Originally published at http://global.chinadaily.com.cn/
China’s relationship with the UK after it leaves the European Union will come under focus, with British Prime Minister Theresa May set to begin a three-day visit to China on Wednesday.
May will aim to build on the “golden era” of relations between the two countries forged when President Xi Jinping made a state visit to the UK in October 2015.
May, who will go to Shanghai and Wuhan as well as Beijing, will lead a delegation of leading business figures including senior executives from the HSBC and Standard Chartered bank groups and the London Stock Exchange. Britain is trying to promote its expertise in financial services.
Her visit follows that of another leading European politician, French President Emmanuel Macron, to Beijing earlier this month. It will be May’s first visit to China since attending the G20 Summit in Hangzhou in September 2016.
Lady Barbara Judge, chair of the Institute of Directors, one of the UK’s leading business organizations, who was visiting Beijing ahead of the British prime minister’s arrival, said May coming to China was particularly important for Britain, with Brexit looming. The UK is scheduled to leave the EU in March 2019.
“No one is yet sure of what the ultimate outcome of the Brexit negotiation will be, but, whatever happens, both the friendship and trade relations between the UK and China will be paramount,” Judge said.
“The fact the prime minister has chosen to come here with a big business delegation is evidence of the fact that our government and investor and trade establishment feel that China is of prime importance as a trading partner for the UK.”
Liu Xiaoming, China’s ambassador to Britain, said it was important to build on the success of Xi’s trip to the UK and to cement cooperation in other areas, including China’s Belt and Road Initiative.
“The forthcoming visit is a chance for the UK and China to show they have well in mind the larger picture of the international landscapes as their bilateral relations and respect each other’s core interests and major concerns,” he said.
During Xi’s trip to the UK, some 30 billion pounds ($42.07 billion, 266.7 billion yuan) of trade agreements were reached between the two countries, including a 6 billion pound investment in the new Hinkley Point C nuclear power plant in Somerset as well as investment in the UK’s new HS2 high-speed rail network.
The UK had a trade deficit with China of 25.4 billion pounds in 2016, but this is likely to be reduced, with China in the future expected to have a huge appetite for the country’s services.
Britain’s services exports to China in 2016 were 3.3 billion pounds, 35 percent of which comprised travel services with the UK being a major destination for Chinese tourists, according to official UK data. Overall it had a trade surplus in services of 1.7 billion pounds.
Motor vehicles were Britain’s largest export category, making up 3.7 billion pounds of the 16.8 billion pounds in total exports. China was the UK’s eighth-largest export market and fourth-largest source of imports in 2016.
One of May’s priorities will be to lay the groundwork for a free-trade agreement between Britain and China after Brexit, although because of still being a EU member no specific terms can be discussed.
“The UK can’t do any bilateral agreements now because it is still a member of the European Union, but they can talk in general about how things can work and indicate a desire to go forward when the time is right,” Judge said.
Liam Halligan, the economist and commentator, said leaving the European Union will create an opportunity for the UK to sell more of its services to China with its historic links to Hong Kong giving it an advantage.
“The UK is the world’s biggest exporter of financial services and none of the other EU countries are anywhere near us on financial services,” he said.
Judge, however, said it was important not to see services as the whole picture of China and the UK’s future trade relationship.
“Services are definitely prime, but the Chinese have also been actively investing in UK infrastructure and that investment has been very welcome. I think there are also many manufacturing opportunities back and forth between the two countries,” she said.
Kerry Brown, director of the Lau Institute at King’s College London, said May’s visit to China will be an opportunity to actually explain what Brexit means to the Chinese.
Douglas McWilliams, deputy chairman of the London-based Centre for Economics and Business Research, said Brexit will force British business to think beyond Europe and more globally, which will only serve to enhance the UK-China relationship.
“There is a psychological aspect to all of this. At the moment it is very much the attitude in the UK that we trade primarily with people nearby. Part of the effect of Brexit will be to force people to look beyond,” he said.
Adam Williams, a former chairman of the British Chamber of Commerce in China and a former group chief representative of the Jardine Matheson Group in China, said Brexit could make the UK less attractive as a destination for Chinese investment and trade.
“The accessibility and openness the UK has to Chinese investment, compared to other European countries, combined with also being a member of the European Union was quite a winner for Britain,” he said.
“Chinese companies could invest in Britain which would then give them a leg into the bigger European market. I think some of the appeal of Britain must drain away now.”
London is expected to play a major role in the international convertibility of the yuan. It is the second busiest clearing center only to Hong Kong outside the Chinese mainland, replacing Singapore in 2016. London is by far the world’s largest foreign exchange center, a position it has occupied since 1995.
Halligan, also author with Gerard Lyon of Clean Brexit, said that because of this the idea that China is going to move all its yuan clearing to mainland Europe is a nonstarter.
“Frankfurt is like the No 29 financial capital of the world, Paris is No 34, according to the data in our book. We are not competing with Frankfurt and Paris but Hong Kong and New York and maybe eventually it might be Shanghai, I don’t know,” he said.
Brown at the Lau Institute said whether Brexit is going to be good or bad for China depends on whether the UK remains open to China’s investment and whether China can forge an intellectual partnership with UK universities.
“It could be a good thing. It could be that it makes Britain think in a very different way about its trading and investment relationship with China. It could lead to things that weren’t done before or it could be a very negative thing. I don’t think we really know.”