Thu, Jan 16, 2025 page7

• Rachel Reeves’ art of the China deal is no masterclass

  The UK seems determined to chase the chimera of equitable trade with China

  • By Matthew Brooker / Bloomberg Opinion
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  British Chancellor of the Exchequer Rachel Reeves left behind turmoil in financial markets to travel to Beijing in pursuit of growth drivers for the British economy, sparking a media backlash at home and dismaying critics of the Chinese Communist Party (CCP). The results were underwhelming.

  Reeves, who was accompanied by leaders of financial services companies with interests in China including HSBC Holdings PLC and Standard Chartered PLC, proclaimed agreements worth ￡600 million (US$734 million) over the next five years that she said would benefit working people and businesses across the UK. To put that figure into perspective, it amounts to an annual boost of less than 0.005 percent to Britain’s US$3.4 trillion economy. The potential value is higher, admittedly.

  Cooperation with China sets a course to deliver as much as ￡1 billion of benefits, according to a British Treasury statement, which equates to an increase of more like 0.007 percent. Do not break out the champagne.

  To be fair, announcements stemming from international business delegations are a public-relations circus with limited meaning at the best of times. Deals that might have been reached months earlier tend to be repackaged for the cameras, given that a bigger headline number adds to the drama and enhances the prestige of the leaders taking part.

  However, the full benefits of trade diplomacy are not immediately quantifiable. Britain is resuming a dialogue that has not taken place for more than five years and will expect the rewards of engagement to become more significant. At least this is what Reeves has to believe, having decided that China was a more urgent object of her attention than 30-year gilt yields reaching their highest since 1998 or the plunging pound.

  Even if the chancellor was right to go ahead with the visit at such an inopportune time, events at home created an unfortunate backdrop that will have done nothing to strengthen her negotiating hand. The same can be said for the tenor of the messaging that surrounded the trip.

  Britain has “no choice” but to engage with China if the government is to meet its mission of growing the economy, Reeves wrote in an op-ed for the Times at the weekend. “Reeves: UK needs China” was the headline on the newspaper’s front-page report.

  This seems a less-than-optimal message to be sending to China’s leaders just as you pitch up for trade talks. It is tantamount to saying: “We are desperate, please help.”

  Anyone buying a secondhand car would be unwise to tell the seller they are without alternative transport and really need this purchase; you would be unlikely to get a good price.

  Reeves has been careful to stress that she will protect Britain’s national interests, lacing her statements with references to issues where the government has disagreements with China — from cyberattacks and interference in UK democracy to the crackdown on Hong Kong’s freedoms and the jailing of media proprietor Jimmy Lai (黎智英) — but how effectively can such criticisms land when Britain has just advertised its economic vulnerability?

  The CCP, remember, has a track record of using trade as a lever to pursue geopolitical ends, from Australia to Norway to Lithuania.

  Is it even true that Britain has no choice? China is the world’s second-biggest economy and the largest manufacturer, but of far less significance as a trade and investment partner for Britain than the EU or the US. It ranked as the UK’s sixth-largest export market in 2023, accounting for 3.9 percent of the total, according to statistics from the British Department for Business and Trade. The EU, meanwhile, took 41.4 percent of Britain’s exports and the US 21.7 percent. In imports, China was the No. 5 partner, accounting for 6.8 percent of the total, versus 51.5 percent for the EU and 13.2 percent for the US.

  China’s economy is expected to be the largest driver of global growth this decade, providing significant opportunities for Britain, Reeves wrote in her Times op-ed. That is also open to question. The country is having its own economic difficulties, weighed down by a property bust and deflationary pressures.

  A prominent Chinese economist has been barred from speaking publicly after telling a forum in Washington that the economy might have grown at less than half the roughly 5 percent rate touted by authorities, the Wall Street Journal reported last week.

  The argument that trade deals with China are important for the UK government’s commitment to growth is “barely credible,” George Magnus, an independent economist and author of Red Flags: Why Xi’s China is in Jeopardy, wrote in a commentary on Friday last week.

  British fascination with the supposed economic riches to be gained from engagement with China has a long pedigree. More often than not, the reality has failed to match the hype.

  The “golden era” of former British prime minister David Cameron and his chancellor, George Osborne, came and went, as the CCP’s hostility to the liberal democratic world’s values and security became more apparent. The latest iteration under Reeves is a more sober and pragmatic version that recognizes this changed reality.

  Yet the UK still appears to be chasing the chimera.

  Matthew Brooker is a Bloomberg Opinion columnist covering business and infrastructure. Formerly, he was an editor for Bloomberg News and the South China Morning Post. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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