What a difference power makes. From the opposition benches, Labour were robust in their criticism of China’s authoritarian regime, pushing for stronger action against its human rights abuses and its influence operations on UK soil. Now they are in government, such concerns have been sidelined in favour of commercial opportunity. This is dangerously shortsighted. Chasing close ties with China has a habit of creating costly security risks down the road.
This week we learned that the last government’s Foreign Influence Registration Scheme is being delayed over concerns that it will impact UK-China relations, and David Lammy’s glad-handing trip to Beijing was labelled by one commentator as a ‘national humiliation’. While the UK’s top diplomat did reportedly use his trip to raise concerns about China’s human rights violations and Beijing’s support for Russia’s invasion of Ukraine, what was notably absent from Lammy’s discussions with the Chinese foreign minister was any effort to address the risks related to commercial dependency on China. Instead, an official with the China-Britain Business Council, after meeting with Lammy, expressed encouragement about ‘sustained engagement with China’. Former MP Bob Seely, in a recent Civitas report titled ‘Living with the Dragon: What Does a Coherent UK Toward China Look Like?’ warned that this commercial dependency ‘will become so great that we have no choice but to acquiesce in [the CCP’s] agenda, even to the extent of abandoning our closest allies.’
I wrote another chapter of the same report, dealing with the concerning national security implications of our supply chains becoming dependent on China. Most worrisome for the UK and its closest partners is the spectre of a potential conflict in the Taiwan Strait or another global pandemic. Either could lead to market distortions or inflationary shocks due to continued economic dependence on the CCP.
The UK Government can take three steps to mitigate risks related to this commercial dependency on China.
First, accept that secure, resilient supply chains are a national security priority. The Government, through its development finance corporation, British International Investment, should seek to engage private capital in the City of London for investments in infrastructure projects which will help diversify supply chains and minimise the CCP’s ability to exert leverage over them. The UK Government should also consider limits on outbound capital from the UK to targeted sectors in China, which could lead to the strengthening of China’s military. In addition, the Government should encourage minimal investments from the private pension fund system into infrastructure projects, suggesting amounts as low as 1-2% percent, which could match up to 20% of China’s annual Belt and Road Initiative budget.
Second, as geopolitical crises in the world worsen, so too will competing economies of the sanctioned versus the unsanctioned, along with increasing bifurcation of the technology sector. In turn, this will lead to an escalating rivalry between the West and its strategic competitors over control of rare earth elements and critical minerals. China controls approximately 60% of the world’s supply of rare earths and 90% of all mined elements. Already, Beijing has restricted the export of germanium, gallium, and graphite, necessary components for the manufacture of semiconductors, electronics, fuel cells and military components. With well over half of the world’s deposits of these rare earths in non-adversarial countries, the UK and its AUKUS partners should diversify sources for upstream mining and midstream processing of these resources. In addition, priority should be placed on identifying infrastructure needed for the export of the rare earths and elements and the identification of new deposits outside China.
Third, as the Indo-Pacific accounts for 60% of the world’s GDP and two thirds of global economic growth, London and its economic partners must prevent any imbalance in regional power which could allow China to exert leverage over the entirety of the region. The UK, set to become the only European power in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), should enhance trade and investment ties with other CPTPP members. In addition, upon accession to the trade pact, the UK should use its membership to influence aspiring governments – such as China – to change trade, investment and economic policies which negatively impact UK national interests.
The ‘golden era’ of UK-China relations is no more, and the ‘progressive realism’ championed by Lammy must not now place short-term gains ahead of long-term strategic thinking. Labour may see China an ‘indispensable partner’ as the UK seeks to rebound economically, but neglecting the threat of China’s continued supply chain leverage risks a future of vulnerability and dependence for the UK and its partners.
You can read the full Civitas report ‘Living with the Dragon: What Does a Coherent UK Policy Toward China Look Like?’ here.
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