China and the World

Once sweet, now souring

Is the ‘golden era’ of Sino-UK relations over as a consequence of Covid-19?


Political pressure mounts in Westminster to rethink Britain’s relationship with China

Two of the most mentioned moments on Xi Jinping’s state visit to Britain five years ago were a trip to the pub for a pint with (then prime minister) David Cameron and a selfie taken at the training ground of the top English football club Manchester City.

His hosts were playing up the personal touch in an effort to cement a ‘Golden Era’ of commercial ties between Britain and China (see WiC300).

The Chinese leader’s tour seems like a very long time ago – and not just because British pubs and football matches are no-go areas in the battle against the coronavirus.

In the wake of the Covid-19 pandemic, the relationship between the two governments is at risk of losing any claim to a golden glow. In part that reflects a broader trend, with other countries also voicing criticism of China’s role in the pandemic’s original outbreak. But it’s also a situation that creates specific strains in Sino-UK ties, especially in emboldening critics of Britain’s openness to Chinese investment and its readiness to do business with companies like telecoms giant Huawei.

What are the signs that relations could be heading into a more difficult period?

A change of tone at the top

Comments from senior political figures have taken a different tone to the more conciliatory debate that featured from previous governments.

Michael Gove, a senior member of the current administration, was first to take aim at the end of March, accusing the Chinese of failing to be clear about the scale, the nature and the infectiousness of the outbreak.

In the same month there was a bruising assessment from the foreign affairs select committee – a cross-partisan group of parliamentarians – that Beijing’s handling of the epidemic had “already cost lives”.

Tom Tugendhat – the committee’s chairman and an increasingly vocal critic of the Chinese – added to calls for an investigation into the outbreak, tweeting that “we cannot allow cover-ups and lies to put us all at risk”.

A few days later it was the turn of Dominic Raab, the foreign secretary and effectively the acting prime minister during Boris Johnson’s convalescence from the virus, to talk tough in advocating a resetting of the relationship with the Chinese.

“There is no doubt we can’t have business as usual after this crisis, and we will have to ask the hard questions about how it came about and how it couldn’t have been stopped earlier,” he warned.

All of these contributions are a step back from the charm offensive pursued by Cameron and George Osborne, then the UK’s chancellor, who tried to talk up the prospects of more trade with the Chinese (see WiC331). They are also a departure from the more cautious welcome adopted by Cameron’s successor Theresa May, as well as a potential break with the early path that Boris Johnson, the current prime minister, has taken with Beijing.

What is Boris Johnson’s view on the current situation?

The prime minister has stayed out of the public eye as he recuperates from a near-fatal case of the virus. But when he does emerge once again into front-line politics he is going to be under even closer scrutiny from those who already see him as too chummy with the Chinese, primarily because of his approval earlier this year of a role for Huawei in Britain’s 5G telecom network (see WiC481).

Not that the Chinese media picked up on that kind of pressure in their coverage of a very cordial conversation Johnson had with Xi Jinping shortly before he was laid low by the virus. During a phone call with Xi in February, the British leader expressed his admiration for the way that the Chinese were fighting the epidemic and even proclaimed his love for China as a nation, Xinhua reported approvingly. (In another phone call with Xi in late March, Johnson also said that post-pandemic he was looking to visit China as early as possible.)

His praise was probably a case of overegging the pudding, as Johnson might say himself, and he will have more of an eye on opinion in his home nation, where there are signs that sentiment is turning more critical of China’s part in the pandemic.

Apart from a growing debate in the mainstream media about China’s handling of the outbreak, another signal getting attention this week came from a survey by the Henry Jackson Society, a foreign policy lobby group.

It polled a thousand Britons for their views on China’s responsibility for the Covid-19 crisis and almost three quarters of respondents believed that China was to blame for the spread of the virus. More than 80% wanted Johnson to demand an international enquiry into China’s handling of the outbreak and another 71% felt that the Chinese government should be sued for damages if international law was breached in its response to the epidemic.

Do other countries share the same view?

Legal challenges to the Chinese government look likely from a range of litigants, including Missouri’s attorney general, who filed a suit on Tuesday alleging that coverups had contributed to a pandemic causing “trillions of dollars” in economic damage.

