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Written Evidence for Foreign Relations Select Committee Inquiry on UK-China Relations

Evidence, UK Parliament, 28 April, 2017

1.                   The UK’s China policy under the former government was based on a number of erroneous assumptions that predicate that (i) Chinese economic growth is certain and sustainable, (ii) that Chinese investment into the UK was an unalloyed good; and that (iii) there are few political risks to engagement to China; and (iv) that China is a status-quo power which desires only modest changes to the current global order.

2.                   Western debates about rising power China have long been divided between those who emphasize engagement and the transformative side of trade and those who emphasize China’s autocratic government, human rights record, and assertive foreign policy (particularly over its near maritime space). Over the past ten years, there has been a gradual shift as China watchers have begun to adopt a more critical view of China’s foreign policy behaviour, which has been particularly strong among foreign policy elites in the United States, Japan, and other regional (Asian-Pacific) powers. Despite this shift, most diplomacy seeks to hedge against the risks inherent in China’s rise, carrying out both engagement and balancing behaviours. While many in the mainstream insist that this is the best means of maintaining peaceful and stable relations with China, this ambiguity may be ultimately ineffective, and even counter-productive to both UK national interest and to defending a rules-based international order.

3.                   By this reading, the current spate of tensions between Washington and Beijing are down to the unpredictability of the new Trump administration, and the UK should not or cannot afford to become involved. While these three assumptions still define bilateral ties, they are becoming less and less valid and should be reviewed in the light of changes inside China and in China’s foreign policy behaviour. This submission examines the bilateral under the following propositions:

•         The UK cannot afford let trade define the relationship with Beijing, despite the pressures of Brexit, instilling instead a policy of “cautious engagement”

•         The UK should not develop too strong a dependency on Chinese trade, given the structural weaknesses of its economy, such as slowing growth, uncertain financial reporting methods, the property bubble, the continued dominance of state owned enterprises (SOE), and the large national debt to GDP ratio. There is a potential for sudden shocks.

•         The UK must also consider the costs and risks of Chinese investment inside the UK.

•         The UK must reconsider the proposition that economic interdependency is making China into a “responsible stakeholder”. In key ways, it has not.

•         The UK must realize that Chinese actions in the South China Sea (and Asia Pacific more widely) are bound to effect the UK. The idea that the UK can stand aside as a major power attempts to control a major Europe-Asia trade route is misguided and counter-productive to UK national interests.

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America, Japan and the UK: A New Three-Way Alliance?

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With Chris Bew, Researcher, Henry Jackson Society

The National Interest, 4 April, 2017

In January 2016, standing on the flight deck of the USS Ronald Reagan aircraft carrier based in Japan, the UK defence secretary, Michael Fallon, spoke of Washington’s commitment to a “three-way alliance” between the United Kingdom, Japan and the United States. He stated that the three countries would develop their commitment to interoperability by working closely together in the future. This is significant because it comes at a time when there are serious questions about stability in the region, and when the East and South China Seas may become crucial issues in relations between Beijing, Washington and Tokyo.

Putting this rhetoric into practice, on October 20, 2016, the chief of the Japanese Maritime Force and the chiefs of the British and U.S. navies sat across the table from each other at the Pentagon to sign a trilateral cooperation agreement. This agreement commits all three navies to closer cooperation, with increased exercises and joint patrols in the future. Signed at the service-level, this agreement sets forth a roadmap for what it calls “mutually desired strategic effects.”

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–>Why Team Up?
In the context of an increasingly uncertain world, we are seeing more and more states aligning with each other in non-traditional security relationships at the global level. These alignments are non-traditional in the sense that they are not formal alliances, but rather informal and ever-expanding arrangements. Covering a host of different areas, they are in many ways a reaction to the complex level of threats facing liberal democracies these days. Considering Britain’s imminent departure from the European Union, forming alliances with other powerful nations around the world is fundamental. With the United Kingdom, United States and Japan each being liberal democracies and having vested interests in the maintenance of the international rules-based system, they make natural bedfellows.

