Philip Hammond has redoubled Britain’s pursuit of economic ties with China, hailing the “truly epic ambition” of the Belt and Road Initiative and suggesting the UK could scale back its criticism of Chinese expansion in the South China Sea.
On a visit to Beijing, the UK chancellor of the exchequer praised China’s showpiece infrastructure programme — which Britain and many other countries seek to profit from.
His comments about Belt and Road, which many analysts see as a bid to extend Beijing’s influence across the world, came days after ministers opened up Britain’s 5G data network to Huawei, the Chinese telecoms group, despite security concerns highlighted by the US.
He also courted his hosts by downplaying tensions over Beijing’s disputed claims to almost all of the South China Sea, which had led him to cancel a visit in February.
The chancellor’s arrival in the Chinese capital came the same week that Theresa May’s senior ministers agreed to allow Huawei to develop “noncore” parts of Britain’s 5G data infrastructure, a move that infuriated the US.
That decision prompted criticism that Britain, which is eager to cultivate new trading relationships after its departure from the EU, was prepared to compromise on its principles in the search for post-Brexit deals.
George Magnus of Oxford university’s China Centre told the BBC that Britain’s move to open doors to Huawei felt like “kowtowing a bit” and seemed intended as “a modern form of tribute which will result in favours”.
He said it was no coincidence the Huawei decision was taken shortly before Mr Hammond’s trip to Beijing, adding: “I think we should be a little bit more careful about how we allocate our contracts and to whom.”
Although the Treasury insisted the Huawei move was not deliberately timed to improve Sino-British relations before Mr Hammond’s visit, the decision is likely to help his efforts to win more business for City firms in Belt and Road projects.
The Treasury has strongly denied leaking details of the national security meeting that debated Huawei’s position in UK 5G, as have a number of senior ministers. Mr Hammond’s aides said the timing of that meeting had moved many times in recent weeks and the chancellor’s visit to Beijing had only recently been confirmed.
The chancellor had to cancel his previous trip to China in February after Gavin Williamson, defence secretary, announced plans to send a new British aircraft carrier to China’s backyard in the Pacific — which Beijing’s ambassador to the UK lambasted as “gunboat diplomacy”.
This week Mr Hammond was reminded by his hosts that if Britain really wanted to develop a “golden era” in relations between the two countries, it would be better if London desisted from such gestures in future.
Chinese vice-premier Hu Chunhua said the “fluctuations” in UK-China relations over the South China Sea since last August were “regrettable”. Last summer Chinese jets and warships also came close to a Royal Navy ship sailing in international waters near disputed islands.
“Britain recently has many times said it is dedicated to promoting the Golden Era in relations between China and Britain,” Mr Hu told Mr Hammond on Thursday. “We hope Britain can earnestly respect China’s core interests and important concerns, and that its actions are in keeping with what it says.”
Mr Hammond told Mr Hu that “during the past few months there have been some difficulties in advancing the positive course of the relationship that our leaders have set out — of course you understand that the UK takes no position in relation to the issues in the South China Sea.”
The Treasury later said Mr Hammond was not remaking British policy and was referring only to the issue of the sovereignty of the disputed islands — on which Britain took no position. The UK maintained its commitment to freedom of navigation in the area.
The UK-Chinese partnership has long been turbulent. David Cameron’s government was put in the “deep freeze” after the former Tory prime minister met the Dalai Lama in 2012.
George Osborne, Mr Hammond’s predecessor as chancellor, revived the relationship with an ambitious attempt to make Britain the “number one partner” of China in the west, although relations cooled again when Theresa May — who had security concerns about Beijing’s involvement in Britain’s nuclear industry — became prime minister in 2016.
In his speech praising Belt and Road as “a project of truly epic ambition”, Mr Hammond expressed the hope that British companies could benefit from it.
“Our offer is to bring the best of Chinese manufacturing, engineering and construction with the best of British project design and legal, technical and financial services expertise,” he said.
But Britain is among a number of EU countries — including France and Germany — to have refused to sign a bilateral memorandum of understanding with China on Belt and Road, amid concerns about environmental issues, the debt burden on third countries and the openness of contracts to bids from western countries.
Peter Altmaier, Germany’s economy minister, said major EU countries wanted to sign an MoU as a group, not as individual states. However, Italy last month became the first G7 nation to sign a Belt and Road MoU of its own.
Mr Hammond’s speech — in which he praised China’s president Xi Jinping for “the scale of this vision and the determination with which it has been pursued” — marked a warming of British rhetoric although the chancellor stressed that Belt and Road projects had to meet international standards.
The UK will now host an Economic and Financial Dialogue with China in London in June, to showcase the city’s powerful financial services industry.
Catherine McGuinness, chair of the policy and resource committee for the City of London, told the FT that the UK could offer products ranging from insurance to expertise in Islamic bonds, advisory services and green financing.
In a move that could open the door for such business, China on Thursday issued new standards for financing Belt and Road projects, some of which have been criticised for driving fiscally weak countries deeper into debt.
These will take into account countries’ existing debt loads, as well as promoting “green” or more environmentally friendly lending, central bank governor Yi Gang said.
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