By John Ross Source: China.org.cn Published: 2015-12-20
Relations between China and Britain have recently developed in a strikingly positive direction. Both countries have given high priority to this. Britain`s Prime Minister Cameron declared he wanted Britain to be China`s "best partner in the West" and Britain became the G7 country to support the China initiated Asian Infrastructure Investment Bank. Xi Jinping recently took the unusual step of making a "one country" foreign trip to the UK – Britain reciprocated by giving China`s president the highest possible level reception including an invitation to stay at Buckingham Palace and to address both Houses of Parliament.
The economic results are important. The agreements during Xi`s visit were worth up to $60 billion. The City of London strengthened its position as a centre for offshore RMB financial activity – becoming the first location outside China where RMB denominated Chinese government debt was issued. Agreements were concluded for cooperation between Britain and China on tourism, films, medical care and tourism.
The advantages for China as well as Britain are clear. London is, with New York, one of only two truly global international financial centers. London, In particular, leads in global foreign exchange dealings with a turnover larger than New York and Tokyo combined. China`s strengthening position in London is therefore an important advantage in internationalizing the RMB. There is also widespread agreement in Britain that its infrastructure needs radical improvement with planned construction of a high speed train link between London and the north of the country and replacement of substantial parts of the U.K.`s power supply – these are industries in which China has a strong competitive position.
But despite these evident mutual advantages, until recently China-U.K. relations had been bumpy, indeed in "deep freeze" at the highest levels. Analysing why such a striking improvement in relations occurred is therefore important in itself and has wider lessons.
Foreign policy framework
China has a clear policy framework for relations not only with Britain but with all countries. This was formulated by Xi Jinping as a "community of shared future." This notes that in the modern globalized world, countries increasingly interact with each other, therefore one country`s well-being is inextricably intertwined with others` well-being. This is immediately obvious for questions such as halting climate change, which cannot be achieved by any one country, or the struggle against terrorism – terrorists don`t respect national boundaries. China and Britain both gain from developing their cooperation on such issues.
But this framework operates also at a fundamental economic level and this undoubtedly played a decisive role in laying the basis for improved Britain-China relations. The foundation stone of economics was unequivocally set out by Adam Smith in the first sentence of the first chapter of The Wealth of Nations: "The greatest improvement in the productive powers… have been the effect of the division of labour." Further developed by Ricardo in the theory of "comparative advantage" this demonstrates that economies gain not from attempting to be self-sufficient but instead by specializing in those sectors in which they are most efficient and exchanging with others which have advantages in other economic spheres. Viewed from this fundamental economic angle the fact that the British and Chinese economies are strikingly dissimilar is not a problem but an advantage.
Britain`s economy today is dominated by high level services such as finance, advertising, media etc. In the country that in the 19th century was the "workshop of the world," manufacturing increasingly only takes place in high added spheres such as pharmaceuticals. In contrast China has already overtaken the U.S. to become the world`s largest industrial producer and enjoys huge competitive advantages across a wide range of medium technology products – China is now the "world`s workshop." There are, therefore, currently many areas for cooperation between the U.K. and China`s economies while areas of direct competition are minimized. This vividly illustrates both economic "comparative advantage" and a "community of shared future" regarding overall relations.
But as these advantages are so clear and long term, why was there a delay in realizing them?
It would be nice to report that Britain had immediately recognized the mutual advantages of cooperation with China due to the persuasive powers of logic and reason. But unfortunately human affairs do not run so smoothly. For a number of years Britain pursued a somewhat provocative and arrogant position towards China to the disadvantage of both – particularly Britain. The most well-known example of this was the May 2012 meeting between Prime Minister Cameron and the Dalai Lama – a political separatist leader posing as a "neutral" religious figure. This interference in China`s internal affairs naturally put China-British relations in the deep freeze, with China refusing to hold top level meetings.
Even prior to this, the author knows from personal experience that Cameron`s Conservative Party was trying to create problems for relations with China – after 2004 when the then Mayor of London Ken Livingstone opened London offices in Beijing and Shanghai, Conservative Party candidates made attacking this the first item on their election leaflets.
Fortunately, confronted with the consequences of the "deep freeze," Cameron and British Chancellor of the Exchequer Osborne concluded that Britain was seriously losing out on relations with the world`s most rapidly expanding market – China. Already by July 2012 the British government banned British junior ministers from meetings with the Dalai Lama. In June 2013 Cameron announced he had no further plans to meet the Dalai Lama.
As China`s foreign policy is not based on "tit-for-tat" but a clear concept of "community of common interests," as soon as it became clear that Britain`s change was a serious reorientation and not merely a short term manoeuvre, China moved to improve relations. Following Cameron`s summer 2013 statement, in December the same year he visited China.
It was the combination of China`s economic strength, firm position, but overall clarity on the framework of relations between countries for mutual benefit that created the basis for greatly improved relations – an advance the peoples of both China and the U.K. can now benefit from.
The author is a senior fellow at the Chongyang Institute for Financial Studies at Renmin University of China.