 

UK-Japan Relations
Focusing closer on the relationship between the UK and Japan, the current bastion of UK-Japan security cooperation is the 2+2 meetings. These have been held annually since 2015. At these meetings, the foreign and defence secretaries from both sides come together, usually for two days of meetings, to discuss a range of common areas of interest. The 2+2 arrangement allows both states to talk about areas of common concern, which allows them to signal both each other, and third-party states about their intentions and interests.

During the January 2016 2+2, both countries affirmed their support for the rule of law in the East and South China Seas. They also expressed a full commitment to Ukrainian sovereignty, adding their concern over North Korea’s missile and nuclear program. To those listening, the 2+2 is perhaps a hint of the security preferences of both the UK and Japan. Other purposes of the 2+2 meetings include helping to socialise each other towards common security interests and enabling both countries to create a framework for bilateral security cooperation.

In the last January 2017 2+2, both countries signed the Acquisition and Cross-Servicing Agreement (ACSA) to facilitate closer bilateral defence logistics. This agreement will enable the two militaries to cooperate abroad on combined exercises and peacekeeping operations, alongside humanitarian assistance and disaster relief missions. Ultimately, this will increase the efficiency of both country’s forces. So, for instance, British tankers will be able to refuel Japanese aircraft, or Japanese ships might be able to refuel British vessels, and so on. An ACSA is really the first step in the holy grail of interoperability for conventional militaries. This agreement improves future cooperative expediency because it removes the need for further individual case-by-case agreements.

UK-Japan Future Cooperation
The tightening of UK-Japan relations comes at a time when rising powers in Asia-Pacific are causing critical uncertainty in the region and beyond. This has led to policymakers strengthening alliances around the world. The United Kingdom and Japan are a strong example of such an alliance that has been redoubled in recent years.

Another significant area of future cooperation between London and Tokyo includes a joint research project on Chemical and Biological Protection suits and other weapons systems. In an age of shrinking defence budgets and rising threats, it makes sense to partner with other liberal democracies, sharing useful technology and pooling precious research and development funding. This follows the success of the first round of talks of a new Joint New Air-to-Air Missile. This sharing of technology is significant because it builds a framework for ever-closer collaboration between both countries for the foreseeable future in a world where nations are choosing their alliances extremely carefully. In a time of growing insecurity, such partnerships are to be welcomed.


Putting Security into Prime Minister May’s New Industrial Strategy

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The RUSI Newsbrief, 15 February, 2017

Prime Minister Theresa May’s proposed post-Brexit industrial strategy is commendable. However, the UK must avoid the pitfalls of an overly mercantilist policy, especially when it comes to dealing with China.

The UK prime minister’s Green Paper on a new industrial strategy was written ‘to provoke debate’ and ‘start a consultation’ as part of Theresa May’s commitment to make the UK a global leader in free trade. This is a commendable drive to build both post-Brexit prosperity and a post-EU identity for Britain. However, the dangers of developing overly mercantilist policies are ever present and a laissez-faire approach to inbound foreign investment should be avoided, particularly when it comes to foreign ownership of critical national infrastructure (CNI). 

A growing number of autocratic states have become global trading partners, and while this is to be warmly welcomed, it is not without risks. China is of particular note in this regard. China is predicted to surpass the US as the largest cross-border investor by 2020 and has a reputation for large-scale projects and visionary economic planning. Furthermore, the prime minister declared in a recent BBC interview that the ‘golden era’ of UK–China relations is still in place.

Much of China’s economic miracle has been built on leap-frogging technologies, achieved through a mixture of cyber espionage and pushing foreign firms with desirable intellectual property into disadvantageous joint ventures with Chinese rivals. As far back as 2007, MI5 was alerting executives in Britain to the dangers of commercial espionage from Chinese state actors. The 2016 US-China Economic and Security Review Commission asserts that ‘reports of Chinese espionage against the United States have risen significantly over the past 15 years’, noting that while the emphasis has been on ‘defence industrial companies, national security decision makers, and critical national infrastructure entities’. This article reviews three types of Chinese investment into foreign firms.

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Foreign Investment in Critical Areas like Nuclear Power Need a Formal Vetting Process

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LSE Business Review, October 11, 2016

One of the first decisions taken by Theresa May as prime minister was to delay deciding on the £18 billion Hinkley Point nuclear power project. Because it was a centrepiece project as part of former chancellor George Osborne’s “Golden Age” of closer bilateral ties with China, the issue was instantly politicised, provoking an intense debate in Parliament and across government departments. Defenders of the deal included the Chinese embassy and foreign ministry, which came out publicly to apply pressure on May over the issue.

