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New realities in China-UK relations

By John Ross: 0 Comment(s)Print E-mail China.org.cn, October 18, 2013

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Vice-Premier Ma Kai (right) and UK Chancellor of the Exchequer George Osborne oversee the signing of an agreement between the two countries in Beijing on Tuesday. The UK is the most popular destination in Europe for Chinese investment. [Zou Hong / China Daily]

Britain's finance minister George Osborne concluded substantive economic agreements with China during his visit to Beijing this week. There will be a RMB 80bn ($13bn) quota for U.K.-based financial institutions to invest in Chinese securities. In an important step, China's banks are to be allowed to set up branches, not just subsidiary companies, in London, for wholesale banking operations. This means China's banks will be able to tap into their huge parent bank's financial standing, to meet capitalization and reserve requirements – earlier restrictions on this had led to Chinese banks basing their European operations in Luxembourg rather than London.

There will be direct RMB-sterling currency trading, although a precise timetable has not yet been announced. This followed June's RMB 200bn ($32.6bn) currency swap agreement between the U.K. and China. The U.K. announced expedited arrangements for Chinese businesses and tourists to secure U.K. visas.

In the non-financial field, a $1,200 million Chinese investment into British property projects near Manchester airport was announced, following an earlier agreement on an investment of up to $1 billion by Chinese company ABP in the East London docklands areas.

These announcements formed part of a concerted charm offensive by U.K. politicians. The Mayor of London, Boris Johnson, visited Beijing at the same time as Osborne. Prime Minister Cameron will visit China in the autumn.

This U.K. approach was a sharp reversal of the U.K.'s policy in the previous three years. After being elected Prime Minister Cameron held a provocative meeting with the Dalai Lama despite warnings from China about the latter's political activities. China's Vice Finance Minister Zhu Guangya stated: "Frankly speaking, Sino-British relations were damaged because Prime Minister Cameron met with [the] Dalai." Johnson closed London offices in Beijing and Shanghai opened by the previous Mayor, Ken Livingstone.

In addition to the economic agreements, the U.K. political approach this time changed sharply. Osborne stressed Cameron had no plans to meet the Dalai Lama. The normally loquacious Johnson, who had previously written newspaper columns criticizing stress on teaching Mandarin in the UK, and claiming "Chinese cultural influence is virtually nil, and unlikely to increase," refused to answer five times in a single U.K. TV interview whether he would meet the Dalai Lama – saying he was only a Mayor.

In short, the U.K. politicians had been taught a sharp lesson in world realities. They had arrogantly believed they could come to power, insult China, and there would be no consequences. Instead, faced with China's economic rise, they were forced to sharply change their tune. The clear lesson was that European countries which attack China's core interests, for example by meeting the Dalai Lama, will suffer unacceptably painful consequences.

China's government, naturally, will not point out that lesson in quite such blunt terms, but other commentators can point out the truth without needing to observe diplomatic niceties. U.K. leaders found that to pursue their own country's interests they needed also to respect China's core concerns. The contrast with the approach of Tony Abbott, Australia's new conservative Prime Minister, who from day one in office attempted to achieve excellent relations with China, is rather evident.

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