China’s Strength Achieves Good U.K.-China Relations

By JOHN ROSS

China’s Strength Achieves Good U.K.-China Relations

By JOHN ROSS

John Ross is a senior research fellow at Chongyang Institute for Financial Studies, Renmin University of China. From 2000 to 2008 he was director of economic and business policy in the administration of Mayor of London Ken Livingstone. He previously served as adviser to several major international mining, finance and equipment manufacturing companies.

RELATIONS between China and Britain have recently developed in a strikingly positive direction. Both countries have given high priority to this. Britain’s Prime Minister Cameron declared he wanted Britain to be China’s “best partner in the West,” and Britain was the first G7 country to support the China-initiated Asian Infrastructure Investment Bank. Xi Jinping recently took the unusual step of making a “one country” foreign trip to the U.K. Britain reciprocated by giving China’s president the highest possible level reception, including an invitation to stay at Buckingham Palace and to address both Houses of Parliament.

The economic results are important. The agreements during Xi Jinping’s visit were worth up to US $60 billion. The City of London moreover strengthened its position as a center for offshore RMB fi nancial activity, so becoming the fi rst location outside China where a RMB-denominated Chinese government debt was issued. Agreements were concluded for cooperation between Britain and China on tourism, film, healthcare, and tourism.

The advantages for China, as well as for Britain, are clear. London is one of the world’s two truly global international fi nancial centers. London in particular leads in global foreign exchange dealings, with a turnover larger than that of New York and Tokyo combined. China’s strengthening position in London is therefore an important advantage as regards internationalizing the RMB. There is also widespread agreement in Britain that its infrastructure needs radical improvement, with planned construction of a high-speed train link between London and the north of the country, and replacement of substantial parts of the U.K.’s power supply – industries in which China holds a strong competitive position.

But despite these evident mutual advantages, until recently China-U.K. relations had been bumpy, indeed in‘deep freeze’ at the highest levels. Analyzing why such a striking improvement in relations occurred is therefore both important in itself and has wider lessons.

Foreign Policy Framework

China has a clear policy framework for relations not only with Britain but all countries. This was formulated by Xi Jinping as a “community of shared destiny,” which states that countries in the modern globalized world increasingly interact with one another, and that one country’s well-being is therefore inextricably intertwined with that of others. This is immediately obvious in questions such as halting climate change, which cannot be achieved by any one country, and the struggle against terrorism –terrorists don’t respect national boundaries. China and Britain both gain from developing their cooperation on such issues.

But this framework operates also at a fundamental economic level, and this undoubtedly played a decisive role in laying the basis for improved Britain-China relations. The foundation stone of economics was unequivocally laid by Adam Smith in the fi rst sentence of the fi rst chapter of his The Wealth of Nations: “The greatest improvement in the productive powers… has been the effect of the division of labor.” Further developed by Ricardo in the theory of “comparative advantage,” this demonstrates that economies gain not from attempting to be selfsuffi cient, but instead by specializing in sectors wherein they are most effi cient, and exchanging with others that have advantages in other economic spheres. Viewed from this fundamental economic angle the fact that the British and Chinese economies are strikingly dissimilar is not a problem but an advantage.

Britain’s economy today is dominated by high level services such as finance, advertising, media, etc. In the country that in the 19th century was the “workshop of the world,” manufacturing increasingly only takes place in high-added spheres such as pharmaceuticals. In contrast, China has already overtaken the U.S. to become the world’s largest industrial producer, and enjoys huge competitive advantages across a wide range of medium technology products. China is now the “world’s workshop.”There are, therefore, many areas for cooperation between the U.K. and China’s economies, while areas of direct competition are minimized. This vividly illustrates both economic “comparative advantage” and a “community of shared destiny” with respect to overall relations.

But as these advantages are so clear and long term why was there a delay in realizing them?

Subjective

It would be nice to report that Britain had immediately recognized the mutual advantages of cooperation with China due to the persuasive powers of logic and reason. But unfortunately human affairs do not run so smoothly. For a number of years Britain pursued a somewhat provocative and arrogant position towards China to the disadvantage of both – particularly Britain.

The author knows from personal experience that Cameron’s Conservative Party was trying to create problems for relations with China – after 2004 when then Mayor of London Ken Livingstone opened London offices in Beijing and Shanghai, Conservative Party candidates made attacking this the fi rst item on their election leafl ets.

Fortunately, confronted with the consequences of the“deep freeze,” Cameron and British Chancellor of the Exchequer Osborne concluded that Britain was seriously losing out on relations with the world’s most rapidly expanding market – China.

As China’s foreign policy is not based on “tit-for-tat”but a clear concept of “community of shared interests,” as soon as it became clear that Britain’s change was a serious reorientation and not merely a short-term maneuver, China moved to improve relations. Following Cameron’s summer 2013 statement, he visited China in December of the same year.

It was the combination of China’s economic strength, firm position, but overall clarity on the framework of relations between countries for mutual benefit which created the basis for greatly improved relations – an advance from which the peoples of both China and the U.K. can now benefi t.