Meanwhile, those close to the prime minister – formerly home office secretary – pointed out the security risks to Britain’s critical national infrastructure and national security. In the end, a face-saving compromise was reached: the Sino-French consortium would go ahead with the deal with Her Majesty’s Government keeping a majority stake in the company to calm nerves within the security agencies.

The fact that it was a Chinese company which provoked the issue was not incidental: Chinese companies – private and state-owned – have become increasingly active in investing and acquiring businesses and assets in economies across the developed world, particularly in the US (no.1), Australia (no.3), and the UK (no.1 in Europe). In 2014, the FT noted that China’s outbound investment had exceeded its domestic investment and the country was on its way to becoming the world’s largest cross-border investor. As the Hinkley Point debate was flaring up here in London, Australian Treasury Minister Scott Morrison announced that two separate Chinese bids to lease Australia’s largest electricity grid would be blocked for “national security” reasons. It is obvious that May is not alone in her concerns.

To some, China’s focus on infrastructure has a nefarious side: after all, national defence and intelligence agencies depend on critical national infrastructure (CNI) to do their job. To others, China’s focus on CNI is the result of its own domestic economy, which is heavily weighted in favor of big, capital-intensive infrastructure projects. Whatever the case, it is certain that many more private and state-owned Chinese investors will seek to purchase stakes in British companies and infrastructure. Some of these – like stakes in the UK’s hotel industry are clearly benign. Others – like the bid for Global Switch, Britain’s largest data centre, may have repercussions for national security, in the wake of the UK MOD’s move to cloud computing. It may also have privacy concerns as a recent NATO report suggests that China is behind many hacks in the West and is said, by Stratfor, to have the largest domestic mass surveillance apparatus of any country.

Regardless of the answer, the need is clear in the UK for a more formal process than has taken place up until now. Australia and the United States – two of the largest recipients of Chinese investment – have long had treasury-linked agencies to deal with the foreign investment and security: the Committee for Foreign Investment in the United States (CFIUS) and the Foreign Investment Review Bureau (FIRB).

Naturally, their approach may or may not be a right fit for the UK, which has a strong culture of unregulated investment, but it would benefit both Government and business to initiate some sort of discussion on what is currently a very grey area. Such a review process would calm nerves on both sides – including those of Chinese investors who may have been riled by Hinkley Point. Clearly, Britain wants Chinese investment and even welcomes it within certain parts of the national infrastructure, but not all of its parts. What is most needed, according to Malcolm Rifkind – former Chairman of the Intelligence and Security Committee – is oversight, “This project went from consideration to contract, without ministers even hearing about it. There must be some sort of accountability with deals of this nature.” Under Rifkind, the ISC produced a strongly critical report in 2013 on the BT-Huawei deal in which BT was supplied components by a company said to have links with the Chinese military.

Prime minister May could best start this conversation in the Cabinet Office and bring members of the security community and business community together in order to hammer out the powers and processes of such a review body. One idea is to make it a committee or subcommittee within the cabinet office, with its own staff. The committee might be composed of business leaders or senior bureaucrats from within relevant ministries, Trade, Treasury, Ministry of Defence and the Home Office. Staffers could be seconded from among these same ministries. Certainly, the Treasury would have to have a large stake in any organization to give it traction, perhaps as Chair. Then there is the question of what it would do: in short, it would create guidelines for firms which operate inside Britain’s critical national infrastructure. It would also investigate adding new areas – particularly those in newly-developing technologies and computing – to areas of sensitivity. Whether it would be given teeth, or simply remain an advisory body – depends very much on whether May can rally her cabinet around the idea to pass legislation in Parliament. Either way, the committee could bring clarity to a gray area.

Creating such a committee makes sense for the UK at the moment. The number of Chinese investments into British infrastructure are only set to rise, and the UK is reconfiguring its EU-dated regulations. While the watchword of the day for many concerned British companies will be “continuity”, this process of rewriting the UK’s legal framework does provide Prime Minister May an opportunity to create a formal review process. Furthermore, a process might remind the UK of the need for investor diversity.

