Sunday

17th Feb 2019

Opinion

Behind the UK-China-EU ménage à trois

  • London has moved rapidly, while Brussels has been first consumed and then near-paralysed by geopolitical issues. (Photo: UK Parliament)

"Let's stick together and make a golden decade for both our countries," said UK Chancellor of the Exchequer George Osborne.

Indeed, the "Osborne Doctrine" preceded President Xi Jinping's UK state visit in September, when the Chancellor visited China and announced the British government’s intention to make the UK China’s “best partner in the West.”

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

However, the foundation of the bilateral golden decade was set up in spring.

How the UK changed the AIIB game in Europe

In late 2013, Chinese leaders put forward the proposal for the Asian Infrastructure Investment Bank (AIIB). It originated from frustration.

For years, China, along with other large emerging economies, had grown exasperated with the slow pace of reforms in the global multilateral financial institutions (for example, the IMF, the World Bank, the Asian Development Bank), which remain dominated by American, European and Japanese interests, as reflected by their voting quotas, investment allocations and the nationality of their leaders.

Despite US pressure against the membership, most countries in South, Southeast and East Asia joined the AIIB, whereas EU members initially stayed out.

The game changer was the UK’s decision to join the AIIB, as the “first major Western country,” which triggered a riled response from the Obama White House.

In short order, other core EU economies - Germany, France, and Italy - followed in the UK's footsteps, along with the rest.

Unlike the US, the UK does not have critical military interests in Asia. What it does have, however, is a great interest in the evolving multipolar world economy and a determination to be a central part of it.

Chinese capital for UK infrastructure

To Prime Minister Cameron and his Chancellor, the AIIB move was a part of a long-standing effort to establish an edge over the UK's US and European rivals in attracting Chinese investment.

Reportedly, deals worth over US$46 billion are to be signed during Xi's visit, covering industries such as retail, energy, financial services and aerospace.

During his visit to China last month, Chancellor Osborne opened bidding for the £11.8 billion High-Speed Two (HS2) rail link contracts.

In turn, the UK’s Hinkley Point nuclear power station, which has major backing from China, will be the first nuclear plant in the UK for 20 years. Hinkley Point C in Somerset could reportedly generate up to 7% of the UK’s electricity needs, while creating thousands of jobs. Its construction costs are estimated at £24 billion and are associated with additional technology and cost risks.

Today, Chinese companies are the world’s largest builders of nuclear plants. In China, there are 24 nuclear reactors in operation with another 25 under construction.

Indeed, in the past 12 years, UK exports to China have soared fivefold, taking the mainland from 9th to 6th place among the largest markets for UK goods and services. Now Osborne’s objective is to make China the UK’s second-largest trading partner by 2025, after the U.S.

London as China’s leading RMB offshore center

President Xi’s state visit to the UK heralded the issuance of sovereign debt in renminbi (RMB) in London and the rise of the UK as the first overseas RMB centre to open an RMB sovereign debt market.

Only a decade ago, China’s bond market was still small. Today, it is the third largest in the world, behind the US and Japan.

Starting from US$58 billion in 1997, it soared to US$5.3 trillion in the first quarter of 2015. Yet, foreign ownership of Chinese bonds remains minimal at around 2%.

Last autumn, the Shanghai-Hong Kong Stock Connect opened China’s markets to Western investors, via Hong Kong. However, it also led to the idea of a Shanghai-London Connect, which would replace Hong Kong with London in the West.

But Cameron and Osborne are aiming even higher.

Today, there are four major international reserve currencies: the US dollar, the euro, British pound and the Japanese yen. In early August, the IMF was asked to delay its RMB inclusion until September 2016. Even if China misses the cut in fall 2015, an interim review could grant the RMB a reserve currency status before 2020.

In the long-term, the endorsement by the IMF could unleash a reweighing of the global reserve portfolio, which today amounts to US$11.6 trillion.

Non-public, private investors would follow in the central banks’ footsteps. If, initially, the RMB amounted to 10% of the IMF reserve currency basket, along with Japanese yen and British pound, some 10% of the global reserves - over US$1.1 trillion - could flow into RMB assets.

Ménage à trois

In barely half a year, London has moved rapidly, while Brussels has been first consumed and then near-paralysed by geopolitical issues.

What the UK has achieved as a single EU economy - greater participation of China in infrastructure and finance - a proactive EU policy should have had the foresight to conceptualise and execute in Europe after the 2008-2009 global crisis and certainly in the aftermath of the 2010 EU sovereign debt crisis.

