It was good to be interviewed by the Global Times (15th January 2025) on the Chancellor’s recent trip to China, and what future UK-China ties should look like.
Editor’s Note:
Facing criticism from opposition parties, UK Chancellor of the Exchequer Rachel Reeves on Tuesday defended her recent visit to China, during which she co-chaired the 11th China-UK Economic and Financial Dialogue with Chinese Vice Premier He Lifeng. She emphasized that the UK must go “further and faster” to achieve economic growth and new agreements with China would benefit British exporters and investors. Against the broader backdrop of China-UK relations, how should we understand this stance? How can China and the UK balance differences and further deepen economic and financial cooperation? To explore these issues, Global Times (GT) reporter Wang Wenwen spoke with Gerard Lyons (Lyons), a prominent British economist. “China and the UK demonstrate the ability to develop bilateral relations while remaining mindful of the broader geopolitical backdrop,” Lyons said.
GT: What significance does the recently held China-UK Economic and Financial Dialogue carry to China-UK cooperation?
Lyons: From a political perspective, the UK-China relationship has changed significantly over the last decade. At one stage it was very hot, and then it was very cold. It’s probably lukewarm now. But if we look at it from an economic and financial perspective, I thought the timing of the meeting was positive for both countries.
From a Chinese perspective, China is going through a difficult domestic economic backdrop. At the end of 2023 and again last summer, the importance of the financial sector to China’s next stage of development has been highlighted. And in particular, five areas were identified at the Third Plenary Session of the 20th Central Committee of the Communist Party of China last summer, and also at the central financial work conference in December 2023, namely techfin, green finance, inclusive finance, elderly care finance, and digital finance. The importance of the financial sector and deeper and broader capital markets is key in terms of China moving up the value curve. And in that respect, a good economic and financial relationship with the UK makes sense, because Britain is not only the world’s second-biggest service sector economy, it also has the second most important global financial center in terms of London.
If one looks at it from the UK perspective, it’s quite clear that the UK wants to establish a better relationship with China, particularly in terms of opening up China’s market to UK companies in the financial sector. At the same time, the UK government is very keen to attract more inward investment. That’s been a key theme of the Labour government since it was elected last summer.
The UK government is encountering difficulties regarding the fiscal situation. Some people have called for the chancellor not to travel to China. I don’t think that would have made any sense. These meetings take some time to plan, and not travelling would have triggered greater uncertainty and added fuel to the fire concerning markets concerns.
GT: In an article in a British media outlet prior to the dialogue, you mentioned that both China and the UK can reap rewards from stronger links. What have been the obstacles to a better China-UK relationship in the past few years?
Lyons: The previous UK government used to describe the relationship with China as a challenge. Strategic areas include defence, security and intelligence, which have been at the forefront of how the UK has approached its relationship with China. As a result, tensions appeared and the economic and financial complementarity suffered. It is important for the UK to recognize the difficult political environment and the changing geopolitical environment. For now, the current administration uses the three Cs – areas where they will challenge, compete and cooperate, as we need to differentiate between strategic and non-strategic areas.
GT: The UK chancellor’s visit came after the British foreign secretary’s visit to China in October. How do the two visits echo the Keir Starmer administration’s policy to re-engage with China?
Lyons: It reflects the fact that the geopolitical environment has changed. The domestic situation in the UK has changed in political terms. And also in some respects, the environment in China has changed over the last few years. So what the UK is trying to do, I would say, is that the new government has recognized that China is the second-biggest economy in the world and that it makes complete economic and financial sense for the UK to have a good relationship with China. There is a lot of upside potential for this relationship. The UK government is right to try and differentiate politics from economics and finance. It’s right to talk about the three Cs – to challenge, compete, and cooperate.
The complementarity is there. The question is what we do next. Having kick-started the economic and financial dialogue and the work streams that were associated with it, it is important to follow up to show tangible evidence of success, and then also restart the UK-China Joint Economic and Trade Commission.
Some people criticize the dialogue at the weekend for not having enough tangible results. I think it’s early days to say that, but it does highlight the need for the UK government to follow through on the weekend and to show that there are positive results, not just quick wins, but clear, positive, and longer-term strategies.
GT: Over the past few months, both China and the UK have released signals that both sides treat the bilateral ties pragmatically. What lessons could we learn from it?
Lyons: “Pragmatic” is a good word. One could also use realistic. “Pragmatic” reflects the differential challenges on the political side versus the economic-financial side. What does it mean? In terms of a geopolitical picture, it seems to me that we now have a G3 world, with the US and its allies being Group One, China and some other countries being Group Two, and Group Three is what I would call the “middle-ground powers.” Economists talk about the world becoming fragmented, moving from globalization to fragmentation. In economic and financial terms, it’s important to be cognizant of those political and geopolitical challenges. But at the same time, it’s important to recognize the mutual benefits. China and the UK demonstrate the ability to develop bilateral relations as well as to be mindful of the geopolitical backdrop.
GT: How will the US factor affect future China-UK relations, with the incoming US administration of Donald Trump?
Lyons: We don’t know yet, but one would imagine it will be a significant factor. The UK has a very strong defense relationship with the US and is part of the Five Eyes group as well as other relationships. I don’t see that weakening. What will be a challenge for the UK-China relationship is the ability of the governments to remain pragmatic given those wider areas.
The UK is a large, independent economy and country. We are a member of the UN Security Council’s Permanent Five. We participate in all the main global policy forums. The UK should be able, when it chooses, to pursue an independent path. But there will clearly be areas where the UK will align very strongly with the US, as well as areas where the UK, in economic and trade terms, will want to engage in good business with China.
What the last 10 years have taught us is how external events can change and how governments react to them. However, we need to have a sensible and resilient relationship.