Rachel Reeves heads to China to build bridges, but a new golden era of relations is impossible

Rachel Reeves will fly with a delegation of City grandees to China this week as Labour seeks closer economic links with Beijing as part of its quest for growth.

With the outlook increasingly rocky at home after a run of soft economic data, the chancellor is sorely in need of a positive story to tell.

She appears determined to normalise the UK’s relationship with the communist superpower, despite mounting security concerns and a backdrop of growing geopolitical tension.

In the past few weeks alone, the UK has expelled an alleged Chinese spy and friend of Prince Andrew, Yang Tengbo, while the US Treasury has accused Beijing of hacking into staff computers. Meanwhile, a lawyer for Shein – the online retailer founded in China and which is lobbying over a potential £50bn London float – was accused of “wilful ignorance” over its supply chain practices by British MPs.

At the same time, Beijing is expected to be at the sharp end of Donald Trump’s aggressive trade policy, which could result in tariffs of up to 60% being slapped on all Chinese goods. Policymakers are already contending with a rapidly declining yuan and a stock market selloff.

Notwithstanding this inauspicious backdrop – and Beijing’s deeply problematic human rights record – Labour is making a concerted effort to build bridges with China.

The foreign secretary, David Lammy, visited the country in October, and Keir Starmer had a face-to-face meeting with the Chinese president, Xi Jinping, on the sidelines of November’s G20 summit in Rio de Janeiro.

In its manifesto, Labour promised to reverse what it called “14 years of damaging Conservative inconsistency over China”, with a new approach: “We will cooperate where we can, compete where we need to, and challenge where we must.”

Speaking last month, Reeves said she sought a “pragmatic” relationship with China, which is the UK’s fifth-largest trading partner, worth £32bn in exports last year.

She acknowledged security concerns, but insisted “we should trade and seek investment when it is in our national interest to do so”.

City businesses have urged Reeves to help ensure China is not placed on the higher, more stringent, tier of a new “foreign influence registration scheme” – a decision ultimately to be made by the Home Office.

Lobbyists for overseas governments will have to declare their role under this new regime, but the “enhanced” tier will force companies carrying out any activity on behalf of another state to make themselves known – something business groups fear could prevent closer ties.

The chancellor will take the Bank of England governor, Andrew Bailey, with her on the visit to Beijing and Shanghai, as well as the FCA chief executive, Nikhil Rathi, and a string of senior banking figures, including HSBC’s chair, Mark Tucker.

Reeves will meet China’s vice-premier, He Lifeng, in Beijing before flying to Shanghai for discussions with UK firms operating in China.

Enhanced cooperation on financial services is at the heart of the Treasury’s hopes for the trip. Reeves lavished praise on the sector in her Mansion House speech last year, calling it the “crown jewel” of the UK economy.

The economist Gerard Lyons, who is on the board of the state-owned Bank of China, says: “From the Chinese perspective, they’re moving up the value curve in terms of the economy and the UK, given its expertise in services and financial services, would be able to provide some assistance there.

“And naturally, from the UK perspective, we want to see more inward investment from China and more trade with China – so it suits both sides.”

Reeves has been clear that the UK hopes to fly the flag for “free and open trade” in the face of Trump’s “America first” protectionism.

The chancellor’s trip is expected to mark the resumption of the UK-China Economic and Financial Dialogue (EFD), a formal arrangement between the two countries. This structure of regular meetings was introduced under Tony Blair’s government, but the last one was held in London in 2019.

After that, relations soured as the draconian security law was passed in Hong Kong, prompting Boris Johnson’s government to open a visa scheme for British passport holders in the territory that has since brought more than 150,000 people to the UK.

Over recent years, China and the US have been locked in an increasingly fractious battle for economic supremacy, and hopes have long faded that Beijing’s induction into the global trading system a quarter of a century ago would lead it in a more liberal direction.

While Trump’s anti-China rhetoric has been vehement, Joe Biden retained the swingeing tariffs imposed in Trump’s first term. Biden has also used export restrictions to try to restrict China’s access to key technologies, on security grounds.

Neil Shearing, chief economist at consultancy Capital Economics, who is writing a book about the US-China clash and its influence on the rest of the world, says the UK is unlikely to be able to resist taking sides, whatever Reeves’s intentions.

“Given the UK is trying to find a place for itself in the world post-Brexit, trying to build some bridges is not necessarily a bad idea,” he says.

But, he adds: “This post-Covid era is about the geopolitical rivalry between the US and China – they are the pre-eminent global superpowers, and increasingly other countries will be forced to pick a side. And in that instance it’s pretty clear which way the UK will break, Trump or no Trump: they’re going to break for the US. We saw this with Huawei.”

Huawei, the Chinese telecoms operator, was banned from the UK’s 5G network in 2020 by Johnson. The UK government had initially sought to take a different line from the Trump administration, but eventually caved in to intense US pressure. Shearing says: “Countries don’t get to decide where they align: the US and China get to decide the contours of this fracturing.”

Because of this darker geopolitical backdrop, there will be no resumption of the “golden era” for UK-China relations touted by George Osborne in 2015 – the same year that, improbably, saw President Xi sipping a pint of IPA in David Cameron’s local pub during a state visit.

But with GDP at home stagnating, Reeves clearly hopes to underline the distance she is willing to go to seek out willing business partners for the UK.