By Ross Alexander Hutton and Rudra Sen

Once upon a pint, two premiers discussed the future of U.K.-China relations in a 16th-century Buckinghamshire inn. The symbolic outing was part of a charm offensive towards the Chinese President during the 2015 state visit to the U.K. With all the pomp and circumstance associated with rolling out the red carpet for foreign leaders, propelled by the strategic goal of bolstering Chinese investment in Britain, the foundations of a prosperous trading relationship with China were laid. However, the auspicious years which followed were short-lived. 

In return for ‘turning a blind eye’ on several occasions towards China’s controversial undertakings during the Cameron years, the British Government’s conscious indifference unlocked the path towards a ‘golden decade’ of trade between the two countries. Consequently, the U.K. has become the epicentre for Chinese investment in Europe. From Chinese private equity firms buying stakes in British restaurant chains such as Pizza Express, to ownership of football teams including Aston Villa, and the purchasing of office buildings in London, China’s presence in the U.K. economy has not gone unnoticed. However, hidden in plain sight are the more strategic investments in critical sectors of the British economy: energy, transport and finance. Minority stake ownership of Heathrow Airport, billions of pounds of investment in British banks such as Barclays and the involvement in the development of Britain’s nuclear energy infrastructure are among the most compelling areas where China has an influential foothold. Whilst these transformative stakes in the British economy have the potential to be invigorating for commercial growth, the elephant in the room – China’s inherent influence in the U.K. – is more profound than ever before.

China’s sphere of influence is not limited to the United Kingdom. While China has cemented itself as a manufacturing hub, accompanied by advanced supply chains lacking in possible substitutes, global resistance is building up against this dependency. Amidst the coronavirus pandemic, French President Macron acknowledged that Europe is too reliant on medical supply chains with China. Meanwhile India, Germany and Australia – in their pursuit to balance power with China – have begun tightening foreign investment rules and regulations as well as boosting their domestic capacity to manufacture essential items. On the other hand, Japan has announced its intention to subsidise companies operating in China by around $536 million. Thus, incentivising these companies to invest in Japanese and South-East Asian factories in order to reduce reliance on manufacturing in China.

Further escalating its diplomatic challenges, the Chinese government has been accused of mishandling the outbreak by some world leaders as they believe such negligence may havefacilitated the spread of the virus globally. The mishandling or concealing of information may also have reaffirmed the lack of transparency of Xi Jinping’s administration – contrary to the globalised world’s expectations. This allegation, in turn, has fed into the growing mistrust of China and has undermined its position as a global leader. To counter this narrative, China has provided aid in the form of medical equipment and protective gear especially to European and African states. This too has drawn criticism as Chinese diplomats have been accused of soliciting formal acknowledgements from German government officials to make positive statements on China’s handling of coronavirus. Although this global backlash against China is not new, the Covid crisis may have acted as a catalyst.

At the centre of the widespread discontent and comprehensive scepticism towards China is the desire to turn the clock back to the days when the powerhouse of economic growth was the once flourishing American rust-belt. Resentment and cynicism of China’s growing manufacturing capabilities were the innate emotions fuelling Donald Trump’s ‘Make America Great Again’ presidential campaign in 2016. Although the ‘America First’ agenda catered to the anger felt by ‘left behind’ communities, it categorically failed to alter the trajectory of China’s mission to become the dominant superpower of the rivalry. Essentially through self-isolating from the world stage, the Trump Administration pursued protectionist trade tactics designed to slow down and trip up its adversary, in order to gain short-term wins in the emerging ‘tech-war’ race. Of course, this parochial approach fell short of advancing the long-term strategic position of the U.S. as it merely solidified the abdication of will to reverse the under-investment in American industries. Irrespective of the result in November, there doesn’t seem to be a significant shift from the Trump administration’s ‘America First’ doctrine as Biden too has come up with his ‘Build Back Better’ plan. While the substance of the aforesaid policies are different, the emotions and intentions motivating them are on similar lines.

Hence, when it comes to the ascendancy of China’s grip on telecommunications around the globe, it is no surprise Trump has taken a hard-line against the development of 5G networks by Chinese tech-giant Huawei. The Trump administration has refused to accept that Huawei is a private, employee-owned company and claims it provides a gateway for China to spy and potentially attack countries. The U.S. views it as an arm of the Chinese state, driven by the interests of the Chinese Communist Party which Huawei vehemently rejects. China’s National Intelligence Law (N.I.L.)  may coerce them to spy by sharing data at the behest of the Chinese state. Another provision in the N.I.L. empowers state institutions that oversee intelligence and military activities to ‘demand’ organisations and citizens to provide necessary assistance and cooperation. While rewards and commendations are offered for compliance, it leaves little or no choice to opt out as obstructing the work of intelligence agencies may be comprehended as a criminal offence.

The founder of Huawei, Mr Ren Zhengfei exclaimed in a television interview that Huawei had not shared data or any information with the Chinese government in the last thirty years and did not intend to do so in the future. He also questioned the rhetoric used by the American government that Huawei would share information with the Chinese government by using backdoor access. The scepticism of the United States towards Huawei might stem from the fact that Mr. Zhengfei is a veteran member of the Communist Party and a former officer of the People’s Liberation Army. Huawei doesn’t have a clean slate either. It has been accused by the Wall Street Journal of helping governments in Uganda and Zambia to spy on their political opponents which has been categorically denied by the concerned parties.

