The Gambler’s Code: Reassessing the UK–China Golden Age

Chancellor of the Exchequer George Osborne and Chinese Vice Premier Wang Qishan at the Fourth UK-China Economic and Financial Dialogue in London, 8 September 2011. Courtesy of Foreign, Commonwealth & Development Office/CC-BY-2.0.

Good or bad, the so-called golden age of UK–China relations should be seen for what it was: a geopolitical wager.

In 2015, then Chancellor of the Exchequer George Osborne told a packed auditorium at the Shanghai Stock Exchange that ‘the world still needs China’s help. We need China to power our economy forward. That’s why I have come to China again and again in this job’. The speech was supposed to placate jumpy investors fearful at the ongoing turmoil in Chinese financial markets, but is now remembered for a rather different reason. Namely, that it celebrated a ‘golden decade for the UK–China relationship’.

Osborne, the principal architect of the UK’s China policy during this period, would expend considerable political capital in his attempt to bring the UK into Beijing’s orbit. It was Osborne’s belief that the UK had to recognise realities: China was a juggernaut and had to be treated as such. This fundamental assumption would frame the entirety of Westminster’s China policy in this period. The UK was ultimately placing a serious bet on the space that China would fill in global affairs this century. Whether the UK knew it or not, this was a gamble.

The Historic Pedigree of the China ‘Cure’

The salve of the ‘China market’ is a familiar remedy that successive British governments have reached for in times of economic hardship. And the fact that what should essentially have been a foreign policy matter was actually driven by the Treasury has a historic precedent: it is similar to the ‘Treasurisation’ of China policy during the 1930s where, again, a domineering Chancellor, Neville Chamberlain, with a dogmatic belief in the potential of the China market, rode roughshod over the Foreign Office. Chamberlain’s policy was predicated on cooperation with Japan, a halt in the conflict between China and Japan and the protection of British economic interests in China. But a misreading of Japanese intentions, an unwillingness to establish red lines and a reluctance to marshal resources in the region all conspired to unravel Chamberlain’s policy. This was made worse by a steady erosion of British influence in southern China throughout the course of the Second Sino–Japanese war which Chamberlain did little to stem. For all the rhetoric of Chamberlain’s approach he failed to sufficiently engage with the ‘problem of China’.

The Nuts and Bolts

After coming to power in 2010, Prime Minister David Cameron would also signal his intent to reach for the China market. Cameron went to China with a raft of British business leaders, vowing to double UK trade to China to $100 billion and praising China for lifting billions out of poverty. In 2011, Chinese Premier Wen Jiabao was invited to the UK for the annual trade summit which culminated in a series of deals, particularly to export luxury goods to satiate a burgeoning Chinese middle class. With Xi Jinping’s ascension to General Secretary of the Chinese Communist Party in November 2012, and then presidency the following year, Osborne’s approach seemed a perfect fit for Xi’s own global policy initiatives.

Some of the most important events of this period, however, were not occurring in glitzy, heavily choreographed bilateral summits but in the boardrooms of international finance. Over the spring of 2012, the City of London Corporation started a concerted campaign to improve ties between British and Chinese finance. That same year HSBC, one of the great paragons of the London–Beijing axis, issued the first Renminbi (RMB)-denominated bond. With the City now accounting for 62% of RMB payments outside of China the Bank of England were handed a fait accompli. To safeguard against this influx of foreign money, the Bank agreed a swap agreement with the People’s Bank of China.

In behavioural economics the ‘hot-hand fallacy’ is the idea that a successful streak leads to further success, a fallacy that gamblers will readily demonstrate. By 2013, it looked as though the UK’s bet was paying off. So, on a hot streak, Osborne doubled down. On a visit to China in October 2013, he declared that time had arrived for ‘the next big step’. Further deals were announced, the visa system was simplified for Chinese tourists and a mea culpa was issued over David Cameron’s previous meeting with the Dalai Lama.

