Not so golden anymore?

Aside from conceiving the investment acronym BRIC (Brazil, Russia, India, China), Jim O’Neill is closely associated with another term: ‘the Golden Era’. This was a reference to blossoming Sino-UK trade ties when O’Neill served in David Cameron’s UK government as Commercial Secretary to the Treasury. The former investment banker and economist – whose official designation is Lord O’Neill of Gatley – is now chairman of the esteemed British think tank Chatham House. Meanwhile ‘the Golden Era’ seems to have gone into reverse as relations between the two nations have become frostier. WiC spoke to O’Neill about the deterioration in bilateral ties and what has caused the cooler mood.

You were quoted in The Times as saying: “If you want to lecture China about the way they live their life, don’t think you are going to have a special relationship”. What did you mean?

From my attempts to think about and follow China for a long time, the Chinese typically tend to respect countries that are courteous and try to understand where China is coming from. It doesn’t like to be lectured by anybody and it doesn’t like other countries that appear to be behaving opportunistically without thinking about what it means for China.

So it is quite obvious that if other countries try to lecture China about how they live their lives, they are not going to have a particularly ‘special relationship’.

There aren’t many China specialists in the British government and, to be honest, expertise was always a bit thin on the ground. But I think Foreign Office diplomats were reluctant players in this brief period of the ‘Golden Era’ in Sino-UK ties.

I featured in it because the economic aspects came to the fore and so the Treasury and Number 10 [the Prime Minister’s office in Downing Street] played a particularly large role in how that ‘era’ was framed. The Foreign Office’s more cautious stance towards non-developed major countries was forced into the background.

But that mood has come back to the fore. A couple of timing-related things changed too. One, Donald Trump; and secondly, the publicity surrounding Hong Kong.

When you were in government Xi Jinping was pictured drinking beer in David Cameron’s local pub. Yet The Times reported an opinion poll last week that 41% of Britons now see China as a critical threat, up from 30% last year. How did we get to this point?

Yes, it is amazing – and in less than six short years. Obviously the Brexit outcome was a shock to the whole elite and I think it created a bit of a vacuum and shook the British establishment system. In addition we had a new prime minister [Theresa May] who had been steeped in the Home Office and security matters and who couldn’t have been more different to Cameron and [George] Osborne on the relative importance of economics versus security when it came to foreign affairs. So we lurched quickly to a very different philosophical position.

I can’t emphasise that enough as I was part of that [May] government very briefly. Its understanding and interest in economics was exceptionally small – close to non-existent. It shocked me that Theresa May seemed completely uninterested in China, other than as a potential security threat.

That sort of set the scene – and then Donald Trump appeared, embarking on his very public America First strategy and picking on China.

The combination sowed the seeds for what’s followed since. Aspects of the Brexit vote and Trumpism have really played into this older white working-class mentality in the Western world of wanting to roll the clock back on aspects of globalisation in general, and led to the grave conservatism towards countries that aren’t like themselves in terms of political philosophy.

That has led to a whole new movement, such as the emergence of the China Research Group in the UK parliament. As a result there is questioning by members of the establishment of the status quo over the past 30 years and with it the ability of a country that has no elected parliamentary system to be so dominant in international trade, and enjoying more and more influence on the global system. I see aspects of this in my role chairing Chatham House.

Do you think the tipping point in shifting public opinion in the UK against China was more related to the Hong Kong political situation or Covid-19?

The UK has not been particularly aggressive towards China about the Covid-19 situation. There have been moments, including our Secretary of State saying he’d like to see a credible, independent analysis of where the virus came from. But from my perspective I think the UK has been quite diplomatic and quite sensible about that part of it.

But because Trump presented the whole thing as a so-called ‘China virus’ that played into other aspects of how the UK foreign policy establishment thought about China.

Of course, the coincidental timing of China’s stance on Hong Kong has definitely been a huge influence. Frankly, I can see how this has put the UK in a very awkward position. Historically British leaders have thought of Hong Kong as being part of the British Empire. For many British residents – never having been to China and often holding a simple, stylised view of the country – the Chinese authorities apparently ignoring Hong Kong’s ‘One Country,Two Systems’ gave the UK government the licence to behave the way it has. So it was very unlikely – given the way China made the changes – that the UK would not have some kind of response. I do wonder whether Beijing didn’t realise that or simply didn’t care. I suspect it didn’t care. However, the mood in the UK sowed the seeds for other issues to get more attention, such as the treatment of the Uighurs in Western China – which is currently the most prominent issue of all.

A wing of the Conservative Party formed the China Research Group, which has made negative noises about China and its investments in UK infrastructure. What is your view on how the UK should treat that investment?

I’ll give you a slightly contradictory response. First of all, as an economist I think it is slightly ridiculous that these groups behave so aggressively. When you are a low-savings, current account deficit country, you rely on capital coming in from overseas. People like the China Research Group don’t understand things like that. The UK needs to get net foreign capital from the rest of the world. It has to be careful about taking too much of a dogmatic stance about the circumstances in which the capital comes – otherwise it won’t come.

Because of the sheer size of Chinese current account surpluses over the past 20 years, China has a lot of net capital that can flow around the world. But there are plenty of other places it can go, it doesn’t have to come here.

However – and here’s the contradiction – I do think the UK has been lax in lacking any kind of system about what can and can’t be done by non-British entities in the UK in investment terms. We have such a generally liberalised, laissez-faire system that we haven’t been thoughtful enough about the role of foreign capital in improving our productivity and social goals.

The UK is a country with very weak productivity, particularly in regions like the Midlands and the North. Even though we have great universities, we struggle to develop research-based entities that stay in the UK and provide a huge number of jobs. So in that sense I welcome a policy that sets the terms and conditions of how foreign investors – particularly governments – can invest in the UK.

It’s not a completely crazy principle, despite what I said earlier. That part of where this government has drifted [the new policy for screening foreign direct investment], I admire – as tough as it is.

The Guardian reports that Prime Minister Boris Johnson told business leaders he is “fervently Sinophile”. What are we to make of the seemingly mixed messaging coming out of government?

Boris’ natural instinct – going all the way back to when he was Mayor of London – is to be a Sinophile. He’d like to have a very good relationship with China personally. But he is surrounded by all these perceptions [on China] and strong guidance coming out of the Foreign Office and the Home Office.

Is Britain at risk of the same type of economic retribution that Australia has suffered from China?

Clearly that is a risk. I am not entirely sure why I am going to say it, but I don’t see that as a big likelihood in the near future, however. Despite all the odd things that have happened to us, I think the UK is still so uniquely positioned in international affairs that China would be very careful about doing that.

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