Chinese state media has been enthusiastic about the appointment of David Cameron as UK foreign secretary, the latest move in what looks like a gradual thawing of relations between the two countries.
So what? British business sentiment towards China reached a nadir last year, with 42 per cent of companies reporting a pessimistic outlook towards the Chinese market. Could a political thaw encourage a business revival?
US business leaders including Elon Musk and Apple’s Tim Cook gave Xi Jinping a standing ovation at a San Francisco hotel on Wednesday, following a day of talks between the Chinese leader and US President Joe Biden. The tech titans are making nice, but it’s a “nervous nice”, says Isabel Hilton, visiting professor at King’s College London.
Reasons to be nervous… There are plenty, including:
- Raids on Western consulting firms by Chinese police, which have raised fears that gathering market intelligence could be perceived as espionage.
- Reports that Chinese government agencies have banned staff from using iPhones at work, suggesting Beijing wants to reduce reliance on US-branded tech and promote home-made rivals as more patriotic.
- A struggling economy. FDI into China turned net negative in the last quarter, for the first time since the 1990s, apparently because Western companies were repatriating earnings.
… and to stay the course. “There’s a wider recognition in the West that it’s almost impossible to decouple from China,” says Shaowei He, professor of international business at the University of Northampton. The Cameron appointment follows a visit to Beijing by James Cleverly, who stressed that the UK was “open for business from China”.
The size of the market is not the only prize, though that’s breathtaking in itself: China is the world’s biggest e-commerce market, generating nearly half of all the world’s online transactions. It’s an innovator too. Pascal Soriot, chief executive of AstraZeneca, said this year it was “hard not to be impressed” by the progress made in China’s biotech sector.
China may be too significant to ignore, but it’s increasingly difficult to navigate.
The risks for FTSE boards looking to grow their business in China include:
- “Made in China 2025”, the state-led industrial policy to dominate hi-tech manufacturing, which is squeezing the market share of Western exporters like Volkswagen.
- The risk of being forced to transfer technology – claims China says are fabricated.
- The threat of worsening geopolitical relations, particularly in the aftermath of January’s presidential election in Taiwan.
Expect David Cameron to visit Beijing soon. But relations will be cooler compared with the chips and ale of 2015, when Cameron hosted Xi on a state visit.
Kate Fall, who was deputy chief of staff to Cameron as PM, said: “As prime minister, David Cameron’s emphasis was on the economic ties but we did take into account the spread of issues. Xi was also new in the role then and we didn’t know where he was taking China. Now it’s clear – and it’s more authoritarian.”
And within the Tory party, there’s a loud and sizable faction of China hawks that will act as a counter-weight. A former executive at a Chinese technology company said: “You’ve got MPs who are still banned from travelling to China. It’s still very raw… I don’t think we are about to see a rapid rapprochement. It’s baby steps.”
