Rishi Sunak and the Chinese Conundrum

By Emily Chen

Today is Chinese New Year, and the British people are expected to order traditional food en masse. In fact, 25% of UK residents chose Chinese food as their preferred takeaway during the pandemic. This is but one indicator of the high value placed by our society on Chinese products. During the pandemic, British people turned to China for items other than food. Former Shadow Health Secretary Jonathan Ashworth suggested in January 2022 that the UK’s trade deficit with China tripled due to the increased spending on electronic goods – primarily sourced from China – for both entertainment and working from home.

It is perhaps not surprising then that Chancellor Rishi Sunak is pushing to improve the UK-China trading relationship. The Telegraph recently reported that he wants a “complete sea change” of relations and is hoping to relaunch a major trade summit between the two nations. The UK-China Economic and Financial Dialogue has not happened since 2019 due to a combination of COVID-19, and tensions over Hong Kong. The Chancellor hopes to revive the Dialogue in the coming months. Major financial institutions are expected to seek commercial deals at these talks. This is because China has abandoned its traditional restrictions on foreign shareholdings and business licences, and since allowing Goldman Sachs to be permitted to end its partnership with domestic financial veteran Fang Fenglei, companies such as HSBC and Standard Chartered are optimistic about the Chancellor’s plans.

Sunak’s pledge to improve relations comes just a month after Washington DC passed a Bill, aimed at China, banning goods made with forced labour from being imported into the US. Moreover, in October, Prime Minister Boris Johnson raised concerns about alleged human rights abuses in the Xinjiang province with President Xi Jinping. Human Rights Watch has also accused the Chinese government of tightening ideological control and heightening repression at home. Furthermore, it has been reported that some Uighurs in the Xingiang region who were forcibly disappeared were confirmed imprisoned or dead, claims that China has denied. Trade Minister Penny Mordaunt responded by promising that the government was looking “very, very carefully” at its policies. The approach being adopted by Sunak is certainly more cautious than that of his predecessor George Osborne under David Cameron’s leadership, where a “golden era” with China was pursued, a policy which saw the UK more open to China and focused heavily on securing Chinese investment in the UK.

Speaking about the UK-China relationship, Sunak said recently: “the truth is, China is both one of the most important economies in the world and a state with fundamentally different values to ours. We need a mature and balanced relationship. That means being eyes wide open about their increasing international influence and continuing to take a principled stand on issues we judge to contravene our values”. However, some, including MPs within his own party, see Sunak’s renewed effort to enhance the UK’s trading relationship with China as incompatible with upholding the values the UK Government seeks to champion. For example, there is a caucus of Conservatives which favours more stringent policy towards China, with the China Research Group having been founded in 2020 by Chair of the Foreign Affairs Select Committee, Tom Tugendhat.  Tugendhat, who recently declared his interest in running for the Conservative leadership should Boris Johnson be ousted, feels that what China is doing is “fundamentally against the interests of the British people”. Fellow Conservative Nusrat Ghani has also argued that it is “embarrassing that the Americans are allowing their supply chains to be cleaner than ours.”

It’s important to look at the sheer volume of trade between the two countries when discussing what a future relationship between the UK and China should look like. Total trade in goods and services (exports plus imports) between the UK and China was £91.9 billion in the four quarters to the end of Q2 2021, an increase of 8.6% or £7.2 billion from the four quarters to the end of Q2 2020. Based on latest stats, China is the UK’s 3rd largest trading partner accounting for 7.6% of total UK trade which makes rejecting deeper trade relations challenging to justify at a time when the UK economy is struggling.