Assessing Labour's Strategy on China: 11th UK-China Economic and Financial Dialogue
Marina Gruzer | 20 January 2025
Summary
Following increasingly deteriorating Sino-British relations under the previous Conservative Government, Chancellor of the Exchequer Rachel Reeves met Vice Premier He Lifeng for the 11th UK-China Economic and Financial Dialogue. This meeting secured agreements worth an estimated GBP 600 million over the next five years for prominent British industries such as the financial sector.
While Reeves raised concerns regarding issues such as Hong Kong and China’s support for Russia’s defence industry, the UK and China agreed to deepen capital market connectivity and clean energy partnerships. This reflects Labour’s proposed “compete, challenge and co-operate” strategy on China.
Despite Labour’s efforts to enhance long-term economic relations with China, challenges include domestic economic pressures and pressure from potential US-China trade tensions under Trump’s new administration.
On 11 January 2025, Rachel Reeves visited Beijing for the 11th UK-China Economic and Financial Dialogue (EFD) after a 6-year hiatus. Having stated that economic growth remains the Labour Government’s top priority, Reeves aims to reinvigorate high-level economic cooperation with China to develop bilateral investment and trade. The Government reported that the agreements made in China will facilitate enhanced business ties for UK firms, such as HSBC, and opportunities for the financial services, agrifood and green finance industries, worth £600 million over the next five years. However, Reeves has been criticised for the timing of this visit as the UK cost of borrowing has risen to its highest since 2008, businesses prepare for tax increases due to be implemented in April and the value of the pound continuing to fall. Despite ongoing instability in domestic markets, Reeves’ approach indicates Labour’s long-term commitment to revive economic engagement with China, Britain’s fourth largest single trading partner.
The EFD reflects Labour’s pragmatic strategy on China in which the Government aims to establish economic opportunities while also maintaining its position in areas of disagreement. During the visit, both sides agreed on initiatives to develop capital market connectivity and strengthen UK-China clean energy partnerships. Similarly, China agreed to continue the liberalisation of sectors that limit foreign investment. Simultaneously, Reeves raised concerns over China’s cyber activity, the deterioration of the One Country Two Systems status quo in Hong Kong, and Beijing’s support for Russia’s defence industry in an attempt to establish “open and frank dialogue” in areas of disagreement. Therefore, this demonstrates Labour’s “compete, challenge and co-operate” strategy on China, which contrasts the more security-focused approach under the previous Conservative Government.
The renewed engagement with China implies enhanced long-term cooperation and growth across several industries. With a growing Chinese middle class, the UK, as China’s leading financial services partner, seeks to expand its financial and pension services to Chinese markets. Additionally, China’s efforts to overcome food security challenges offer trade opportunities for Britain’s agrifood sectors which will benefit from China’s commitment to lift market access barriers. However, Labour’s attempt to develop economic cooperation with China may become increasingly difficult if President-elect Donald Trump implements his promised tariffs of up to 60% on Chinese goods. Despite pressure from allies, such as the US, Reeves stated that the UK would only implement tariff policies if this aligned with British national interests.
N509FZ/Wikimedia via CC BY 4.0
Forecast
Short-term
While commitments to reducing trading barriers have been agreed on, the impact of upcoming tax rises, increasing debt and borrowing costs on British businesses will unlikely be alleviated.
Medium-term
The extent of UK-China cooperation and business interconnectivity risks being disrupted by pressure from allies such as the US, especially if trade relations between the US and China worsen under Trump’s new administration. With the US being a key security partner for Britain, the UK faced pressure to maintain policies on China in line with Washington's more competitive approaches in 2016.
Long-term
Despite Labour’s plans to improve economic relations with China in financial industries and aims to increase the inflow of Chinese investment, the possibility of improved cooperation in sectors such as the telecommunications industry remains highly unlikely due to ongoing cyber security concerns.