Chinese investment will be cautious as UK leans to US
Published: Jul 20, 2020 08:43 PM

Illustration: Chen Xia/GT

Under pressure from its Brexit countdown and poorly handling of COVID-19 outbreak, the UK has become more aggressive in its foreign policy, seemingly betting high on the US while risking an end to its "Golden Era" relations with China. Under the deteriorative circumstances, it is inevitable that Chinese enterprises will more cautiously weigh their investment options in the UK, at least in the short term. 

Chinese short-video platform TikTok has halted discussions on the establishment of a headquarters in London amid recent China-UK tensions, according to a report from the Guardian. The British government earlier announced the removal of Chinese 5G frontrunner Huawei from the country's 5G networks by 2027, a policy U-turn interpreted as a move to flatter the US amid the Trump administration's all-out efforts to crack down on Chinese high-tech firms.

Per IMF estimations, the UK may face a drastic economic contraction of about 10.2 percent this year. With prospects grimmer than most European countries, the British economy risks slipping into a deep recession. That has cost it its bargaining chips in negotiations with other countries as the Brexit countdown ticks on, forcing the Johnson administration to choose a more adventurous path by siding with the US, its largest trading partner.

As the UK is leaving the European Union (EU), it needs to re-establish its long-term economic and trade structure. It would be an ideal scenario for the country to retain trade momentum in both Western markets and emerging economy markets. However, the pandemic has altered the previous global economic system and shortened the UK's time to establish new economic and trading patterns.

Whether or not the UK's siding with the US could facilitate the promotion of bilateral FTA talks and bring in long-term interests for the UK, however, may be beyond the Johnson administration's current calculations.

With the risk of a second wave of COVID-19 hanging in the air, all economic entities are lining up to announce their stimulus plans. The EU maintains relatively sounder industrial chains and more balanced economic structures than the UK, which has been relying heavily on the services sectors. That will make it more vulnerable when dealing with recession after leaving the EU. Its self-bailout campaign will be a tough task for the country amid the pandemic, which will lead to hesitant attitudes from foreign investment.

If the UK chooses to follow in the US' footsteps and continues worsening its relations with China, the UK risks reducing its weight in China's foreign policy framework and the global economic system. It could be even reasonable for China to combine UK-related and US-related trade policies. And Chinese investments may be inclined to flow into other European countries.

In essential, the UK may not be willing to be regarded as a follower of the US. Its speculative attitude could lead to more flexible foreign policy choices so as to find a balancing point among different large economies.

The UK's stance is constantly evolving, and when the fallout of the UK's speculative policies mounts and power shifts between British political parties, the country may soon change its stance on China-UK relations.

The author is director of EU Studies at the China Institute of International Studies.