far towards the U.S. position on access to financial markets, education and technology.”
The U.K. must decide how it accounts for China’s acts of moral turpitude, without closing the door on trade and investment ties with the world’s second-largest economy.
Those concerns may account for China’s muted response to the U.K.’s exclusion of the controversial Chinese telecommunications giant Huawei from its 5G networks last year on national security grounds, a result of pressure from the U.S. and the British defense establishment. In the future, such sensitive investments from abroad will be screened under an Investment and National Security Law that is making its way through Parliament and is expected to pass. This bill also aims to prevent Chinese companies from acquiring technology assets that may later be repurposed for military or surveillance applications. China has already enacted similar rules, potentially auguring future tit-for-tat restrictions.
Meanwhile, an ongoing review of the U.K.’s security, defense and development policy is expected to drive a reorientation of military and diplomatic assets toward the Asia-Pacific region. The HMS Queen Elizabeth, a new aircraft carrier that is Britain’s largest-ever warship, is expected to make its maiden deployment later this year on a route that will include the South China Sea, potentially putting the U.K. on a collision course with Beijing. A new program to give certain Hong Kong residents an expedited pathway to U.K. citizenship, announced in response to China’s efforts to restrict the territory’s autonomy, is another bone of contention.
Still, there is potential for the U.K. to expand its relationship with China, according to Wang Huiyao, president of the Center for China and Globalization, a think tank in Beijing. “Brexit is a unique chance to work together to shape the global trading system,” he said, calling both the U.K. and China “potential entrants to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership,” the vast free trade area that includes 11 Pacific Rim countries.
From the Chinese perspective, its recently signed investment agreement with the EU provides a potential blueprint for the U.K. to follow, though it could face pushback from Washington. In addition, recent legislation in the U.S. could force Chinese companies to delist from American stock exchanges in the future. That could be a boon for London’s financial services industry, Wang said, as Chinese companies seek out alternative sources of capital.
Bill Allen, an economist at the U.K.’s National Institute of Economic and Social Research, agrees that London could become a more attractive place for Chinese and other Asian companies to float shares, particularly if Beijing’s crackdown in Hong Kong continues to undermine its autonomy, and, by extension, its role as the world’s financial gateway to China. “London has infrastructure that the [rest of Europe] does not, so stands a good chance of attracting that business,” he said.
While the U.K. certainly stands to benefit, the prevailing view is that Chinese finance needs London more than the other way around. London is already the largest foreign exchange hub and payments center for renminbi-denominated transactions outside of mainland China, Hong Kong, Macao and Taiwan and remains crucial to China’s faltering efforts to internationalize its currency. There is also a desire on the Chinese side for London-based design, engineering and financial firms to lend their expertise to the Belt and Road Initiative, Beijing’s sweeping infrastructure investment program.
All of these business entanglements highlight the urgency for Downing Street of coming up with a coherent, cohesive strategy toward China. It will be a tricky needle to thread, given the frustration in Parliament over the Johnson government’s refusal to in fact sanction Chinese officials for abuses in Hong Kong and Xinjiang. Last week, the government only narrowly defeated a legislative amendment that would have prohibited any trade deal with countries that the British High Court found to be committing genocide—a provision that was squarely directed at China. Dozens of Conservative lawmakers joined with the opposition to support the measure, and more such revolts are likely in the future.
In an op-ed in the state-run China Daily this month titled, “Better to be friends than rivals,” the departing Chinese ambassador to the U.K., Liu Xiaoming, suggested that the British government faces a binary choice on how to approach China. But in truth, Beijing has a long history of blowing hot and cold toward London. “Many Chinese officials were educated in U.K. universities,” Cainey said. “They are happy to talk about win-win relationships one day and then lambast us the next.”
Liu’s successor, the U.S.-educated senior diplomat Zheng Zeguang, is likely to open a new, more precarious phase in bilateral relations, according to Steve Tsang, director of the China Institute at SOAS University of London. “Zheng assumes the ambassadorship in an environment of ‘wolf warrior’ diplomacy encouraged by Xi Jinping,” he said. “Zheng can be expected to take a robust approach to the U.K., or his tenure will be a rather short one.”
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