How to lose friends and alienate China

by Jane Macartney | 03.08.2016

Britain’s much-hyped “golden era” of relations with China may already be a casualty of Brexit. That means Beijing may be much less willing to put Britain at the front of the queue in trade talks or to offer attractive terms if its once “golden” friend causes it to lose yet more face.

Chinese Communist Party officials who gathered last weekend must have relished the delicious irony of drafting a call on Britain to honour the principle of openness. For the move by Theresa May, with scant explanation, to review the Hinkley Point C nuclear project was a familiar tactic to China, long criticised for its opaque and arbitrary decision-making.

China’s initial reaction was calm, even sanguine. Behind the scenes, the mood among Communist leaders was most likely consternation.

They had just enough notice to cancel a visit by a senior official to attend last Thursday’s contract ceremony on site. That Beijing would send someone of high rank underscores the importance it attaches to the project. His return home was already one loss of face.

But within hours there were reports that government nerves over Chinese participation – if only in a financing role – were as much a factor as the project’s viability. Remarks from Vince Cable that May had long harboured doubts over China’s role forced Beijing into the realisation that a stronger response was needed.

State-owned China General Nuclear Power Corporation, which is contributing some 33.5% of the estimated 18-billion-pound cost, was quoted as “bemused” and “frustrated” by the delay.

For China, the project was just the start of what the previous government heralded as a “golden era” in relations. Last year, George Osborne, then Chancellor and chief proponent of closer China cooperation, said that investment could be followed by China designing and building a new reactor at Bradwell in Essex.

China should have been dismayed, but not surprised, by the change after May took office. After all, her close advisor, Nick Timothy, had greeted Osborne’s enthusiasm with a piece on the Conservativehome website warning that experts feared China could “build weaknesses into computer systems which will allow them to shut down Britain’s energy production at will”.

Britain could, no doubt, find alternative financing, attract someone else to build a reactor at Bradwell and at the same time escape accusations of kowtowing to the Chinese Communist Party and turning silent on human rights in return for investment and trade opportunities.

Is that what a government committed to Brexit actually wants? After all, one of the great hopes Brexiteers held out to the electorate was that Britain outside the EU could negotiate its own trade deals with trading superpowers China and the US which would be more to Britain’s advantage.

As the official Xinhua news agency commented on Monday: “For a kingdom striving to pull itself out of the Brexit aftermath, openness is the key way out.”

Britain is clearly the supplicant. Chinese negotiators are among the world’s toughest and will seize on any weakness to impose a high price for access to their huge, still heavily protected, market. For example, it has taken Spain eight years just to reach a deal on exports of plums to China. When it comes to Europe, China has long preferred to divide and rule, exploiting any differences among EU members.

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    Chancellor Philip Hammond was upbeat over the “mood music” when in China last month and held out the prospect of a significant trade deal to be had. He cited London’s importance as a financial hub. Indeed, Chinese banks have identified the City as their preferred choice as an offshore renminbi centre. But those bankers are already looking to continental Europe. They may be spurred on by a tarnishing of the “golden era”.

    Britain can still win back Beijing’s confidence if it halts these messages of suspicion and mistrust. Trust will be harder to rebuild. That trade deal looks more distant.

    Edited by Hugo Dixon