Shifting Alliances in a World Where Change is the Only Certainty

As the United Kingdom looks to establish the final terms of its divorce with the European Union in 2019, China’s relationship with the USA appears to be increasingly fraught. In the light of all this, China and the UK might become convenient bedfellows, with Sino-British relations holding the potential to blossom into something bigger – centered around the Belt and Road Initiative and free trade.

In September 2013, China’s then newly crowned president Xi Jinping announced ambitious plans to kick start what is now known as the Belt and Road Initiative (BRI). What is touted by many as the project of the century and the second coming of the Marshall Plan, seeks to revive and expand the old Silk Road by creating a network of railway, highway and maritime infrastructure spanning three continents, which covers 65 percent of the world population and 40 percent of global GDP.  The BRI is astronomical in scale, consisting of many different partners, each with their own competing interests and unique circumstances. Thus, it is crucial that China and other BRI participants engage with each other in a way which considers and prioritizes mutual interests and deliver-ability.

Post-Brexit Britain

 During the summer of 2016, the UK finally cleared the air on an issue which has divided the country and its politicians for over 30 years – that is, the matter of EU membership. A small majority of the nation voted to cut ties with the world’s largest economic and monetary union (in terms of GDP). The island nation has always been somewhat removed, in geographical, political and cultural respects, from the rest of Europe, often finding more solace and camaraderie across the Atlantic. The UK, for better or worse, seeks to take full control of its destiny and operate in a manner more befitting to its individual circumstances and challenges, as it pushes for a hard Brexit, which entails the UK’s exit from the EU customs union and single market, and emancipation from EU laws or rulings of the European Court of Justice. And as the deadline for finalizing the terms of a Brexit nears (now less than a year away), Prime Minister Theresa May and the Conservative Party cling on to the edges of parliamentary rule, searching far and wide for allies and economic and political arrangements that will help bolster their case for a hard Brexit at both ends of the negotiation table.

The Sun Has Set on Empire, and now Rises in the East

 The Asian century is upon us. According to the Economist Intelligence Unit, by 2050, 53 percent of the world’s GDP will derive from Asia, up from 32 percent in 2014. In the midst of this region’s economic expansion, the BRI will undoubtedly play a crucial role in underpinning growth and development throughout Asia and possibly act as a nexus between trade and economic integration for all regions involved. Hence it is crucial that the UK, now on course to part ways with the EU, seizes the moment to make inroads with leading BRI participants such as China as soon as possible. Because if there were to be any party willing and able to plug the gap of reduced EU trade, it could very well be China. Indeed, in many ways it does seem as if Britain is beginning to take note. For instance, in 2015, the UK became a founder member of the Chinese-led Asian Infrastructure Investment Bank, while trade with China in 2017 reached record highs. It is also a current participant of the BRI, whose capital city is now officially connected via rail by way of the English Channel to the rest of the BRI network.

Renew Britannia

Generally speaking, economic cooperation between China and the UK within the BRI framework could possibly pay dividends in three areas: risk management, financial services, and the trading of physical goods between the two nations. In respect to risk management, the many individual projects with various national partners that can be found within the BRI will no doubt have their complexities. This will especially ring true when considering the potentially intricate contractual arrangements and terms of BRI related agreements. Some of these agreements may be difficult for participants to work around in relation to contractual interpretation, with the consequences of misinterpretation, coupled with the risk of project failure, far-reaching, as highlighted by the South China Morning Post. In such scenarios, British law firms could act as a mediating body between disputing parties, especially in cases where cross-border contracts are governed by English law.

Then of course there is Britain’s bread and butter in financial services. Arguably home to the world’s leading financial center in London, the UK is the globe’s largest exporter of financial services, having exported approximately $80 billion worth of financial services in 2015. This is really the area where the UK could strike it big in a renewed partnership with China, as London may serve as the perfect backdrop to the internationalization of the renminbi and China’s large-scale financing. As I observed in a previous article, the incentives behind making the Chinese yuan more international in its use and status for China are numerous.

The BRI marks one key pillar of this long-term aim, and this certainly has not been lost on the British. For instance, in 2014 London became home to the first clearing bank outside of Asia for the renminbi. Since then, as stated by Sam Xu, head of China transaction banking at Standard Chartered, London has gone on to become the go-to place in terms of a “renminbi center for most banks located in the Western hemisphere. Furthermore, on June 27th, UK Chancellor of the Exchequer Richard Hammond visited Beijing and promoted the UK as an “ideal cooperation partner” for helping the BRI become a globally recognized asset class in lieu of its standing as a first class, international global financial hub. It was also during this visit that talks concerning the acceleration of a London-Shanghai stock connect program were held. Make no mistake about it, in the quest to raise finance for a massive, global infrastructure project and increase the trade and use of your currency on the foreign exchange markets, the UK is always a good partner to have.

Last, but not least, there are of course the opportunities relating to the trade of real, physical products between the UK and China via the actual BRI line itself. In 2017, the UK finally opened its rail link to the BRI. The route itself, which has multiple stops throughout Central Asia and Europe, is said to shave two weeks off journey times when compared to travel by sea, at half the cost of typical air cargo deliveries. Cheaper, more efficient delivery methods for both trading partners across Eurasia will likely be conducive to an increase in the volume of goods traded between the two. Goods may include things such as Scotch whisky, milk powder, vitamin tablets and high end fashion items from the direction of the UK, and clothing and general household items from China. This has the potential to create jobs in the UK, while giving a much-needed boost to many of Britain’s former industrial towns across the north and West Midlands (who account for a large percentage of goods exported to China) in particular.

Know Where your Priorities Lie

 As China’s largest trading partner and fellow target of an increasingly protectionist USA, for the sake of both China and the EU, their trade relations now need to be more in line with each other. By acknowledging this, the UK’s helper role cannot be ignored. Nevertheless, Brexit and its pending deadline does bring a certain level of uncertainty surrounding the UK and the future of its place and influence in European affairs. On the other hand, a closer partnership with the UK on China’s part does command a degree of symbolism by reinforcing its commitment to free trade in the face of countervailing policies currently being enacted by America, and doing so with a nation that has historically been committed to promoting the virtues of free trade and also happens to be a very close ally with the USA.

As the months tick closer to March 29th, 2019, the day that the United Kingdom officially leaves the EU, there is a need for Britain to press on with conviction and with viable alternatives and points of leverage. Meanwhile, China seems to also be on the verge of a split of sorts with the US. The UK after Brexit is still wrought with confusion, but it still has lots to offer the world – now open to exploring more options than it has been in recent memory. The future of Sino-British relations could be in for some changes.

Timothy Lobban BA (Cantab) currently lives in Beijing where he freelances as a writer for China Focus

Editor: Dong Lingyi

Opinion articles reflect the views of their authors, not necessarily those of China Focus