UK trying to have it both ways on China as chancellor seeks to build bridges in Beijing

High on the UK's wishlist will be a deal involving Chinese electric vehicles and renewable technology. Getty Images

There is a surreal aspect to the UK’s relations with China. Some would go further and say it smacks of rank hypocrisy. Certainly, it involves two hands.

There’s the hand to the fore this weekend when the chancellor, Rachel Reeves, leads a heavyweight delegation of business and City figures to Beijing to try to secure closer financial and trade ties between the two countries. Accompanying her will be Andrew Bailey, governor of the Bank of England; Nikhil Rathi, chief executive of the Financial Conduct Authority; Mark Tucker, chairman of HSBC; and a host of other business luminaries.

The two-handed approach is perfectly illustrated by how Reeves’ trip was due to coincide with the publication of a cross-Whitehall audit of UK relations with China, part of Labour’s manifesto commitment. So, as the Treasury and its boss wooed Beijing, other departments’ dealings with the country would come in for scrutiny.

That review has now been pushed back to spring and not all the findings will be made public.

Rachel Reeves is visiting China while MI5 Director General Ken McCallum has warned Chinese espionage represents a 'sustained campaign on a pretty epic scale'. PA

That is not to say the other hand is in retreat. The head of the MI5 security service, Sir Ken McCallum, has declared that Beijing’s espionage represents a “sustained campaign on a pretty epic scale”.

The same hand has a Chinese businessman outed as a ‘spy’ with contacts running deep into Britain’s royal family, Beijing operatives embedding themselves in parliament and China being blamed, a few weeks ago, for cutting two fibre-optic cables 100 miles apart on the Baltic seabed. The UK Navy announced on Monday it was taking a lead role in detecting future threats to the North Sea.

Even so, it is expected to still make policy recommendations, including boosting Britain’s China-watching capability and requiring those employed by the Chinese government to register their role or face criminal prosecution, along with those recruited by other states viewed as a danger to the UK, such as Russia, Iran and North Korea.

Meanwhile, Britain continues to give vent to protests in the media and elsewhere against the jailing of anti-Beijing activists in its former Hong Kong colony.

It's bizarre but not unknown. Britain maintains a similar balancing act with other countries, weighing up investment opportunities with disapproval of some aspects of their behaviour. The attitude to China, however, must rank as the most extreme.

Given the recent history between the two it’s quite likely that the visit – the first 'Economic and Financial Dialogue', as it is officially termed – for more than five years, will be marked by yet another diplomatic crisis.

Certainly, some of the news coverage lately has required a double-take, with an item on perceived Chinese aggression and subterfuge followed by another on how Britain hopes to profit from stronger Chinese investment and economic ties. The UK is trying to have it both ways.

China's five financial priorities

To achieve China's political priorities, it needs the global capital markets and that’s where the City of London comes in. NurPhoto

Much of the talking will occur behind closed doors. It is unlikely, though, that Reeves and Co will lambast President Xi Jinping and his colleagues. Quite the reverse. What is said exactly will remain unknown, although it is difficult to imagine her even so much as venturing into awkward territory.

More likely will be her pursuit of pragmatism and the belief the two have much to offer each other business-wise.

Britain, post-Brexit, is in urgent need of major trading partners. Promised deals with India and the US have not materialised, while those concluded so far have been minor in nature.

It won’t be lost on the participants that the discussions directly precede the return to the White House of Donald Trump, who has declared his intent to increase tariffs against Chinese imports. Britain is also unsure of where it stands with the new US president, whether the historical ‘special relationship’ carries weight with him or whether it too will be dragged into a trade war.

High on the Reeves' wishlist will be Chinese electric vehicles. They, along with renewable technology, could be manufactured in Britain, bringing much-wanted investment and jobs.

It's easy to look at China’s might and say there is little for Beijing to gain by striking accords with Britain, not with a nation that repeatedly disrespects it so publicly and accuses it of engaging in some sort of cold war. But the Chinese are nothing if not pragmatic themselves. There is plenty that Britain can afford them.

London is home to one of the world’s strongest professional service industries, it’s the second largest financial centre after New York (in Trump’s US, of course). The Chinese economy is shifting. The population is ageing and the focus is on increased consumption and achieving slower but sustained growth.

Xi’s government has listed its five financial priorities: technology, green finance, digitalisation, financial inclusion and pensions. To secure those it must look to the global capital markets and that’s where the City comes in.

That’s why, as well, along with Reeves and her officials there will be Tucker and other financiers. The talk will be of facilitating, not blocking. That chimes as well with a London market that is reeling from corporate defections to the US, that wishes to be seen to be as international money powerhouse. In return for assistance in capital-raising, UK banks, led by HSBC, wish to be granted greater access to China’s financial services.

Tread the finest of lines

Electric cars waiting for export waiting at Yantai port, in eastern China's Shandong province. AFP

The critics won’t like it but this weekend is due to herald further meetings across areas of mutual interest. The energy and climate change secretary, Ed Miliband, will journey to China shortly.

Reeves is picking up where a Tory chancellor, Philip Hammond left off. He was the last UK minister to hold formal economic discussions with China in 2019. Hammond was following a previous Tory chancellor, George Osborne, who hailed a ‘golden era’ in Anglo-China relations and ‘deep and close partnerships’.

Nobody is making that boast today. Hammond now says such talk was “a mistake”. He says: “We were raising expectations about a level of closeness that there could never be because of differing cultural and political traditions.”

Instead, the UK should be concentrating on a “mutually beneficial relationship which recognises its boundaries and … works to maximise the benefits for both sides within those boundaries”. He says that provided Reeves enters talks with “her eyes open” and does not allow security to be compromised for trade, there are deals to be struck.

That’s music to those who want to push UK economic growth but anathema to others. Reeves and her delegation must tread the finest of lines.