What’s actually going on?
“Although China and the UK are located at opposite ends of the Eurasian continent, we have a long shared deep mutual affection,”—Xi Jinping may have been stretching the truth to breaking point when he addressed both houses of Parliament on 20th October, but he had reason to be optimistic. The UK sought to dazzle as it rolled out the red carpet for his four-day state visit, which included a dinner at Buckingham palace, a dinner at Chequers, and organising pro-Jinping crowds to drown out pro-democracy protesters. He also addressed the UCL Confucius Institute. According to David Cameron, relations between the UK and China are entering a “golden era.”
The string of deals announced during Mr Xi’s visit certainly benefit both parties. For its part, China will invest a sorely-needed £6 billion into a nuclear power plant being built at Hinkley Point in Somerset; George Osborne hopes more money will follow to help the development of a “Northern Powerhouse” of English cities. The government has also announced that it will cut the cost of two-year multiple entry visas into Britain for Chinese tourists, who are especially good at spending their money here.
In turn, China will have access to the City and Britain’s financial markets, which should prove valuable in Mr Xi’s quest to internationalise the yuan – he hopes it may one day rivalling the dollar as an internationally traded currency. On 20th October China sold its first sovereign bond in London, worth $4 million. Dealing with the City should enhance China’s credibility as an international financial power, which will also be helped by Britain’s joining the China-led Asian Infrastructure Investment Bank in March.
Should we be worried?
This new relationship has provoked serious, even hostile, comments, both domestically and abroad. A steady stream of criticism has come from Washington DC, where the worry is that Britain’s deepening relationship with China separates it from the US and undermines Western policies such as standing up to China in regions like the South China Sea and on human rights. These worries are echoed internally, with additional concerns over the dumping of Chinese steel on the UK market (meaning, Chinese steel being sold cheaply to the UK—undercutting domestic steel manufacturing) being voiced by Jeremy Corbyn, among others.
The question most people are asking is: do the economic benefits of this deal outweigh the moral drawbacks of such a close relationship with China, with its terrible human rights record?
The answer is complex. Certainly, the economic benefits to Britain could be huge: this is a country which desperately needs spending on infrastructure, and China can provide. The question over steel dumping has less impact: it would happen even without China. Global overcapacity means that Britain will be flooded with cheap steel regardless of any deals it makes with China, which is far more invested in keeping its underperforming steel mills running than the UK is. Britain cannot fiddle with energy prices to deter dumping, because that would fall foul of European state-aid rules, as well as environmental commitments. Nor can it impose tariffs, which are set at European level.
The human rights aspect is trickier. Imposing sanctions on China as retaliation for the way it treats its people is counterproductive: unlike South Africa in the ‘80s, China is the world’s second largest economy, and the economic drawbacks from not trading with it would deter most countries from imposing any meaningful sanctions. Plus, there are plenty of less scrupulous countries that China could do business with. Most importantly, trade with China improves the lives of the people there: a prosperous economy, as well as giving them access to Western goods, means the government has been able to make economic reforms which have lifted hundreds of millions of Chinese out of poverty.
Looking to the future?
The hope is that closer links to the “freedom-loving” West will inspire the Chinese government to move towards greater human rights. There is evidence of this happening: on 29th October China replaced its one-child policy with a two-child policy, perhaps as a result of this new relationship—or perhaps simply as a long awaited answer to an ageing population.
If handled properly, Britain’s closer links with China could benefit its people, moving towards lasting change. The problem is that the UK economy may become so reliant on Chinese money, that it squanders its chance as China’s closest Western ally to lobby for greater human rights for its people in favour of a quick yuan. For the sake of both countries, we must hope this does not happen.