How might the UK’s relations with China evolve?

The new UK government is pursuing an approach towards China that promotes cooperation but challenge where needed. While increased trade with the world’s second biggest economy may bring benefits, economic opportunities with the European Union and the United States are likely to be greater.

UK governments have long professed to want increased engagement with China, while simultaneously protecting fundamental British interests and values. Despite these pronouncements over the last 15 years or so, successive governments have as yet failed to devise a holistic policy across all functions of government that satisfies both criteria.

The current government has promised to make amends. But it had barely set out its stall for greater engagement when it ran into an espionage and influence scandal involving the Duke of York and one Yang Tengbo, a Chinese businessman believed to have been acting for the United Front Work Department. This agency was originally set up by the Chinese Communist Party (CCP) during the civil war with nationalists in the 1930s, when its function was to gather intelligence and align the interests of non-Communists with the party. Its role today remains pretty much the same: enlisting influential people to propagate Chinese interests and narratives.

Although the scandal became public amid growing evidence of commercial espionage and cyber operations by Beijing in the UK and elsewhere, the government will be reluctant to be knocked off course. This is more likely to be the case as the world prepares for the uncertainties that lie ahead as Donald Trump is again inaugurated as US president.

It remains unclear what sort of China policy will emerge, if any, against this complicated backdrop, but it will certainly draw considerable attention and scrutiny.

How have things changed?

The UK’s approach towards China looked very different around 2015-17 when then prime minister David Cameron and then chancellor George Osborne pursued a staunchly ‘golden era’, pro-China policy. This was partly as a response to the global financial crisis of 2007-09, from which China appeared to have remained aloof.

The Whitehall view then was that China had ‘arrived’ as a major global economic force and that the UK should play a significant role in facilitating China’s capacities in the global economic system. At best, this was wishful thinking.

In reality, it was rather naive. It failed to recognise who Xi Jinping was and what he was about. Nor did it anticipate the looming economic problems that China would encounter soon enough, nor properly critique the ‘inevitable rise of China’ and the ‘decline of the west’, as articulated by the CCP.

The election of Donald Trump as US president at the end of 2016 shifted the focus in the western world belatedly from accommodation and integration of China to seeing it in a more adversarial and mercantilist light.

China’s more assertive foreign policy and uniquely broad-based and well-funded industrial policy became particular areas of concern. Trade conflict was prosecuted via tariffs between the United States and China. More generally, security and data concerns kicked off in earnest with the Chinese telecommunications giant, Huawei, in the cross-hairs.

Xi was seen more clearly to be exerting a strong ideological and controlling role inside China. Abroad, he pursued much more truculent and assertive policies, specifically with regard to Taiwan and the militarisation of the South China Sea. This more assured approach was also seen more generally in the global economy and in working to alter the governance principles and aims of international institutions.

Xi’s crackdown on human rights – notably of the Uighur people in Xinjiang Province and of democracy campaigners in Hong Kong in 2019, and the subsequent passage there of the National Security Law – triggered tit-for-tat sanctions, including with the UK. It also confirmed to many that Xi’s China bore no relation to Cameron’s idea of China.

Hard on the heels of these developments came the shock and controversy over the Covid-19 pandemic, along with its consequences for international diplomacy. When China and Russia declared their limitless friendship on the eve of the Beijing Winter Olympics in 2022, three weeks before Russia started its full-scale invasion of Ukraine, this was no doubt a reminder of China’s ambition for the world order.

Indeed, Xi’s references to ‘great changes unseen in over a century’ were not a trivial or casual aside. Rather they were an allusion to a moment in history that he believes the CCP must exploit – along with like-minded countries – to terminate American and western leadership and governance of the global system.

Former prime minister Rishi Sunak oversaw the integrated review of security, defence, development and foreign policy in 2021 with a revision in 2023. In this, China was referred as an ‘epoch-defining and systemic challenge’ to the international order, and the ‘greatest state-based threat to our economic security’.

The mantra of Sunak’s government was to ‘protect, align and engage’ – that is, to defend national interests and security, to align with allies and to engage in areas that were not contentious, such as non-security trade and investment, and climate change. For the most part, though, the outgoing Conservative government maintained a frosty posture towards China, which was duly reciprocated.

Is it time for a thaw?

Under Keir Starmer’s premiership, the government wants to hatch a new approach to China, albeit within the context of a very different framework from the one that prevailed a decade ago. Starmer has approved the resumption of official visits and bilateral discussions with Chinese officials – foreign secretary David Lammy went to China last year and chancellor Rachel Reeves has made the country her first overseas stop of 2025. Whatever becomes of the alleged new China policy audit, the new and persistently repeated mantra is to ‘cooperate where we can, compete where we need to, and challenge where we must’.

To this end, the government will try to revive dialogue and find agendas around which both countries can collaborate. These might well include the ‘easier’ areas of climate change mitigation, artificial intelligence, and international policing and negotiation, as well as person to person exchanges, especially of young people given that around 150,000 Chinese students are at UK universities. The government will also want to try to bolster trade and investment that is not related to national security issues, and enhance the reputation of the financial services sector.

