Seeking to capitalize on the growth of the world’s second-largest economy and the further opening of its financial markets, the UK has relaunched a platform for future “respectful and consistent” relations with China.
On Saturday, Chancellor of the Exchequer Rachel Reeves met with Chinese Vice Premier He Lifeng in Beijing for the renewal of the UK-China Economic and Financial Dialogue, which had previously been held annually and was last held in 2019. Both sides agreed to deepen cooperation in areas such as financial services, trade, investment, and climate to support secure growth.
A number of British financial services companies with extensive operations in China, including HSBC, Standard Chartered, Prudential, Schroders, Fidelity International, and London Stock Exchange Group, joined the Minister’s business delegation.
After the event, the delegation visited Shanghai, the financial center of the country.
The British government said in an online statement that through this “pragmatic cooperation,” the two countries had secured deals worth £600 million (US$732.3 million) for the UK over the next five years, which it estimated could eventually be worth up to £1 billion.
Chinese Foreign Ministry spokesman Guo Jiakun told a press conference on Monday that the dialogue was “conducive to development” for both sides. He added that both sides were “against divergence” and would “reduce barriers to investment,” describing the financial sector as “the crux” of the relationship.
Cooperation in financial services
“Financial services cooperation is probably the easiest method for bilateral engagement,” said Xu Tianchen, a senior economist at market research firm Economist Intelligence Unit.
Xu Tianchen, who heads the general office of the Central Finance Commission, has an important role in Beijing’s financial policymaking, he told the South China Morning Post.
“Chinese enterprises’ demand for financial services is growing rapidly as they expand globally, and the UK is a natural center for this,” Xu said.
In 2013, London became one of a handful of offshore centers allowed to process investments in China’s controlled yuan currency, bringing the UK closer to the fast-growing Chinese market than the rest of Europe. Chinese state-owned banks were also allowed to increase their activities in the UK at the time.
And in London this year, China announced plans to issue its first overseas sovereign green bond, which will finance environmentally friendly projects.
The British Chamber of Commerce in China said the engagement was related to the confidence of business people in the world’s second-largest economy.
In search of new investment
China is keen to find new sources of investment and trade after nearly seven years of friction with the US, its largest single trading partner, and ahead of new tariffs on Chinese imports after US President-elect Donald Trump took office on January 20.
Andrew Collier, China analyst at economic research firm GlobalSource Partners, said China needs Western countries to sustain trade with its own economy.
The British government announced at the weekend that the UK and China had agreed to remove trade barriers with a package “led by pork, wool, poultry, and pet food.”
China has also agreed to “continue to liberalize” sectors that “restrict foreign investment” such as education and culture.
Labor seeks more economic engagement with China
According to statistics from the UK Department for Business and Commerce, there was a 20.3 percent fall in the total trade volume between the two countries of £87.7 billion in the 12 months ending in June.
As of 2022, the stock of British direct investment in China was £11.2 billion, while China’s stock was £4.3 billion—less than 1 percent of the total for both sides.
But the Chatham House think tank said in a commentary published on Thursday that the current Labour government was seeking greater economic engagement with China than its predecessor.
Alicia Garcia-Herrero, chief Asia-Pacific economist at French investment bank Natixis in Hong Kong, said Britain also faces uncertainty about how Trump will behave while in office. Concerns are high about the possibility of the US extending tariffs to UK shores.
In addition to this concern, a large number of companies exited the London Stock Exchange last year in search of higher value or moved their main listings elsewhere, leading to the market’s worst outflow since the 2009 global financial crisis. Bond markets in the UK have been volatile amid concerns over the government’s spending plans.
“If your financial sector is hurting, [the visit to China] makes a difference,” Garcia-Herrero said.