More broadly the mood seems to be souring from a month ago, when we wrote about how the Chinese government was coordinating deliveries of medical equipment and protective gear as the virus spread across the globe (see WiC488).

While the efforts were appreciated by recipients of the medical gear, there were warnings that the outreach was an attempt to reposition the Chinese as leaders of the response to Covid-19, rather than the source of the outbreak.

What’s now clear is that the campaign isn’t going to win over many of China’s critics, including President Donald Trump, who threatened undefined consequences last Saturday if the Chinese government was found to be “knowingly responsible” for the epidemic.

French leader Emmanuel Macron was more diplomatic in his comments, although he also doubts that the world has been getting the full picture from the Chinese, telling the Financial Times that it would be “naïve” to believe that they have been better at handling the crisis than everyone else.

German foreign minister Heiko Maas is another disbeliever in the “narratives” coming out of China on the pandemic, telling Der Spiegel “I can only warn against anyone falling for it”; and Marise Payne, Australia’s foreign minister, has also joined calls for an independent enquiry, describing concerns about China’s transparency as being at a “a very high point”.

Faced with this kind of response, China’s ambassadors have been caught up in some nasty disputes with their host governments, many of which have been conducted wholly undiplomatically on Twitter

In other cases, the rows have led to more formal rebukes. The French government summoned the Chinese ambassador to scold him about claims from his staff that France was leaving many of its older citizens to die in the pandemic, for instance, and there was a flurry of diplomatic protests from governments in Africa following coverage of discriminatory treatment of African citizens in Guangzhou.

The Chinese reaction to much of the criticism is that other governments are looking for scapegoats as a way of obscuring their own failings in responding to the virus. There’s also anger that their efforts at delaying its spread seem to have been squandered. The draconian Hubei lockdown, the Chinese argue, had given Western nations at least six weeks to scale up their preparations in terms of stockpiling testing kit and adding new intensive care units; countries like the US and Britain did not make effective use of this window. But foreign affairs specialists say that China’s diplomatic corps has also been diluting the goodwill engendered by the donations of medical equipment by responding too aggressively to perceived slights.

Unsurprisingly, the Global Times takes a different view of China’s more combative consular staff, celebrating the demise of the “flaccid diplomatic tone” of the past and seeing the complaints from overseas as a sign of the “changing strength” of China and the West.

But the wider warning is that this new style of ‘wolf warrior’ diplomacy (a term that originates from patriotic action films; see WiC376) is creating ill feeling at a time when tensions need to be dialled down.

What about the specifics of the UK’s situation?

The British are counting on growing their exports to countries like China as a way of offsetting the disruption to trade from leaving the EU.

As such, the UK government isn’t really in much of a position to talk about ‘business as usual’ in large parts of its trade policy, which will need to recognise post-Brexit realities.

Johnson’s government is also in a bind because it plans to boost business with the Americans as well, who have been putting pressure on the British to be less accommodating in their dealings with the Chinese.

In the past the UK has been described as a bridgehead into Europe for Chinese investors and it featured regularly as the biggest recipient of Chinese capital in the EU. What has also been important from Beijing’s perspective is that Britain has been more willing to take investment in significant areas of national infrastructure, including China General Nuclear’s (CGN) participation in the new nuclear plant at Hinkley Point (see WiC340), as well as Huawei’s more recent inclusion in the roll out of faster 5G telecoms networks.

Indeed, such is the expectation of Chinese investment in big-ticket projects that hardly anyone batted an eye this year when it was widely reported that one of China’s construction giants was in the running to build HS2, the UK’s high-speed rail link. The Chinese company concerned then denied it had expressed formal interest (see WiC484), leaving the impression that the spoofed offer was a bid to make political mischief around Britain’s readiness to work with firms from China.

Future bidders from China should expect more scrutiny?

