The UK-China relationship

Deteriorating relationship

The high-point of UK-China relations over the last two decades was during the 2015-17 Conservative Government, when there was talk on both sides of a “golden era”.

However, growing controversy in the UK over the involvement of the Chinese multinational company Huawei in the UK’s 5G mobile phone network, along with mounting concern about the erosion of the “one country, two systems” status quo in Hong Kong, has dramatically changed the atmosphere between the two countries.

Other important factors have been UK concern about Chinese secrecy over the origins of the Covid-19 pandemic and China’s human rights clamp-down against the Muslim Uighur population in the Western province of Xinjiang.

Re-set or breakdown?

With the UK currently in the process of completing its departure from the European Union, and with a US administration which some view as an unreliable ally, critics have questioned whether the UK has chosen a good time to pick a fight with the world’s second largest economy and an emerging great power.

But others have argued that this seriously underestimates the UK’s ability to flourish post-Brexit and fails to understand that, in the end, a Communist Party-led China is more likely to be a strategic rival of the UK, than an ally. They also believe that, whatever short-term challenges there may be with the current US administration under President Donald Trump, the “special relationship” will endure.

The UK Government has been clear that, while the relationship with China may be undergoing a re-set, it wants to avoid complete breakdown.

It is too early to say with certainty what the future relationship between the UK and China will look like. It will depend as much on China’s response as on the UK’s recent actions.

So far, while China has expressed strong displeasure about recent UK actions—its Ambassador to the UK recently described relations as “seriously poisoned”—it has not fully revealed its hand. It too appears keen to avoid a serious breakdown.

The US factor

The UK-China relationship will also depend greatly on the trajectory of the US-China relationship, on which—amid talk of a new “cold war”—the future contours of the global order rests.

Despite recent events, the UK Government still hopes to avoid a binary choice between the US and China. And there is no certainty that a potential future US administration led by Donald Trump’s challenger, Joe Biden, would take a significantly softer line on China.

High stakes

Some take the view that so far China has got “far more” out of the growing bilateral trade and investment relationship than the UK. But most acknowledge that the UK also has a lot to lose from a “complete uncoupling”.

• In 2019, UK exports of goods and services to China were worth £30.7 billion, a record high, up from £23.4 billion in 2018. This is the fourth successive year on year increase in British exports to China.
• UK imports of goods and services from China in 2019 were £49.0 billion, also a record high. UK imports from China have now grown year on year every year since 1999.
• The UK’s trade deficit with China was -£18.3 billion in 2019. A surplus in services was more than offset by a deficit in goods.
• By 2019, China was the UK’s 6^th largest export market and 4^th largest source of imports.
• In 2018, the total stock of inward investment from China was £1.8 billion. This was equal to 0.1% of the UK’s total stock of inward Foreign Direct Investment (FDI). China was the 22^nd largest holder of the UK’s stock of inward FDI.
• The total stock of UK investment in China was worth £16.0 billion – this was equal to 1% of the UK’s total stock of outward FDI. The stock of UK outward investment in China was the UK’s 14^th largest stock.
• In addition to telecommunications, examples of major infrastructure assets in the UK where there is significant Chinese involvement include: the Hinckley Point C, Sizewell C and Bradwell nuclear power projects; Heathrow Airport; Thames Water; the National Grid; key North Sea oilfields; British Steel; South Western Trains; and Crossrail.
• British companies which have found China a fruitful investment destination have tended to be UK-based multinationals in the consumer, pharmaceutical and automotive sectors, as well as some financial services. They include AstraZeneca, Diageo, Unilever, Intercontinental Hotels Group (IHG), HSBC and Jaguar Land Rover.
• China sends more students to the UK than any other country – over 86,000 in 2018/19. The number of Chinese students in the UK has risen by 62% since 2011/12. The UK is the most popular education destination in the world for Chinese students, recently overtaking the US.

Note: readers may also find another recently published Library briefing useful. See UK-China relations: a timeline.