Winnie King, Professor of Chinese International Political Economy at Bristol University states, “The UK needs to frame its approach in terms of Brexit: “Now that we have left the bed of European supra-national governance, we shouldn’t just jump into bed with another big actor. We need to diversify.”

A recent report by the Oxford Review of Economic Policy has challenged some of the myths around Chinese infrastructure projects. The UK has had the fastest growing economy in the Group of Seven for the past four years. It deals in high value, not high volume goods, and its manufacturing includes luxury smart high-tech firms like McLaren, Deep Mind, and others. Britain has remained competitive and in the top 10 global economies by remaining open to foreign investment: a review process will not change that. But it will make future investment more open-eyed and transparent.


Are Japan and the UK Trading Places?

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The National Interest, July 18, 2016

At times, British and American policymakers and academics have wondered if Japan might become the “Britain of the Far East” by playing a larger role in foreign affairs, more supportive of the liberal rules-based system, and more in line with American global security strategy. Britain would have responsibility for the Western hemisphere, while Japan covered the Asia-Pacific. However, as the past decade has seen an emboldened and increasingly capable Japan attempting define a role for itself in global security, the same period has seen a UK seemingly less able or less willing to shoulder its responsibility. A combination of post-Iraq and post-Afghanistan war-weariness saw Parliament usurp Prime Minister Cameron’s attempt to intervene in Syria in 2013, while Brexit and the slight chance of a second Scottish referendum have created political chaos in Westminster, raising the possibility that Britain may be too consumed by internal affairs to take part in foreign policy for the next three to four years.

Of course, the machinery of government will go on, but Britain’s loss of focus occurs at a time critical to the liberal international order. On one flank, China pushes hard to gain de facto control of one of the world’s most strategic shipping lanes, and in doing so establishes a baseline for its attitude toward international law and smaller powers. On the other, Russia continues to mobilize itself domestically with nationalism and anti-Westernism, in a seeming attempt to recover its Cold War–era buffer zone of satellite states. Though Theresa May as the new Prime Minister has shown some resolve – with regards to Trident – the recent Permanent Court of Arbitration ruling passed by virtually unnoticed in Whitehall, immersed as they were in the formation of the new Cabinet, the Turkish Coup, and the terror attack in Nice.

Despite the UK’s apparent drift, Tokyo and London are optimal allies for the United States. Based off of the continents to which they belong, they have never quite fit into those continents, culturally or politically, showing instead a preference for naval power. Both are comparatively economically powerful within their regions, technologically advanced and governed by liberal democratic systems, sharing similar values to the United States. Because of those values, both have been traditionally strong financial supporters of the United Nations, as well as pillars of the slew of financial international government organizations that collectively made up Bretton Woods. That American policymakers occasionally compared them is not surprising.

The most famous instance of this analogy was within the influential 2000 Armitage-Nye Report, which by suggesting the parallel gave Tokyo an attractive and recognizable template to emulate. Despite skepticism that Japan would ever shift its defensive posture from the easy-riding Yoshida Doctrine, toward collective self-defense or contributing forces to conflicts outside the Asia-Pacific, Tokyo has taken a long slew of incremental steps in both directions and developed new security ties with Australia, India and even the United Kingdom. While some would argue that these steps are still extremely limited, the fact remains that Prime Minister Abe’s “proactive contribution to peace” is a long way from former Prime Minister Miyazawa Kiichi’s insistence that Japan only had a “pretense of a foreign policy.”

As the United Kingdom reels from the June 23 Brexit referendum and struggles protracted Brexit negotiations and the possibility of a second Scottish referendum, it would appear that Japan is indeed becoming the “Britain of the East,” while Britain seems to be turning into a (Yoshida-era) “Japan of the West.” For it is quite clear that protracted negotiations required for exiting the European market, combined with the hasty search for new foreign trade agreements with economic powers such as the United States, India, China and Japan, will take up much of the energies of Whitehall’s mandarins. While this should only take five years or so, it will nevertheless force a loss of focus for Britain’s elites on its security contribution in the world. The possibility of Scottish independence would only add to the misery, stripping it of many of its best capabilities at precisely the time when NATO, Europe and the world need them most.