Cynics may contend that the national security concerns surrounding Huawei are coincidentally convenient for Trump to block the development of China’s tech-giant, thereby capitalising on the blow to its rival’s dominance as the U.S. ‘plays catch-up’. Alternatively, the resistance of U.S. intelligence agencies to allow the possibility for Huawei to act as a puppet for Beijing in America’s telecommunications network is likely part of a wider recalculation. Previously, economic and diplomatic considerations were used by western democracies such as the U.K. to assess the trade-offs arising from interactions with China. In recent times, the lens of national security has taken a more assertive role in determining how states respond to China’s ever-increasing influence and hardening use of its power. Thus, when it came to Prime Minister Boris Johnson’s initial decision to limit the role of Huawei in the rollout of the U.K.’s 5G network, national security trumped economic development as China’s N.I.L. made it so unpalatable for the ‘golden era’ to continue in Sino-British economic affairs. 

In its attempt to find a ‘third way’ in the middle of competing interests whilst keeping ‘Global Britain’ in mind, the Johnson government ended up aggravating both the Eagle and the Dragon. Consequently, the UK’s decision to ‘put Huawei on airplane mode’ led to the historic special relationship – enjoyed by Britain and America – becoming ‘less special’. Granting Huawei permission to set-up its equipment could have led to the fraying of U.S.-U.K. relations but the Trump Administration’s precise use of sanctions on Huawei forced Johnson’s hand to change course in a consequential U-turn. While Foreign Secretary Dominic Raab contends that theU.K. was not ‘strong-armed’ by the U.S., Secretary Pompeo’s appreciation of the U.K.’s ‘sovereign call’ makes one considerthe degree of U.S. influence on U.K. foreign policy. 

This intense pressure from Washington, alongside growing tensions with China and the U.K.’s desire to reach a trade deal with the U.S., has destabilized Johnson’s attempt to walk along a tightrope between the opposing pressures from America and China. Accordingly, U.K. mobile providers have been banned from buying new Huawei 5G equipment from 2021 and they must also remove the Chinese firm’s 5G kit from their networks by 2027. In doing so, the U.K. will face the economic consequences of standing up for its security interests by accepting an extensive loss of potential productivity. Far from the idealised ‘golden era’ between the U.K and China, this decision establishes a new paradigm for Britain’s relationship with the Red Dragon.

Retaliating against Whitehall’s act of defiance will involve a considerable effort to examine all the repercussions of any moves made by Beijing and their power to fulfil its strategic objectives. China’s Ministry for Foreign Affairs will now be weighing up whether to decisively punish or firmly condemn Britain’s actions – most regarding the former to be the more likely outcome. After all, issuing empty threats would certainly deviate from the reputation of Xi Jinping’s regime. This wide-spread expectation of harsh sanctions to deter others from following the U.K. is fuelling speculation that China may suspend Huawei research institutions, instruct state-owned enterprises to withdraw their investments in Britain and reduce bilateral trade. However, the calculation for Xi Jinping is more complex than it may seem. Chinese authorities will be fully aware of the risk of responding too aggressively towards the U.K., feeding the perception – or rather the growing belief – that China has overstepped its legitimate use of power. By further alienating the West, the ‘Middle Kingdom’ will need to be mindful that its actions could conceivably increase the likelihood of a strengthened trans-Atlantic alliance and the mobilisation of coalitions in opposition to its interests. 

Whilst China formulates its response to the U.K.’s recent provocations, one should acknowledge that Britain is not immune from facing difficult dilemmas of its own in the post-Brexit era. Johnson’s Brexit project of regenerating Britain’s trading relationships around the world is in serious jeopardy;the Huawei controversy has essentially soured Britain’s relationship with one of the world’s fastest growing economies – raising doubts of a UK-China trade deal anytime soon. With the U.K. caught in the crossfire of the U.S.-China superpower showdown, it has become a rather unrealistic strategy for the UK to benefit from the ‘special relationship’ with the U.S. whilst also forging a ‘golden era’ with China.Gone are the days when successive governments assumed China would liberalise as its wealth accelerated and adopt similar values to the West. In fact, the foreseeable future is likely to be defined by Britain’s attempt to foster a relationship with China where cooperation and confrontation can co-exist. Yet, this new strategy may be destined for the same fate as the glorified ‘golden era’. The wish to hold China accountable whilst it has gained such a robust strategic foothold on the economy is as naive as it is dangerous:economic pain can be inflicted whenever Beijing deems it necessary. Therefore, the question is how much economic damage the U.K. government will be willing to stomach whenstanding its ground against the rising power of the dragon. Amidst all the uncertainty, there is one certainty: the ‘sleeping giant’ is sleeping no more and it’s time for the U.K. to wake up to the reality of the ‘golden decade’ that never came to be.

The views expressed in this article are of the authorsand may not reflect the opinions of The St Andrews Economist.