This is consistent with the post-Brexit ‘tilt’ to the Indo-Pacific, in which the UK has emphasised freedom of navigation in Asian waters (which China persistently flouts with regard to Taiwan and, most recently, in and around the Philippines), membership of AUKUS (a partnership under which the UK and United States will share nuclear-powered submarine technology with Australia), and the accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) free trade agreement (which brings the UK into a commercial and political relationship with 11 Indo-Pacific nations).

With China and Taiwan (among others) having also applied to join the CPTPP, the UK’s posture in this extremely delicate issue – requiring unanimous agreement to proceed with negotiations – will be closely observed. Taiwan is more ‘oven-ready’ for this modern agreement; China is much less so. What’s more, China will undoubtedly be resistant to changes in domestic policies that would be needed. The politics though are in the ascendant, and it is not clear how, or even if, a decision will be made.

The UK government will continue to be bound by the National Security and Investment Act 2021, under which mergers and acquisitions can be blocked if deemed prejudicial to national security. In one celebrated example, the Dutch-based subsidiary of a Chinese firm bought the semiconductor firm, Newport Wafer Fab, in 2021 but was forced to liquidate its acquisition.

The government will also oversee the National Protective Security Agency, set up to support firms subject to intellectual property theft and espionage threats.

What challenges might the UK government face?

Notwithstanding the UK government’s ambition for stronger engagement, its room for manoeuvre will still be limited for four reasons.

First, national security nowadays is defined widely to include science and technology, data systems and transfers, and knowledge, all of which are embedded in modern trade. Electric vehicles and a broad range of seemingly innocuous consumer and business products contain cellular modules, mostly manufactured in China, which gather and transmit data. In line with Chinese law, these technologies and data can easily end up in the hands of the CCP.

Second, China’s rising reliance and emphasis on industrial policy and strategies to gain commercial, technological and export access to global markets are now seen increasingly as a political and ideological campaign waged by the CCP to dominate the so-called fourth industrial revolution rather than a typical struggle to exploit comparative advantage. This can only be achieved by repressing domestic demand in China, obliging other states to absorb China’s export surpluses.

Third, while the UK government emphasises tandem investment and financial services, the benefits expected to accrue are likely to be fleeting and/or small. Indeed, UK trade with China has grown four- to five-fold in the last 20 years or so, according to the House of Common Library. This makes China the UK’s fifth or sixth biggest trade partner.

But at the same time, China accounts for just 4% of UK exports and 7% of imports. This is non-trivial, but also not even in the same league as trade with the European Union (EU) and the United States.

Foreign investment by China in the UK (and vice versa) has slipped significantly in recent years. The stocks are not that big anyway. Chinese investment in the UK amounts to little more than a quarter of 1% of total foreign investment, and UK investment in China stands at about half a percent of total UK investment overseas.

Recent developments reflect not only a more sober view about China following trade wars, export controls and sanctions, but also the weakened systemic state of China’s economy. It also highlights the awkward position of UK and international firms in China, having to comply increasingly with host and home laws and regulations that are in conflict.

Trade deals will certainly benefit some individual firms, but for the £2.6 trillion UK economy, the argument that trade deals with China are important for the government's commitment to UK growth is barely credible. Similarly, it is probably good news for some City firms to get more business transactions moving renminbi capital in and out of China, to the extent that it is permitted. But for the City’s earnings and commercial viability, this business is more about pride than prosperity.

Fourth, Donald Trump’s return to the White House creates significant uncertainty for all governments, including the UK. Widely acknowledged to be unprincipled and transactional, Trump’s policies with regard to trade, tariffs and export controls cannot really be judged in advance. While the structural relationship between China and the United States can be safely assumed to be poor and likely to worsen, Trump could still add both positive and negative trade, commercial and foreign policy surprises for specific ends.

In the worst case – in which Trump levies very high tariffs on Chinese goods – global growth could suffer, a lot of trade would continue to divert away from mainland China to bypass the tariffs, and the renminbi might drop significantly. The UK could hardly gain in this scenario, but the downside risk might not be that great either. It is possible that US tariffs would be raised on some imports from Europe too, including the UK, but again, the degree of harm is unlikely to be substantial.

Conclusion

The UK government will have to monitor this quirkiness carefully, but all things considered, it is reasonable to assume that the Trump administration’s China policies will remain relatively hawkish. It is fashionable to think that the UK will have to find a nuanced way to pursue a higher engagement policy with China, while not antagonising Trump. But Trump is not well known for nuance and the risk for the UK is that such a strategy could end up backfiring.

The UK government would find little gain from a possible trade deal with the United States, and instead should focus primarily on improving trade flows and relations with the EU, a trading partner that makes up the bulk of UK trade. But it should make trade with the United States its next priority, since that accounts for about 18% of total trade – far bigger than trade with China.

UK investment in the United States is over a quarter of all investment overseas, and American investment in the UK is a third of all foreign investment in the country. China is not going to open up anything like enough to make a meaningful difference here.The UK will not want to be seen as a second fiddle to Trump’s China policy orchestration, and there is certainly scope for some policy independence. In the end though, a fractious Chinese economy and its leaders’ more assertive play for support among the world’s emerging and developing countries mean that the UK’s options with China are quite limited. As a result, the UK government’s opportunities to make its presence felt in Europe and the so-called Global South offer considerably more potential.