China is not best pleased with the british government: we must be doing something right | thearticle

Boris Johnson’s government is poised to crank up the Brexit process, an important part of which will be to re-anchor the UK’s external relations with many nations, including notably China

and the US. In turn, this is going to involve a decision about the role, if any, of the Chinese company, Huawei, in the UK’s 5G telecommunications rollout. Mindful of this and the continuing

criticism by Beijing of the UK’s “posturing” over the unrest in Hong Kong, the Chinese government has sent a warning shot across the bows of its British counterpart. It has just been

reported that Beijing has unilaterally terminated, temporarily, a financial scheme first agreed in 2015 and known as the London-Shanghai Connect, which only started up late last year.

Superficially, it means little, but the implicit message is deadly serious. By way of background, cast your mind back to the Cameron-Osborne government and the “golden era” of Sino-British

relations. High-level trade missions, and two-way leaders’ and ministerial visits occurred. Several initiatives involved finance, and closer integration between London, the world’s leading

financial centre, and Shanghai, the heart of the Chinese financial system. China had already started a Hong Kong-Shanghai Connect scheme in 2014, designed to allow companies to list their

shares on one exchange and apply to sell their shares on the other. A Bond Connect scheme designed to allow investors from China and overseas to trade in each other’s bond markets through

mainland and Hong Kong financial institutions, kicked off in 2017. Technically, these schemes allow Chinese and global investors and traders easier access to one another’s markets, but

conceptually, China likes them because they facilitate the flow of foreign portfolio capital into China. And China wants foreign capital partly because it needs access to foreign currency,

notably US dollars, and partly because it would like foreign financial capital and institutions to share some of the extraordinary risks that have been allowed to plant roots in China’s

financial system. The London-Shanghai Connect was, or is, part of this network of arrangements, along with other initiatives to allow London to trade and settle accounts denominated in

renminbi, and to confer regulatory privileges to Chinese banks in London. All of that said, Sino-British relations have not really lived up to the rhetoric of the Cameron-Osborne era. Global

trading and foreign exchange settlement in renminbi have barely risen form very low levels. Only one Chinese company, the Shanghai-listed financial firm, Huatai Securities, had actually

taken advantage of the delayed London Connect scheme, and there was hardly a waiting list of other Chinese companies trying to get involved, and no UK companies. This show of Chinese pique

in terminating the scheme unilaterally, was undoubtedly down to Hong Kong. A week before Christmas, foreign secretary Dominic Raab made a statement on the 35th anniversary of the

Sino-British Joint Declaration governing the future of Hong Kong. Raab said that the only way to guarantee Hong Kong’s future success and stability was to respect an independent judiciary

and the rule of law, and the people’s legitimate demands for meaningful dialogue. This wasn’t the first, and it won’t be the last, example of what Beijing regards as “interference” or

“meddling”. In and of itself, the Chinese announcement is of no consequence. The London-Shanghai Connect had barely gotten off the ground, no one will really miss it, and in all probability,

China will allow the dust to settle and at some point quietly announce that it is up and running again. It matters little to the UK, except at the margin for some status for London, and

China has many other ways of trying to get foreigners to put money to work in China. More importantly, it conforms to a pattern, which we have observed over many years, in which China uses

commercial pressures to influence opinion, and to seek advantages in the implementation of government policies in other countries. What better time than now, as the Johnson government gets

back to work after last month’s election, to seek to remind it of the significance of China’s presence and interests? This is all the more so because there is little let-up in the protests

in Hong Kong, and there is every chance that the British and US governments will soon be engaging more intensively over a trade deal. In those talks, the US will unquestionably be looking to

persuade or pressure the British to leave Huawei out of its 5G network — as in Australia and New Zealand — or at least to ensure any role is restricted to “non-core” activities. We, in

Britain, are in many ways no different from other countries in observing a widening gulf between the analysis and observations of our security services on the one hand, and the lobbying

pressure and interests of commercial groups whose revenues and fortunes are inextricably tied to doing business with China. As one researcher at Nottingham University recently observed,

“this fault line betrays a far bigger problem for the West as it engages the PRC, namely, that domestic business interests have in many cases become the midwives of Chinese party-state

influence”. This is a very serious charge, and the Johnson government must not allow it to happen in this country.