Ahead of the state visit by Chinese President Xi Jinping to the U.K. in 2015, then-Prime Minister David Cameron said he looked forward to a "golden era" of Sino-British relations. He was optimistic about Chinese foreign investment in the U.K. and reminded people that China would benefit greatly by having access to a country that was a leading member of the European Union.
Less than a year later he called a referendum on whether the U.K. should remain in or leave the EU. He lost and subsequently resigned. The rest is history. Unofficially, the Chinese government thinks that the decision to leave the EU is daft. Yet, both China and the U.K. have things the other wants. The visit to Beijing in mid-December by a delegation headed by Philip Hammond, the U.K.'s finance minister, ended with a spate of commercial announcements, including ones that herald the return of Cameron in a role promoting the "golden era" he promised.
Hammond went to represent the U.K. at the Economic and Financial Dialogue -- a bilateral institutional arrangement where the U.K. and China negotiate deals affecting trade, investment and finance. Hammond announced more than $1.3 billion of commercial deals; financial support mechanisms, including loan guarantees, of more than $32 billion for U.K. companies doing business in China or along China's Belt and Road Initiative projects; and an agreement to accelerate progress toward a London-Shanghai Stock Connect scheme and investigate a Bond Connect arrangement, both designed to help investors trade financial instruments in one another's markets.
In a curious twist on history, Hammond also announced that the U.K. Treasury would appoint a BRI "envoy." Remember that in 1793, Lord George Macartney went to China to establish -- or rather demand -- an official permanent mission in Peking and access to Chinese ports and new markets, which would extend the reach of the British Empire. Over two centuries later, the U.K.'s position is now more of supplicant, the BRI envoy presumably in situ to help petition for and facilitate business from which the U.K. might benefit commercially. The irony will not be lost on the Chinese.
Cue the return of Cameron. He already tweeted in September in relation to a visit to China: "Fascinating visit to Beijing to reinforce UK's close relationship with China & the 'golden era' - something I'm very proud of. Positive meeting with Vice Premier Ma Kai where we discussed economic partnership & potential for a future UK-China Fund for business."
Nothing more was heard from him until Hammond's announcement that Cameron would take a leadership role in a new $1 billion private equity fund, designed to support bilateral business deals related to the BRI. The British government is not putting money into the fund, but has backed it as an important contribution to further U.K.-China relations.
There is no question that the British government is casting its eyes far afield to look for commercial and business opportunities as it contemplates leaving the EU. In 2016, China accounted for just 3% of U.K. exports in a trade relationship tilted strongly toward China. The U.K. ran a 27.4 billion pound deficit in goods, barely offset by a 1.7 billion pound surplus on services. The U.K. will need to increase significantly trade with large economies, such as China, to compensate for trade losses on leaving the EU, the largest free trade area in the world.
The U.K. has fared better in attracting Chinese foreign direct investment into Europe. Since 2000, Chinese investment into the EU, for example, has amounted to more than 100 billion euros, of which nearly a quarter went to the U.K. The second largest recipient was Germany with about 18%. To date, the U.K. has been the perfect bridge to the EU, aided and abetted by a conducive regulatory and "ease of doing business" environment.
Until recently, there has been no close scrutiny over Chinese investors and their acquisitions along the lines of the Committee on Foreign Investment in the U.S. This is, however, beginning to change as European governments become more sensitive to China's demands for access to technology and other sensitive sectors. The U.K. has also made noises to this effect, but China will hope that the U.K. government's Brexit rallying call of "being open for business" means that Chinese companies will face fewer FDI hurdles in the U.K. There is no doubt China would like to keep investing in and acquiring know-how from U.K. technology companies if it can.
Whether this all amounts to a "golden era" in U.K.-China relations remains to be seen. Cameron's proposed fund of around $1 billion, while not small, is but a drop in the ocean when it comes to the BRI's investment potential. The latest commercial announcements may make for good headlines for the British government, but they are of peripheral significance to China. They are not in the same league as the kind of deals the U.K. will need outside the EU. Whether Chinese FDI will continue to flow freely into the U.K., when the U.K.'s trade relations with the EU are either uncertain and or inferior to what they have been, is debatable.
As the saying goes, all that glitters is not gold. Brexit Britain may not be the place it used to be, in which case, China's trade and investment interests will surely tilt more toward the EU.
George Magnus is an associate at Oxford University's China Centre and former chief economist at UBS.