The British have always been more open than their European neighbours to interest from Chinese bidders in their companies. More recently there was a much-needed rescue of British Steel (see WiC487) but other acquisitions have included local favourites like Weetabix, a much-loved breakfast cereal, and the takeover of Manganese Bronze, the makers of London’s iconic black cabs. Chinese firms have also invested in a growing number of English football teams including Manchester City. Even the pub Cameron and Xi spent time together has since been purchased by Li Ka-shing, Hong Kong’s richest man (via his takeover of beer firm Greene King last year), who is also the largest foreign investor in the UK.

The question is whether the pandemic is going to make it harder to get deals like these through politically. In the coming months there will certainly be concerns about British companies being bought ‘on the cheap’ because of the coronavirus crisis, especially if the bidders seem to be backed by cheap capital from the Chinese state.

Chinese involvement in major infrastructure deals may also come under a fuller glare, including the Hinkley Point nuclear deal. It is already a contentious arrangement (Washington put CGN, the Chinese investor, on one of its export blacklists last year). Local critics are sounding louder warnings against provisions that grant CGN contractual rights to “progressive entry” into roles at two further nuclear power plants as well.

New investment rules on the horizon?

The calls for more oversight received another boost this month in a row over board-level appointments at Imagination Technologies, a company that makes around a third of the graphics processing chips used in mobile phones, as well as verification techniques to test those chips.

Imagination was purchased by a Chinese state-owned investment firm called Canyon Bridge in 2017. British regulators approved the deal on the basis that the acquirer was US-based and thus regulated by American law. But Canyon Bridge has since moved its headquarters to the Cayman Islands and can no longer be considered a US-controlled entity.

A group of Imagination’s senior staff has resigned in protest at the growing involvement of China Reform Holdings, a state-controlled venture capital fund, which has pushed for four new board seats. One departing executive leaked his resignation letter, making clear that he couldn’t stay at a firm “that is effectively controlled by the Chinese government”.

Much of the media ire on the case has focused on the roles of former parliamentarians who have worked for Canyon Bridge as lobbyists (“suited Svengalis” is how Tom Tugendhat, the chairman of the Foreign Affairs Committee, described them). But other members of parliament took up the cause in warning that Imagination’s technology could be used to find vulnerabilities in telecoms networks. The British government subsequently intervened on the new board appointments, which have been delayed.

Canyon Bridge is now committing to adding non-executive directors to Imagination’s board and to keeping the company headquartered in the UK. But situations like this are going to speed up the passing of the National Security and Investment Bill this year, launching a new era of screening of foreign bids for British assets.

As many as 200 deals could be scrutinised every year under the new legislation, the government says, which is a huge step up on the 11 transactions reviewed under the existing framework, which was adopted in 2002.

Of course, this is a process that will apply to all foreign bidders but it seems likely that Chinese acquirers can expect particular attention, especially those with links to state ownership, and in cases where the target companies are classed as working in sensitive areas.

More scrutiny for Huawei as well

The changes to the investment rules will take effect once the legislation gets its final approval in parliament. However, changes in the political mood could presage more immediate problems for Huawei, whose inclusion in contracts for Britain’s 5G rollout is a touchstone issue for proponents of tighter screening of Chinese firms.

That’s despite the government’s insistence that it has protected the national interest by banning Huawei from core parts of the network and stipulating that it cannot account for more than 35% of the coverage (see WiC481).

A final vote on the government’s decision is still to be scheduled but the caveats haven’t been enough to convince rebels within the governing party, who failed by just 24 votes to pass a pre-emptive amendment compelling Johnson to kick ‘high risk’ vendors out of the network by 2023.

That is barely disguised code for showing the door to Huawei, despite warnings that doing so would add prohibitively to the costs of providing 5G.

The Tory rebels think that is a price worth paying and they are sounding more confident that they will be able to get a similar vote through parliament when the Huawei deal is next discussed.

Alert to the threat, Huawei defended its position this month with a letter from its UK head reiterating that it presents no security risk in delivering a network that will underpin the kind of transmissions in home data that have more than doubled as a result of the coronavirus outbreak.

But Huawei’s opponents smell a different opportunity in the politics of the pandemic, and a chance to block its route into Britain’s telecoms network, fuelled by the souring of sentiment that the virus has stirred. That’s especially so among the UK public, which prior to this year had been a lot more nonchalant about China.

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