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A protester holds up a banner calling for independence, in Hong Kong on July 13, 2019. Image Credit: AP

Relations between the United Kingdom and China are cooling sharply in the wake of the worst political unrest in Hong Kong for decades. While this represents a big political headache for Beijing, the overall challenge may be even greater for London in the context of its post-Brexit dependence on growing economic ties with fast-growing economies in Asia and beyond.

In recent days, the two candidates running to become the UK’s next prime minister, Jeremy Hunt and Boris Johnson, have squarely defended the demonstrators. Foreign Secretary Hunt, for instance, called on Beijing not to use the protests against a proposed Hong Kong law allowing for extradition of people to mainland China as a “pretext for repression”.

Yet, despite this rhetoric, both Hunt and Johnson will be aware that bilateral relations went into a deep freeze in 2012 when then-prime minister David Cameron offended Beijing by meeting with the Dalai Lama. It is for this reason that the Conservative governments of both Cameron and Theresa May ratcheted down human rights concerns about China with relations entering what was called a “golden era” after Xi’s UK visit in 2015.

Potential dispute between UK and US

While this stance is certainly not without controversy, including with Labour’s leader Jeremy Corbyn who raised human rights issues with Xi in 2015 in London, Conservative ministers have increasingly perceived that enhancing ties with Beijing is in the UK national interest. They figure that Xi could be in power well into the 2020s, and it is widely viewed that there is an opportunity to develop a relationship that could make a significant contribution to UK prosperity for a generation to come.

In this context, it is not just Corbyn, but also Washington which has raised concerns about the degree to which London is perceived to be cosying up to Beijing, especially under the previous government of Cameron when then-finance minister George Osborne pledged to make the United Kingdom “China’s best partner in the West”. This ruffled the feathers of the Obama administration following the UK’s decision to become a founder member of the Asian Infrastructure Investment Bank (AIIB) which is being championed be Beijing as a potential alternative to the World Bank.

Going forward, a new area of potential dispute between the United Kingdom and United States could open up around Beijing’s huge $1 trillion Belt and Road infrastructure project. After Italy became the first G7 nation to endorse the plan earlier this year, much to the alarm of the Trump team, China is now looking for other key nations to do so, and Finance Minister Philip Hammond attended April’s Belt and Road Summit in Beijing.

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As these examples underline, economics has assumed even higher importance in bilateral relations in recent years. And in the context of Brexit, London is putting ever greater emphasis on consolidating trade ties with non-EU nations as underscored in recent trips to China by UK ministers, including May, and Hammond.

The United Kingdom already receives the largest amount of Chinese foreign direct investment of any EU country, and is one of Beijing’s top three trade partners in Europe. Meanwhile, China is the UK’s second largest non-EU trade partner.

Yet, while economics dominates bilateral ties, security issues are a growing part of the agenda too. The two nations recently celebrated the 45th anniversary of the China-UK diplomatic relationship, and Beijing has sought to expand military cooperation with London, including for the first time in 2018 sending warships to London for a tour.

However, on this security agenda too, there are also tensions in the relationship. In February, for instance, a trip by Hammond to Beijing was cancelled after a speech by then-defence secretary Gavin Williamson was perceived by Chinese officials as sabre-rattling.

Huawei can be a source of tension

Williamson asserted that London could deploy an aircraft carrier in the Pacific for its first operational cruise in 2021. This was very sensitive for Beijing, in part because it is involved in disputes with neighbouring countries over territorial claims in the South China Sea.

While there has been no public confirmation of the London-Beijing spat, the Chinese ambassador reportedly raised his concerns with the UK Foreign Office. Moreover, Osborne criticised the mixed messages coming from May’s team over whether Beijing is an economic partner or military threat.

Meanwhile, Huawei (the Chinese-headquartered technology firm) could also be a source of tension too. In his trip to London in May, Donald Trump reportedly told UK officials that Washington may limit intelligence-sharing if London allows the Chinese firm to build part of its 5G high speed mobile network given the security concerns he has about the firm. So this future decision, which will be a key one for Johnson or Hunt as the next prime minister, is therefore yet another example of the high stakes diplomatic balancing act for London going forward given its desire to form closer post-Brexit economic ties with Beijing.

Andrew Hammond is an Associate at LSE IDEAS at the London School of Economics.