This article was written by APCO Worldwide intern, Julian Gray.
Two full months since the UK’s transitional arrangements with the European Union ended, the “Global Britain” vision of post-Brexit foreign and trade relations is now being tested all over the world. Yet it is Britain’s relationship with China that is emerging as one of the greatest tests of all. The stakes are especially high for UK multinational companies looking to China for future growth, either through expanding their presence there or entering the market for the first time.
At the same time, China’s own global relationships are shifting rapidly. It concluded an investment agreement with the EU at the end of last year, while the United States ramped up decoupling measures ahead of the inauguration of President Biden, who is pushing for greater transatlantic cooperation on China. Against an increasingly complex geopolitical backdrop, the UK will have to make its own decisions on where to take relations with Beijing. The question is not whether Britain will be Global, but how will it be Global?
How We Got Here
The UK-China relationship has seen significant ups and downs over the last six years. In 2015, the British government announced a “Golden Era” of relations and welcomed tens of billions of pounds of Chinese investments. Just one year later, however, Brexit brought in a new Prime Minister, whose chief of staff had slammed the flagship Hinkley Point C nuclear powerplant deal as “selling our national security to China”, over fears Beijing might try to build in backdoors. The project was subjected to review, while Theresa May tried to reassure President Xi Jinping that the UK was still committed to the relationship.
From 2018, an escalating trade and technology confrontation between the United States and China complicated the UK’s relations with Beijing, forcing the British government to make difficult decisions, notably with respect to 5G infrastructure. Meanwhile, favorable public sentiment towards China has fallen significantly during the COVID-19 pandemic.
Political, Not Economic Factors Will Drive Future Relations
Now that Britain has left the EU, will it use its newfound freedom to explore closer economic ties with China, as some, including Theresa May, have suggested? There is reason to be doubtful. Deal-making with China is not just a commercial issue—it is intensely political, and such obstacles are growing.
A good example is the EU’s recently concluded investment agreement with China, which largely owes more to the vicissitudes of macro-politics than it does to economic calculation. China had little commercial interest in a deal that offered scarce new access to European markets already largely open to investment. After nearly seven years of negotiations, it took the election of a U.S. president seeking to enhance transatlantic coordination on China for Beijing to see a real—political—benefit to such an agreement with Europe. On the EU side, the deal remains so controversial that it may struggle to gain the European Parliament’s approval.
From a UK perspective, there are further complications. Even before taking into account public opinion of China (between 2019 and 2020, unfavorable views jumped from 55% to 74%), are voters really behind the free trading vision embodied by “Global Britain”? There is little evidence that Brexit was an endorsement of more free trade—and there are views to the contrary, especially surrounding the topic of uneven trading arrangements with commercial giants such as China. It should also not be forgotten that “Global Britain” is as much about deepening ties with the United States, and the UK has led a push to assemble a “D10” group of democracies that risks being perceived as an “anti-China” alliance.
On the other hand, if leaving the EU does not present the UK with grand new opportunities for trade with China, neither is it a significant obstacle. Whatever its impacts in Europe, Brexit does not appreciably shift the economic picture for British business in China, although UK companies will miss out on the benefits of the EU-China investment agreement, should it be ratified.
Far more consequential is rising pressure on the UK government to be tougher on China, both from the public and Parliament, with groups such as the Conservative Party’s China Research Group pressing for a harder line. This trend has also seen China become increasingly critical of the UK’s actions, yet the British government has avoided explicitly siding with either the United States or China in their trade and technology conflict.
Risks and Opportunities for UK Multinationals in 2021
China remains a leading source of growth opportunities for British business. In 2021, China’s economy is expected to grow nearly 8%, and the British Chamber of Commerce in China’s Sentiment Survey 2020-2021 finds that the majority of UK companies plan to either increase or maintain their investment levels in China, with 82% citing market potential as their reason to increase investment.
However, for UK multinationals in China, operating across jurisdictions also means navigating growing divisions between the expectations of stakeholders on both sides. The experiences of HSBC and Standard Chartered last year demonstrate the need for businesses to assess their exposure to political flashpoints and to have a sound crisis communications strategy in place should they find themselves at the center of one.
To make the most of the opportunities available in China, British companies should stay attuned to Chinese domestic policy directions emanating from the 14th Five-Year Plan, with industrial upgrading and green development areas where UK businesses have notable competitive advantages. China is also likely to be a crucial participant at the COP26 summit in Glasgow, providing an opportunity for companies to valorize UK environmental leadership and align their corporate narratives with policy commitments.