Wed, Oct 21, 2015 page8

• UK courts China trade on Xi visit

  • By Andrew Hammond
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  Chinese President Xi Jinping (習近平) yesterday began a historic four-day trip to Britain. It is the first state visit by any Chinese president for a decade and both Beijing and London are — rhetorically at least — hailing a new golden era in bilateral ties.

  The pomp that Xi is to be afforded is underlined by the fact that he is to be feted at Buckingham Palace, Downing Street, Chequers (the country home of the British prime minister) and the Houses of Parliament. He is to be offered genuine five-star, red carpet treatment in a way designed for maximum public relations effect.

  Indeed, British Chancellor of the Exchequer George Osborne, who is a potential successor to British Prime Minister David Cameron in 10 Downing Street, has even pledged to make Britain “China’s best partner in the West.” This appears to be a concerted ambition for Osborne, personally, and has already ruffled the feathers of Washington following the UK’s decision to become a founder member of the Asian Infrastructure Investment Bank (AIIB), which is being championed by Beijing as a potential alternative to the World Bank.

  An unnamed senior official of the US President Barack Obama administration was widely quoted in March to be “wary about a trend toward constant [British] accommodation of Beijing, which is not the best way to engage a rising power.”

  The most important element of the “new” bilateral relationship is economics, and with the visit of Indian Prime Minister Narendra Modi next month, too, the British government’s key message to the outside world appears to be that the nation is “open for business.” In so doing, Osborne and Cameron have ratcheted down, in public at least, their human rights concerns about China, especially after bilateral relations temporarily went into a deep freeze in 2012 when Cameron met with the Dalai Lama.

  While this is not without controversy, there is a relatively broad political consensus in London that enhancing ties with Beijing, albeit not in an unqualified way, is in Britain’s national interest. Xi could be in power until the early 2020s and, especially after the depths of the 2008-2009 global economic downturn, and there is an opportunity to develop a relationship that could make a significant contribution to British prosperity for a generation to come.

  Britain already receives the largest amount of Chinese foreign direct investment of any EU nation, and is Beijing’s second-largest trade partner in the EU, after Germany. China is the UK’s second-largest non-EU trade partner.

  The pre-eminence of economics in bilateral ties is to be heavily underscored during Xi’s trip. Perhaps most eye-catchingly, it is to reportedly be announced that London is to host a debut offshore debt sale by the People’s Bank of China, the first issue of local currency sovereign bonds outside of China and Hong Kong. Accompanying these landmark developments, Xi is to apparently pledge to double trading hours in Shanghai to provide a more reliable guide to the yuan’s value during European trading hours.

  These changes have a clear potential to position London as the premier Western hub for financial interactions with Chinese markets. For Beijing, the announcements could be a key stepping stone toward the increased internationalization of the yuan.

  There is also to be a heavy emphasis during the trip on growing Chinese inward investment into Britain in areas from transport to energy and financial services, and Xi is to take a sizeable business delegation with him.

  Chinese firms are looking to take a significant stake in the Hinkley Point nuclear power plant, despite the potential security concerns voiced by some stakeholders. Investment is also being sought by London for regeneration projects in northern England, including the new High Speed 2 rail line.

  British businesses are eager to gain market opportunities in the massive Chinese market. A good example is in the energy arena where the UK is well positioned as a leader in key sub-sectors, including energy management systems, offshore wind and tackling air pollution.

  The potential opening is huge given that China faces serious air and water pollution, and it is more reliant on imports of oil than the US. Moreover, Beijing is committed to moving its economy away from energy intensive, inefficient industries toward cleaner energy and greater energy independence.

  The planned Chinese domestic investments in these areas are huge and include potentially about 50 trillion yuan (US$7.88 trillion) between now and 2020 for enabling urbanization, with a focus on efficient, clean and low-carbon infrastructure. Plus an expected 2 trillion to 3 trillion yuan in renewable energy over the next 10 years; about 466 billion yuan in Ultra High Voltage transmission and 3.8 trillion yuan on “smart grids.”

  For many, it might appear that the bilateral relationship is overwhelmingly one-way traffic, especially given the Chinese economy is now a multiple of that of Britain’s. However, for all that Beijing might be the more powerful partner, it is currently grateful to the UK government for placing such faith in the nation at a time when there have been mounting international concerns about its health.

  Osborne, in particular, has made a big deal of the fact that London and Beijing are to “stick together,” and made a high-profile trip to China last month. The appreciativeness of Beijing is reflected, in part, by the fact that Xi has decided to make his multi-day trip solely to Britain, rather than calling in on multiple countries along the way, as is often the case with his overseas travel.

  Taken overall, the growing warmth of ties is not without controversy, both domestically and internationally. However, Xi’s visit is likely to prove a success and is to reinforce the dominance of economics in bilateral relations.

  Andrew Hammond is an associate at the Centre for International Affairs, Diplomacy and Strategy at the London School of Economics, and a former special adviser to the UK government.

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