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Chancellor Rachel Reeves has stood by her decision to travel to China to strengthen economic ties, even as rising government borrowing costs strain UK public finances. She emphasized the importance of a long-term relationship with China, describing it as "squarely in our national interest." Reeves announced that agreements secured during her Beijing visit would bring £600m to the UK over the next five years.
Despite the potential benefits, her trip has sparked criticism. The Conservatives accused Reeves of "fleeing to China" during economic turbulence, marked by UK borrowing costs reaching a 16-year high and the pound's sharply declining value.
During a visit to the Brompton bicycle store in Beijing, Reeves dismissed suggestions of altering her economic strategy. She then met with Chinese Vice-Premier He Lifeng to discuss trade and investment opportunities, aiming to boost the UK economy and improve living standards. The talks led to commitments for deeper cooperation in trade, financial services, investment, and climate initiatives.
UK-China Economic Relationship
China, the world's second-largest economy, is a vital trading partner for the UK, ranking fourth among single-country trade relationships. According to Treasury data, UK exports to China supported over 455,000 jobs in 2020.
Reeves acknowledged the challenges posed by rising borrowing costs but reaffirmed her commitment to fiscal rules. The recent market volatility, including the highest borrowing costs since 2008 and the pound dropping below $1.22, complicates her ability to adhere to self-imposed fiscal targets.
She said, "I have been really clear that our fiscal rules are non-negotiable, that we will pay for day-to-day spending through tax receipts, and that we will get debt down as a share of GDP."
The UK's economy faces stagnation, and businesses are bracing for tax increases slated for April. Reeves’ visit aligns with the government’s pledge to deepen economic cooperation, a commitment first articulated by Prime Minister Sir Keir Starmer and President Xi Jinping last year.
BBC economics editor Faisal Islam noted that other European nations like Spain have leveraged Chinese partnerships to secure advanced battery technology. He warned that the UK’s green growth strategy might strain relations with the United States, especially under the Trump administration, if it prioritizes Chinese involvement.
Reeves’ discussions with the Chinese vice-premier touched on Hong Kong, Russia’s invasion of Ukraine, and financial services trade expansion in Shanghai. The UK government aims to dismantle barriers hindering British businesses from exporting or growing in China.
She said, "We discussed that there will need to be areas where we disagree, and it is important that we can have an open and frank exchange on these issues.
"That includes concerns on national and economic security, market access and impacts of subsidies and industrial policy to ensure a level playing field exists."
Accompanying Reeves were senior officials, including Bank of England Governor Andrew Bailey and Financial Conduct Authority Chief Executive Nikhil Rathi, along with representatives from leading UK financial firms.
"She's going at a time when her Budget has sacked the economy, we've got debt rates going up, and she looks like she's going with a begging bowl, not with a trading deal," he said. "That's a real problem because actually it makes the UK look more vulnerable, and others around the world will see it too."
Tugendhat said Reeves had not made it "clear at all" what she hoped to gain through her visit.
"We don't use the second most important person in government to do anything other than to fundamentally change a relationship," he said. "Well, she hasn't told us what that change is."
The visit coincided with scrutiny of Chinese-founded retailer Shein, which is accused of forced labor in its supply chains. Shein has denied the allegations, but questions about its sourcing practices, particularly cotton from the Xinjiang region, remain unresolved.
Sir Sherard Cowper-Coles, chairman of the China-British Business Council, said the chancellor was right to travel to China.
"She is doing exactly the right thing in the right way with her eyes wide open, stressing national security, stressing our [UK] values, stressing human rights," he said.
He told the Today programme: "A grown-up, confident country engages with serious players around the world, we agree to disagree, we stand up for our values."
He said the government's approach "is very similar to the last government's policy, which is to compete, to challenge and to co-operate. That's what we need to do.
"China has 800 million middle-class people who want to buy British products, are interested in British savings and pension products – it's madness not to engage."
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