It is possible that as a result of these repeated blows, Britain will seek to recover the “splendid isolation” of Lord Salisbury, sans empire, and sans splendor, focusing instead on trade and keeping aloof of continental goings-on. Or it might also seek to leverage its financial sector as a leverage between the old hegemon—the United States—and the world’s newest superpower, China. The third possibility, about which I have written previously, is that Britain could double down on its role as a pillar of the liberal international order. It has already demonstrated that Brexit will not stand in the way of its commitments to eastern Europe by committing to the stationing of troops there.

Coming a full circle, it seems that there is much that Japan and the United Kingdom might do together to add value to their capabilities at this time of uncertainty and change. There is already talk within London’s corridors of the desirability of an FTA with Japan, though this will doubtless take time to negotiate. The two are currently engaged in early defense-industrial cooperative development, and have been widening strategic and foreign policy discussions in the defense minister–foreign minister talks (2+2). The possibility for greater U.S.-UK-Japan trilateral cooperation opens up all sorts of possibilities within the intelligence, cyber and space sectors. Regardless of Brexit or continued incrementalism within Japan, both London and Tokyo have a large range of institutional and industrial assets at their fingertips. Both are also seeking closer ties with New Delhi at the moment, a further area of potential cooperation.

As we look toward the remainder of this summer, we see a China that is highly likely to build up its military assets in the South China Sea, ignoring the recent finding of the Permanent Court of Arbitration. Simultaneously, we might see calls from within the EU to drop the arms embargo on China from states that have vested industrial interests in doing so. Britain’s absence from the EU’s top tables could have a destabilizing effect on Asia’s already precarious balance of power. Perhaps London and Tokyo might craft a bilateral diplomatic venture within Brussels and the capitals of Europe in that eventuality.

There is something to be said about the UK losing its sheen precisely as Japan begins to step up to the plate as a contributor to global security, but for those who believe the UK is out for the count, should consider London’s pluckiness and the deep support among its population and foreign policy elites for many of the liberal values that undergird the international system. It also has a long history of maritime operations, intelligence and expeditionary warfare that make it a superb partner for Japan. The fact that both work closely with American forces and seek interoperability with NATO allies creates an even deeper synergy for bilateral cooperation. At a time of uncertainty and change, one can never have too many friends.

What Kind of Foreign Policy and Security Posture should a Post-Brexit Britain Adopt?

RUSI Commentary, July 4th, 2016

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Although British foreign policy is likely to encounter a variety of hardships after the withdrawal from the EU, some of the options still offer interesting opportunities which should not diminish the country’s international standing and contribution.

The decision to leave the EU is now behind us. Ahead lie months, perhaps even years of wrangling – with the EU, with Scotland, and all the unpleasantness that both will entail. However, once the storm dies down – and eventually it will – Britons are going to have to decide what kind of power we want to be. We will have to try and answer what kind of role we want to have, and what capacities that role will require. We will have to imagine a Britain without Scotland, and attempt to construct a role that is commensurate with the scaled-down ambitions and capabilities. Thus,  Britain might look forward to three possible future postures. These are – in shorthand – Little Britain, Middleman, and Best Friends Forever.

The first posture involves a Britain that sees the world as an increasingly less friendly place, beginning a long gradual withdrawal from global affairs as a result. It might continue to be a formal ally of the United States, and perhaps even remain in NATO, but will only play the bare minimum role required to maintain those relationships, passing through crises as obliquely as possible. To all intents and purposes, the UK of this future will look like Cold War-era Japan, formally allied with the US, but offloading its responsibilities, a free rider on the efforts and resources of others. Instead of contributing to global security, it will allow its narrower interests to determine its actions, a parochial mercantilism taking pride of place in Whitehall. It will be Lord Salisbury’s ‘splendid isolation’ without the Empire and, perhaps, without the splendour. This would be the ‘peaceful shire’ Britain, with London leaving foreign policy to others, sipping tea and playing cricket on a pleasant Sunday afternoon.

