A Higher Road to China

British Perspectives on the UK’s Solicited “Grand Reset” in Relations with China 

British Chancellor Rachel Reeves’s trip to China in January was the opening salvo of a solicited grand reset with China. The government hopes that it will bring enhanced investment and trade flows. With the UK investing almost double in China against what it receives, the desire for a healthier relationship with the world’s second largest economy is not without cause. Indeed, with a weakening pound, depreciated assets, and a government targeting the fastest growth in the G7, investments in the UK—it is hoped—should pique the interest of foreign investors. China, which dominates Asia, a center of global economic gravity, is a natural target. Yet the path forward is not clear and significant geo-political complexities loom large. The UK and China already share an uncomfortable relationship in recent years characterized by arguments about the democratic sanctity of Hong Kong, alleged genocide in Xinjiang, and UK intelligence agencies have openly warned that the domestic threat from Chinese surveillance and espionage has reached unprecedented levels. Even while policies aimed at curtailing the influence of Chinese companies in security systems and critical national infrastructure remain on the table—policies viewed as openly hostile acts in Beijing—the new British government has signaled a step-change in approach, one in which mature pragmatism will be Britain’s “North Star.”

British engagement with China is economically expedient, but politically sensitive. Tensions between China and the US (the UK’s closest political ally) are escalating with no third party or state yet able to materially intervene and de-escalate tensions. Meanwhile the Labour Government is working to move the UK meaningfully beyond the legacies of Brexit and a subsequent flight of Conservative prime ministers. Trade relations resets are a keystone Labour election promise, and the government is keen to leverage every advantage in its brand-new membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) free trade agreement. One advantage is proverbial supply and value chain “back doors” to China through the CPTPP’s overlapping membership with the parallel Regional Comprehensive Economic Partnership (RCEP) free trade agreement. In firing the first reset shot, Reeves seniority has commanded the Chinese Government’s attention. She is also an appropriate ambassador in presenting a fresh approach to China as captured in the UK’s new China policy of “cooperation, competition and challenge” (3C). That she met with Vice President Han Zheng and Vice Premier He Lifeng indicates that the UK is on target.

The 3C approach for China acknowledges the necessity of engagement with a power that poses profound economic and security challenges to the UK. China is already at the forefront of regional security considerations and coalitions. The trilateral AUKUS security partnership (Australia, UK, US) and the parallel Quadrilateral Security Dialogue (The Quad: Australia, India, Japan, US) are both orientated to addressing security threats from China. Talk of a proverbial cold war 2.0 being played out against an axis of China, Russia, Iran, and North Korea is not controversial. Yet distinct from the Cold War of the twentieth century is the current economic might of China, which is now playing out in a “hot” trade war for resources, next generation technologies, and industrial competitiveness under which semi-conductors and critical minerals are prominent on the front line. How the second Trump administration will affect this cannot yet be reliably predicted, but Western trade partners in particular are bracing for a storm that could be defined as much by US action as divergences in approach and policy amongst traditionally allied nations.

Resuscitating collaborative financial mechanisms suspended since 2018 offers channels for dialogue, both formal and informal. Headlining this is the UK-China Economic and Financial Dialogue (EFD), which enables both governments to “engage constructively on economic policies to provide certainty for business,” the UK Government reported. The return of a formal dialogue is expected to put wind in the sails for industry and investors to ramp up cooperation with confidence. At least this is the intent. But how the UK will mitigate economic and technological dependencies on China in the coming decades remains unanswered. Moreover, Chinese investors and businesses eyeing UK opportunities will still need to navigate profound levels of public scrutiny over potential security implications, human rights records, and concerns over foreign ownership in national infrastructure. Precedents set with Huawei will continue and fashion giant Shein’s proposed London Stock Exchange listing is the current poster child for a scathing, forensic examination of its business and conduct. However, that the UK has re-established formal financial dialogue ahead of China’s “Two Sessions” is deliberate. All eyes are on how China will address current economic headwinds (and certain Trump 2.0 interventions). This will be formalized in early March’s Two Sessions of the third annual session of the 14th National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC).