The British genuflection worked, and the Chinese responded in kind. In 2014, Chinese Premier Li Keqiang visited the UK, meeting not only with David Cameron, but also the Queen. To mark progress, the Treasury issued the world’s first sovereign RMB bond coming to some RMB 3 billion. London was sending a clear signal as to the role that they believed RMB would play in the future.

One should not view these developments as simply a story of Chinese financial largesse and economic diplomacy. The UK’s decision to break with its key Western allies and join – and actually become a founding member – of the Chinese-sponsored Asian Infrastructure and Investment Bank (AIIB) was a move of sizable geopolitical proportions, which incurred no small amount of political risk. The bank was established to be the engine for China’s Belt and Road Initiative, a foreign policy tool to upend the geopolitical landscape. In its design it is also a direct riposte to the string of post-war Western-designed economic institutions. The power most directly impacted by the establishment of this was, of course, the US, whose own relations with Beijing in this period were becoming increasingly fractious. Clearly the Obama administration’s ‘pivot to Asia’ was, in no small part, an attempt to curtail Chinese hegemonic aspirations. The UK’s decision to join the AIIB in defiance of significant pressure to do otherwise from the US was not only a snub to Washington, but also cleared the way for Germany, France and Italy to join days later. It resulted in the collapse of the US position which at the time aimed to ensure that China’s bank project did not get off the ground.

The decision to join the AIIB was based on the logic that it was better to have a seat at the table then to be shut out of the room completely. As a founding member, the UK could steer China in a direction it wanted. Or so Osborne claimed in the lengthy discussions that he had with US Treasury Secretary Jack Lew in the months preceding the decision. In Osborne’s mind he was not picking sides in the great power competition between the US and China – he was dodging the conflict entirely.

What went more or less unsaid was the fact that the UK was now very much committed to the China bet. Osborne stated that the West ‘should run towards China’. The eponymous speech at Shanghai’s stock exchange was followed by a trip to Urumqi, the capital of Xinjiang province, where Osborne steered well clear of mentioning Beijing’s treatment of the Uighurs, preferring to stay on good terms with his hosts. That silence continued even as reports emerged of ethnic violence that very day at a nearby colliery.

Return to a Gold-Plated Reality

Osborne and his China policy would not be brought down by anything in the Indo-Pacific, but by the disintegration of the Cameron government. However, while Osborne was unceremoniously excluded from the cabinet of Prime Minister Theresa May, a residual ‘Osborne China’ policy endured in Whitehall for a time. Theresa May continued the UK’s China bet, taking a three-day trip to China in February 2018, where she pledged to continue studies on the Shanghai–London Stock Connect and secured an agreement to open up China’s market to new financial services. A year before a $50 million matching contribution with China into the AIIB was also offered.

The true turning point for the relationships were the Hong Kong protests which began in 2019. At the time the UK was agnostic on China’s behaviour in the South China Sea and on Beijing’s treatment of the Uighurs. These would become key issues after the protests, but Hong Kong was a red line. With that red line crossed, the golden years were truly at an end.

Ultimately, the Treasury’s logic was founded on the calculation that the UK had to recognise the realities of Beijing’s ascendancy and by accommodating China they could exert a modicum of influence over its direction and reap the economic benefits of the partnership. However, for all the invocation of realpolitik and a distinctly British nous, the Osborne doctrine, like its Chamberlain forebear, was founded on a geopolitical bet that was completely divorced from its diplomatic and historical context. Hong Kong mattered. The ‘special relationship’ with the US mattered. Regional dynamics mattered. British interests beyond economics mattered. There was no attempt to reconcile these issues with the Treasury’s ‘new’ approach to China, meaning the policy could never be sustainable. As such, when the deck got cold, the UK left the table.

Oliver Yule-Smith is a doctoral candidate and Leverhulme Fellow at the Centre for Grand Strategy in the War Studies Department of King’s College London. His research focuses on the UK’s China Policy from 1922–2020.

The views expressed in this Commentary are the author's, and do not represent those of RUSI or any other institution.


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