The second posture might be called Middleman, and has some similarities with the first option in that mercantilism, writ large, begins to dominate Britain’s foreign policy calculations. Shorn of the size and confidence afforded it by membership to the EU, Britain will approach new developing markets with gusto and abandon. Seeing values as ‘unaffordable’, this Britain will swiftly jettison any pretence of shoring up the global liberal values system, seeing the modern international system as one large test of survival of the fittest. The Osborne Doctrine, so named for the Chancellor’s warm China engagement policies, will be accelerated and see London attempting to carve out a middleman role for itself between the old hegemon – the US – and the emerging one – -China. Counting on the UK’s certainty that only the City of London, with its knowledge and history of currency trading, can help Beijing internationalise the Chinese currency as a global currency Britain will dance between the various centres of power, attempting to play banker to the great powers. It could become Switzerland-Plus, attempting to exert power behind the scenes, without favourites or friends.

Finally, there is the Best Friends Forever scenario, which would see Britain bounce off the painful divorce with the EU with a renewed sense of purpose and identity as an upholder of Western liberalism. In this future, the UK will still have to run to new markets, such as India, China and others, but it will balance mercantilism with a strong emphasis on values and allies, doubling down on its NATO commitments in Eastern Europe and re-fortifying ties with Washington. This would see it re-engaging with old allies like Australia, and strengthening nascent security ties with democracies such as Japan India. Security diversity would become a part of British security posture and as with today, London would seek to bring together coalitions and groups of like-minded states whenever crises struck. This will see Britain becoming the ultimate middle power in security diplomacy and shoring up the rules-based system through strong support of Western allies and of regulatory norms relating to space and cybersecurity.

How viable are any of these three scenarios? Of course, as with reality, the future UK will exhibit aspects of all three at various times, and under different prime ministers. However, if any leader were to take Britain down the path of the first two, it would be great loss to the international liberal system. In many ways, the third option offers the most interesting and exciting possibilities under current circumstances. For those who worry about the US’s willingness to welcome the UK back into the fold, one might note that President Obama has already moved to reaffirm the importance of the special relationship in the wake of Brexit. Once away from the EU model, Britain – and its allies – might find new opportunities. The ‘Five Eyes’ intelligence-sharing arrangement has long been a pillar of global security for the Anglosphere. Policy elites in the UK might push to revitalise the Five Eyes at the political level, moving it beyond its shadowy corridors to a more strategic forum level. Five Eyes summits and working groups at the agency and ministerial level could become a viable vehicle for the UK and its closest allies to uphold the liberal order and at least tackle the growing Sino-Russian sense of revanchism. Modelled on the ad hoc minilateralism and trilateralism currently seen in the Asia Pacific, a Five Eyes arrangement could even consider one-day creating a pathway to closer association for long-standing liberal allies like Japan, Sweden, Denmark, and the Netherlands.

While some kinks may need to be ironed out in the special relationship with the United States, Britain’s urban educated elites have more in common with American liberalism than they realise. Whether or not he can acknowledge it, Jeremy Corbyn is more likely to find his soulmate in a Bernie Sanders rather than in a Vladimir Putin. And his followers are more likely to find their beliefs in social diversity, social justice and human rights reflected in the US’s own progressive society than in a Russia that outlaws homosexuality or a China that imprisons human rights lawyers.

The UK should remember its interests, but also note that these need not be purely commercial. Values and old alliances are a part of British identity. Although the UK faces doubtless hardship ,it could also be on the cusp of exciting opportunities and possibilities.


The PRC: Britain’s New ‘Special Relationship?’

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PacNet, CSIS Pacific Forum, October 27

Chinese President Xi Jinping received the reddest of red-carpet treatments in London last week, with Xi being treated to a 21-gun salute, a royal carriage ride down the Mall, an address to both Houses of Parliament, followed by a State Banquet at Buckingham Palace and a visit to the Prime Minister’s official residence Chequers.  The fact that British Prime Minister David Cameron used the full powers of the British state to welcome the Chinese leader has many wondering about the future of UK-China ties as the two proclaim a new “golden era” of bilateral relations, and agree to create a “global comprehensive strategic partnership.”

While many in London question the timing – this year Beijing mismanaged a stock market slump while simultaneously tightening control over dissidents – the Treasury attitude is simply to bulldoze the new China approach through other departments of government, including a skeptical Foreign Office. The visit and the assumptions it’s based on raise questions about Britain’s tactical understanding of China. After all, as Evan Medeiros, former senior staffer on Asia on President Obama’s National Security Staff, told the Financial Times, “if you give in to Chinese pressure, it will inevitably lead to more Chinese pressure.”