Reeves’s visit has largely been downplayed by political observers. Attempted political point scoring by the British media against the Chancellor for her visit at a time when the pound took a hit was predictable. Yet Reeves and the government weathered the media cycle, more so because this trip was never intended to deliver a sensational win or to fundamentally re-define relations. It was the next logical step in a process that began last year when Prime Minister Sir Keir Starmer and Foreign Minister David Lammy met President Xi Jinping on the sidelines of the G20 in Brazil. There is a longer-term strategy at play, and any potential grand reset pronouncements will be held back, perhaps until a formal visit by PM Starmer to China later in the year. Concerns over China’s record (and intents) are legitimate and the government has not shied away from them. How the UK will balance these concerns against the clear promise and requirement for growth is to be seen.

The government could and may yet be doing more. US Treasury Secretary Janet Yellen’s twice-yearly visits to China may be a good watermark to follow, but these are early days for the UK to make such commitments. There are still many unknowns pertaining to Labour’s ultimate China strategy moving into 2025, but it is clear PM Starmer sees his government as a vehicle to reset the relationship with advantages for Britain. Securing such advantages is turning into the UK Government’s key geopolitical mission as the world grapples with the unpredictability associated with the incoming Trump administration. And there sits the key determinant of what the visit will have meant. China is a target of the Trump administration and the degree to which the UK locks step with the US in economic and trade terms cannot be determined at the time of writing. Too much depends on Trump’s opening plays that are only now being revealed. And while Labour pronounced an “Atlanticist” preference in its foreign policy riding into last year’s election, how sincere that is will soon become clear.

The UK is seeking to reclaim a bigger and bolder international role for which the principles of its 3C policy may be foundational. This would certainly align with Starmer’s ambitions for British statesmanship, but British influence is tied up with the British economy. Geo-strategic interventions, including further military support for Ukraine, are not proportionate measures of global influence. Post-Brexit, the UK has underperformed politically and economically. It is now having to gauge and hedge its exposure to the trading might of the US, the European Union, and China, amongst others. A positive, long term economic trajectory for the UK is needed and the ability to manage trade and investment relations with China will be constant in that equation. Despite the looming publication of the UK’s “China audit” in Westminster, the Chancellor’s visit is a clear signal that Britain is open for business with the Chinese, which is certainly what Starmer will reiterate when, not if, a visit to China is agreed. 

China’s Perspectives on the UK’s Solicited “Grand Reset” in Relations  

China and the UK are pursuing pragmatic engagement amid a highly complex global environment. In the context of China shifting from a defensive stance to actively competing with US dominance in trade, improved China-UK relations is, in part, a platform. Fostering multilateral cooperation to address global challenges in less controversial areas such as trade, financial services, and climate change could pave the way for broader agreements in security, development, and governance. Hence China emphasizes that a mutually beneficial relationship is vital for both nations’ domestic development and as a stabilizing force for the global economy. Moreover, with China-US relations expected to remain turbulent, Beijing is eager to strengthen partnerships to counter challenges posed by Trump 2.0. The renewed "trade war" now blowing hot will create difficulty for Chinese businesses, particularly those from “sensitive industries,” and could further disrupt global supply chains, impacting growth. China’s enhanced cooperation with Germany and Hungary has, however, created step stones and financial collaboration with the UK could serve as a valuable complement. The visit, occurring just before President-elect Trump’s inauguration and amid rising trade tensions, underscores China’s need for diversified strategies that mitigate economic risks. Closer ties with the UK also present an opportunity to secure support for its bid to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) free trade agreement. Moreover, amid global challenges, the UK has limited economic options while facing persistent inflation, a depreciating sterling, soaring bond yields, and the ever-present shadow of Brexit.

China-UK relations have long been shaped by their respective relationships with the US. The incoming Trump administration’s aggressive tariff plans have placed not only China but also US allies under economic pressure. As British Chancellor Rachel Reeves noted, seeking mutually beneficial growth through cooperation with China is one of the few viable paths forward. A balanced China policy—similar to the approach of former Prime Minister David Cameron—could enhance diplomatic flexibility and mitigate volatility under Trump 2.0. Playing into this is that safety of global investments is the top priority for Chinese businesses and investors. Among Chinese business owners and investors, there is a growing, albeit unspoken, consensus that the domestic economy will continue to face headwinds. This is driving outbound investments to diversify risk. Historically, the US has been the benchmark and the preferred destination for many, though nowadays many are revisiting strategies given risks to their capital mobility, project progress, and business partnerships. Non-China assets that offer steady and less volatile returns are becoming sought after. The UK, it surely hopes, will offer such assurances.