Timing matters.

Dr Dan Steinbock is the research director of international business at the India, China and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and EU Center (Singapore). For more, see http://www.differencegroup.net

Focus

China urges Britain to stay inside EU

Chinese leader Xi Jinping has urged the UK not to leave the EU in a rare intervention in a foreign country’s internal affairs.

Could Finnish presidency fix labour-chain abuse?

There can be no more excuses for business. They will be held for responsible for their failure to take action to prevent the risk of human and labour rights through their supply chains.

News in Brief

  1. Spain's Sanchez calls snap election on 28 April
  2. 15,000 Belgian school kids march against climate change
  3. May suffers fresh Brexit defeat in parliament
  4. Warning for British banks over Brexit staff relocation
  5. Former Italian PM wants Merkel for top EU post
  6. Antisemitic incidents up 10% in Germany
  7. Italy's asylum rejection rate at record high
  8. Hungary will not claim EU funds for fraudulent project

What does Poland want from the EU?

We propose several changes to the EU, derived from the political philosophy behind the current Polish government, and what Poles expect from the EU - this could be seen as a manifesto Poland wants the next European Commission to tackle.

Migration and May elections - time to get facts right

If misinformation in the field of migration can bring a government down, as in the recent case of Belgium following the country's adoption of the UN migration pact, then it can doubtless produce a populist majority in the European parliament.

Stakeholders' Highlights

  1. Counter BalanceEU bank urged to free itself from fossil fuels and take climate leadership
  2. Intercultural Dialogue PlatformRoundtable: Muslim Heresy and the Politics of Human Rights, Dr. Matthew J. Nelson
  3. Platform for Peace and JusticeTurkey suffering from the lack of the rule of law
  4. UNESDASoft Drinks Europe welcomes Tim Brett as its new president
  5. Nordic Council of MinistersNordic ministers take the lead in combatting climate change
  6. Counter BalanceEuropean Parliament takes incoherent steps on climate in future EU investments
  7. International Partnership For Human RightsKyrgyz authorities have to immediately release human rights defender Azimjon Askarov
  8. Nordic Council of MinistersSeminar on disability and user involvement
  9. Nordic Council of MinistersInternational appetite for Nordic food policies
  10. Nordic Council of MinistersNew Nordic Innovation House in Hong Kong
  11. Nordic Council of MinistersNordic Region has chance to become world leader when it comes to start-ups
  12. Nordic Council of MinistersTheresa May: “We will not be turning our backs on the Nordic region”

Latest News

  1. Sluggish procedure against Hungary back on table
  2. Could Finnish presidency fix labour-chain abuse?
  3. Brexit and trip to Egypt for Arab League This WEEK
  4. Belgian spy scandal puts EU and Nato at risk
  5. EU Parliament demands Saudi lobby transparency
  6. Saudi Arabia, but not Russia, on EU 'dirty money' list
  7. EU agrees draft copyright reform, riling tech giants
  8. Rutte warns EU to embrace 'Realpolitik' foreign policy

Stakeholders' Highlights

  1. International Partnership for Human RightsOpen letter to Emmanuel Macron ahead of Uzbek president's visit
  2. International Partnership for Human RightsRaising key human rights concerns during visit of Turkmenistan's foreign minister
  3. Nordic Council of MinistersState of the Nordic Region presented in Brussels
  4. Nordic Council of MinistersThe vital bioeconomy. New issue of “Sustainable Growth the Nordic Way” out now
  5. Nordic Council of MinistersThe Nordic gender effect goes international
  6. Nordic Council of MinistersPaula Lehtomaki from Finland elected as the Council's first female Secretary General
  7. Nordic Council of MinistersNordic design sets the stage at COP24, running a competition for sustainable chairs
  8. Counter BalanceIn Kenya, a motorway funded by the European Investment Bank runs over roadside dwellers
  9. ACCACompany Law Package: Making the Best of Digital and Cross Border Mobility,
  10. International Partnership for Human RightsCivil Society Worried About Shortcomings in EU-Kyrgyzstan Human Rights Dialogue
  11. UNESDAThe European Soft Drinks Industry Supports over 1.7 Million Jobs
  12. Mission of China to the EUJointly Building Belt and Road Initiative Leads to a Better Future for All

Join EUobserver

Support quality EU news

Join us