The seemingly ‘new’ mercantilist approach of Chancellor George Osborne is deeply imbedded in historical traditions of British foreign policy-making, and has run parallel and sometimes counter to Britain’s values-oriented foreign policy. Long before Henry Kissinger said it, Lord Palmerston claimed that Britain had no “permanent friends or allies, only permanent interests.” Britain has always viewed trade as one of these permanent interests, since power is derived from economic standing. This is evident throughout the last century: the UK was the largest source of long-term foreign direct investment in the United States, played a pivotal role in Japanese industrialization, and was one of Germany’s main trade partners prior to both the first and second world wars. If the new China policy is a mistake, Britain has made it before.

The Soviet Union was the exception to the rule: blame Russian communist views of trade. Therefore, it is unremarkable that Osborne wishes to hitch the UK wagon to China’s rising star. Seen from Whitehall, this approach marries traditional notions of liberal trade internationalism with the promise of profit for City of London financiers. The Downing Street website puts this financial promise at the front of its webpage describing Xi’s visit, claiming it will “unlock” more than $48 billion of commercial deals across energy, finance, technology, and education. The question is whether all this promise will be delivered and at what cost to Britain’s security and freedom of maneuver.

Unlike Britain, China does not prize the bilateral relationship for short-term economic gains, but rather seeks to use British financial acumen to lift itself into ascendancy. The internationalization of the RMB, using London as a trading hub, and a scheme to link the London and Shanghai stock markets – both announced during Xi’s visit – are to build the foundation of a new Chinese order. Xi was not in London just to meet the Queen. He was there to make deals, buying the experience and know-how of the British financial world, and he has the cash to close the deal. The $48 billion that he’s put on the table could be just a start: despite the slowing of its economy and huge public debt, China has more than $1.53 trillion in sovereign wealth funds. Furthermore, London would profit immensely from becoming the primary RMB trade hub, which is a very real possibility says Yang Du, head of Thomson Reuters China business desk. Currently, Britain is the eighth largest destination for Chinese investment: when Prime Minister Cameron and Chancellor Osborne said at the Buckingham Palace Banquet that they want Britain to be China’s “best partner in the West,” this is what they mean.

Caution is in order, however. The Osborne Doctrine suffers from several fatal flaws. First, it is hype built on hype. Several economists view Britain’s strategy toward China as over-relying on foreign investment to sustain growth. Rather than passing the costs of building British infrastructure – such as three planned nuclear power plants – on to China, why not borrow at 3 percent and maintain control over processes, control over quality, and most important, maintain the capacity of local industry? This off-shoring is rich in irony: Britain – home to the industrial revolution – is paying China – one of the most recent adherents of the industrial revolution – to finance and make British products in Britain. As if to drive home the point, Xi’s visit was preceded by the bankruptcy of a leading company in the British steel industry, a result of Chinese steel dumping this year.

The second flaw is that China does not seem serious about upholding either the rules-based order that Britain helped build after World War II or the liberal economic and political values implicit in that order. Prime Minister Cameron’s silence over human rights issues for the sake of finance was widely criticized in the British media with Chinese dissident artist Ai Weiwei claiming that it was in the name of profit. The Chinese ambassador had even warned that Xi would be “offended” if human rights were raised during the visit. The main problem with this approach is that it is simply out of step with the British public, which expects an ethical foreign policy from Whitehall. Power and finance are not enough.

This misplaced faith in Chinese investment promises and the willingness to downplay human rights issues have not gone down well in Washington, where London’s embrace of authoritarian China looks increasingly out-of-step with its regional concerns. This is the third flaw of Osborne’s strategy: Britain is out of touch with other liberal democracies like Germany and France and how they balance economic policies with principles. London’s willingness to join the AIIB without consulting or even alerting the G-7 was a major blow to the group, but it also damaged British prestige.

