How Brexit and Trump is Shifting UK-China Relations

2017-03-03 17:42:09

We interviewed Vice Chairman at 48 Group, Keith Bennett on how Brexit and Trump is shaping China-UK relations, and its significance in the years to come.

In mind of Brexit, how do you think the UK can and will strengthen its relationship with China?

First, before the Brexit referendum, China and the UK’s relationship was good; it was set to be a golden era for the two countries. President Xi’s visit to the UK in 2016 was very successful, especially on a trade and economic level. However, most of the political establishments thought that even if the referendum would be quite tight, they would still win the vote and remain within the EU. That, of course, did not happen and there was a change of government.

Theresa May stepped in as Prime Minister with no experience of international affairs. We can believe that she originally had inaccurate ideas and prejudices of China from ill-informed long-term advisers. She has discovered that the outcome of the referendum means we are leaving the EU will little good will. The UK now must strengthen its relationships with other economies as we have lost our free trade partners in the EU. China is a very important economy to consider. Being the second largest economy in the world, it is also an international investor. The UK cannot be passive about this issue, it must take an active approach to strengthening its relationship with China. We observed a difficult start to May’s premiership when she forced security services to review the Hinkley Point project, a nuclear power station to be constructed in Somerset and funded by the Chinese government.

However, after that issue was resolved, she went to the G20 summit in Hangzhou and had a good first encounter with Xi Jinping. China and the UK have agreed there will be a state visit from Theresa May to China this year. Although she and Boris Johnson have been invited to attend the Belt and Road Summit 2017 later this year, I doubt she will attend the event, which will show a lack of commitment from the UK to doing trade with China and show that the UK is still hesitant about some Chinese multilateral initiatives. John Osbourne was very enthusiastic about embracing the Asian infrastructure investment bank but Theresa May seems to want a bilateral relationship with China.

China will be looking at who lines up in support of the One Belt, One Road Initiative. This summit in May, along with the BRICS Summit, will be the most important international diplomatic events in China in 2017. China will pursue the opportunity to cooperate with the UK, but the UK must be proactive in seeking them and show sensitivity and receptivity to China’s concerns. China is not just a pool of money that people can come and make use of - both sides need to benefit from any deal made. The present British government still has something to learn about that.

What do you think about the implications of Trump’s hostile relationship with China? How does it have an impact on UK-US relations?

Within days of Trump’s inauguration, Theresa May rushed to Washington to be the first head of government to meet with Trump. She pushed herself to the head of a queue, but later realised most countries didn’t want to be in the queue to start off with. It brought embarrassment to her and to the UK and she is now in danger of losing her good will. On the other hand, how the China-US relationship will fold out is also an open question.

Most of the signs are pointing toward a negative relationship, but at the same time, if President Trump is to stand any chance of delivering something to the constituency that elected him, then he must fix the US’s poor infrastructure and deliver jobs to the people that elected him. I believe that a trade war is not the way to go.

Their shared telephone call showed Trump’s back down from hostility and accepting the “One China” policy. Founder of Alibaba Group Jack Ma said with e-commerce Alibaba could help create over a million jobs in the American Mid-West and the countries could be co-dependent on each other.

Theresa May wants a free trade agreement with the US, but Trump’s trade policy will stand in the way of that. China wants a win-win cooperation. But, Trump’s idea of a win-win cooperation is the US winning and winning again. What arrangements will lock the US into if they enter a free trade agreement? What bearing will that have for the UK’s ability to structure mutually advantageous deals with China?

On general terms, the British side will now look to make free trade agreements with as many places as possible to lower the negative impact of Brexit. But, if there is a trade war between the United States and China, the UK will be put under huge pressure by the Trump’s administration to line-up with the United States as Theresa May’s government clearly leans towards the United States side.

What are your expectations of changes under the 13th 5-year plan?

The 13th 5-year plan is very interesting in that since 1978, China has pursued a policy saying they will prioritize economic growth over everything else. China has lifted 700 million people out of poverty, and advanced out of being a negligible country. Now, it’s the second largest economy and its economic development has been tremendously successful but also stores up certain problems and contradictions. Nothing is forever and every country needs new policies.

China needs to address the sustainability of its growth model. It is possible to sustain double digit economic growth figures over a long period when the size of the economy isn’t great. When it is huge, 4% growth can be the same as 12% before. China must consider the sustainability of its growth and the quality of it as well, including sustainability on the natural environment, pollution, climate change, food safety, soil, river, water supply. There is also the disparity of wealth between individuals and regions.

Chinese leaders were talking about a more environmental plan even before Xi Jinping. His administration talks about them but manages to drive them through. This means certain areas of the economy are prioritized for development: solar and wind power.

Another thing is the question of research and development with innovation: the ‘Made in China’ strategy. Assembled and made in China is no longer OK. Products need to be created and invented in China.

The final aspect to think of is poverty reduction that has lifted over 700 million people out of poverty. It shows great economic development but there are still 55 million people in poverty. The remaining people are the most difficult to lift out as they are living in poor, remote regions.

As we are currently half-way through the 5-year plan, this upcoming session of the Chinese government will be an important one to watch to see the measures the Chinese government will be developing to drive the 5-year plan through to its conclusion successfully.

What do you think is the biggest obstacle for China’s economic development?

China’s economic development has been very successful since 1978. However, there are always challenges. I have great confidence in China’s ability to overcome challenges. People in the West can see China’s development issues and assume China cannot see or overcome them. The reality is China’s previous difficulties have all been overcome and dealt with. I don’t see any obstacle that is greater than the ones that it has already overcome.

Corruption is a huge issue but no Chinese leader has attacked it more than Xi Jinping. The environmental challenge is huge but 13th 5-year plan has a big focus on it. For example, pollution from coal causes the premature deaths of many people in China, and it is very easy for us to tell China to stop using it as an energy source. But that energy needs to be replaced by something and many people’s livelihood depends on mining coal. Throw these people out of work and social stability is lost. To move people from one economic model to another without going through huge disruption and social costs will undoubtedly have an impact on social stability.

Finally, a trade war between the US and China has the potential to knock a couple of points off China’s GDP growth which would necessitate reworking of the Chinese economic model that the country might not be ready for.

(Interview conducted by Stacey Ng, transcribed by Natasha Edwards)



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