To the surprise of few, Taiwan remains an Achilles heel. While Chancellor Reeves’ visit to China yielded tangible outcomes, a parallel visit by Tom Tugendhat, Chair of the Foreign Affairs Committee (who was sanctioned by China in 2021), to Taiwan also sent a clear message. Although the media coverage was intentionally kept low-key as Beijing did not want to dilute the positive progress, China’s strong condemnation of his “provocative and damaging” visit and meetings with DPP authorities will have a long tail. Regardless, China views bilateral cooperation with the UK as beneficial for both nations. Upon Sir Keir Starmer’s appointment as Prime Minister in July 2024, President Xi Jinping expressed China’s willingness to strengthen communication at all levels, which was carried through in their later G20 sideline meeting in Brazil. China’s priority remains maintaining secure, stable supply chains and opposes any decoupling efforts. This is reflected in the reciprocal high-level representation by both governments.

High-level engagement matters. Both sides focused on delivering results and the language has reflected a shared desire for a constructive future dialogue. China’s Vice Premier He Lifeng noted that the outcomes of the EFD reflect the depth of their economic cooperation and the global trend toward multilateralism and globalization. It is clear that China is ready to work with the UK to implement the leaders’ shared understandings, build on the dialogue’s outcomes, advance practical cooperation, and inject fresh momentum into bilateral ties and global economic growth. Business, predictably, received the talks positively. The British Chamber of Commerce in China emphasized that the EFD’s resumption will aid British businesses in expanding their operations, forging new partnerships, and accessing Chinese markets, and fostering secure and resilient growth. The Chinese business community in turn expressed hopes for broader financing channels, reduced costs—particularly in cross-border transactions—and greater convenience for enterprises. They anticipate that the international capital, technology, and management expertise brought by foreign financial institutions will enhance resource allocation and support China’s economic development.

This visit marked a pivotal moment in China-UK relations, with achievements that will resonate for years to come. The visit represented a cross-government and cross-sectoral negotiation involving numerous Chinese ministries, business councils, chambers, and private sector partners. In doing so, China made clear wins across political, diplomatic, economic, and financial dimensions. After years of strained ties, the resumption of dialogue was a welcome warming of bilateral relations in which an easing of political tensions augurs a more stable and predictable partnership. Strengthened economic and financial cooperation will also contribute to China’s influence in shaping international economic rules. Moreover, the dialogue produced 69 outcomes and may deliver up to GBP 1 billion in value for the UK economy over the next five years, and announced collaboration in financial services positions the UK as China’s preferred partner moving forward. China stole some headlines with the announcement of its first overseas sovereign green bond to be issued in London this year, but cooperation on pensions, countering illicit finance, deepening financial market connectivity through the China-UK Stock Connect and over-the-counter bond trading are anticipated to have material trade benefits. The long-term importance of this in helping China mitigate systemic financial risks in the face of economic headwinds should not be dismissed.

While the EFD has concluded, its success hinges on implementation. Planned follow-up mechanisms, including the UK-China Joint Economic and Trade Committee and the Joint Committee on Science and Technology, as well as a potential state visit by the British Prime Minister will be critical in sustaining momentum and delivering tangible outcomes. Moreover, practical mechanisms to address key differences, including Taiwan, human rights in Xinjiang, and economic security challenges faced by Chinese companies in the UK, will be essential to the hailed outcomes. Past political fallout—such as scrutiny of Huawei, the electric vehicle industry, and platforms like TikTok—has made Chinese businesses cautious about investing and operating in the UK and its willingness to lock step behind the US and the European Union.

Attention now turns to China’s 2025 economic growth goals. While the British Chancellor’s visit aligned well with China’s refreshed ambition to stabilize foreign trade and investment, international eyes will be on its agreed priorities to address China’s economic headwinds. These are expected to be unveiled during the Two Sessions—the annual plenary sessions of the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC). This year will also lay the groundwork for the next Five-Year Plan (2026-2030). The challenge is not to be underestimated. The country’s long-held strategy that economic development is the central mission now appears to be at odds with the current leadership’s focus, creating a level of internal dissonance in addition to structural challenges in the economy. 

Materials presented by Edelman's public & government affairs experts. For additional information, reach out to Oliver.Fall@Edelman.com, Cynthia.Xing@Edelman.com, Tana.Zhang@EdelmanSmithfield.com or Luisa.Porritt@EdelmanSmithfield.com