Britain is increasingly out of step with Washington, which sees its trade relationship with China rapidly eclipsed by issues such as cyber security and maritime security in the Asia Pacific. Osborne’s willingness to throw open certain sectors of the economy critical to national security to Chinese investment strikes many as naïve if not dangerous: a 2013 British Parliamentary committee issued a scathing report of the government’s willingness to award large contracts in the telecommunications sector to Huawei, a Chinese company with purported links to the People’s Liberation Army. Though Cameron did receive a joint statement from Xi over cyber security during the visit, it is no stronger than the one Xi gave in Washington, and probably has less meaning.

Finally, there is the flaw of unintended consequences: Beijing’s belief that Britain – a major player in the current liberal rules-based order – is bandwagoning for profit may encourage China to attempt to dismantle the system in favor of one that favors Beijing’s autocratic preferences. No one believes that Britain could play a pivotal role if a conflict broke out in the Asia Pacific, but Western cohesion may help deter Chinese adventurism. This regional aspect highlights the shortsightedness of the Osborne Doctrine because it assumes that as long as China’s misbehavior occurs in the Asia-Pacific region, it does not impinge on British interests. This belies Britain’s dependence on trade routes that transit the contested South China Sea and East China Sea waters.

President Xi’s carriage ride down the Mall to Buckingham Palace was rich in symbolism; the image of Prime Minister Cameron kowtowing to the Chinese president evokes Britain’s first diplomatic mission to China in 1793, when Lord Macartney traveled to meet the Qianlong Emperor in Peking. His attempt to open trade between the two empires ended in failure as the two held incompatible worldviews and practiced incompatible diplomatic cultures. Seeing President Xi and his wife dressed in Western clothes, in front of a trade delegation to Britain would seem to indicate that two states understand each much better now. However, Cameron’s willingness to trade British principles and significant concessions for investment and market access show that perhaps London is no closer to understanding Beijing than it was 250 years ago.

The Syrian Intifada

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Jeremy S. Maxie

Energy & Political Risk Consultant

In Pace

Peace in Korea and beyond

southseaconversations 讨论南海

China comments on the South (China) Sea disputes

Christopher Phillips

Academic, Writer, Commentator

tokyocooney

(does america)

Philosophical Politics

political philosophy of current events

Minh Thi's blog

pieces of me

North Korea Leadership Watch

Research and Analysis on the DPRK Leadership

Quartz

Quartz is a digitally native news outlet for the new global economy.

TIME

Current & Breaking News | National & World Updates

Moscow-on-Thames

Sam Greene - London & Moscow

kirstyevidence

Musings on research, international development and other stuff

The Rights Angle

Francesca Pizzutelli's blog on human rights and human beings

Bayard & Holmes

If you're in a fair fight, you're using poor tactics

Grand Blog Tarkin

A roundtable of strategists from across all space and time.

Sky Dancing

a place to discuss real issues

Oscar Relentos

Welcome to my catharsis

mkseparatistreport

A Blog Focused on Bringing Policy and Chinese language Translations Relating to Separatists and Terrorism

playwithlifeorg

4 out of 5 dentists recommend this WordPress.com site

HarsH ReaLiTy

A Good Blog is Hard to Find

Variety as Life Spice

Words by a post-90s in Hong Kong

KURT★BRINDLEY

WRITER★EDITER★PRODUCER★CONSULTANT

Foreign Policy

the Global Magazine of News and Ideas

Top 10 of Anything and Everything!!!

Animals, Gift Ideas, Travel, Books, Recycling Ideas and Many, Many More

Eleanor Robinson-Yamaguchi

Specialist in Japanese History and Culture

ABDALLAH ATTALLAH

Futurist | Disruptor | Coach | Reformer

Anglo-Japan Alliance

A new type of alliance

Small House Bliss

Small house designs with big impact

Europe Asia Security Forum

European perspectives on Asian security, and vice-versa

Shashank Joshi

Royal United Services Institute | Harvard University

secretaryclinton.wordpress.com/

A PRIVATE BLOG DEVOTED TO FOREIGN POLICY & THE SECRETARY OF STATE

Adventures in (Post) Gradland

Thoughts on life after the PhD

springdaycomedy

Just another WordPress.com site

James Strong

Junior academic working on British foreign policy

Justice in Conflict

On the challenges of pursuing justice

Politics: Middle East

an analysis of the contemporary middle east

Sino-NK

Sino-NK is a research website for Sinologists and Koreanists.