Focus on China...NOT Europe

IT IS a fraught weekend for our relationship with the European Union, and it will be a fraught week ahead. So step back and ask yourself this. Which region will be the UK’s most important economic partner in 20 years’ time: Europe, the US or China?

My guess is that all three will have about the same weight, but with China gradually pulling ahead of the other two.

The prime reason for thinking this is that China will be by far the world’s largest economy, having passed the US – according to the most recent HSBC projections – around 2028.

The US will grow substantially faster than Europe, so it will become more important too. Actually, the US is the UK’s largest export market, as big as Germany and France combined, though the EU as a whole is bigger than the US.

Of course, Europe will still matter, but whatever happens in the weeks ahead it will matter rather less so than now.

Now focus on China. Which

country do you think received the largest amount of investment from China last year?

Well, it was the UK – larger than the US or any European country. True, last year was a bit unusual, because the US and China had started their punch-up over trade and unsurprisingly Chinese investment there fell sharply. If you look at the stock of foreign direct investment, rather than the flow in any one year, the US does have the largest pot, but the UK is second. The only other European country in the top rank is Switzerland.

Don’t forget China can put its money anywhere in the world. In Africa, it is building high-quality roads, investing in energy (onethird of its oil comes from Africa), and buying agricultural land. In the US, it is buying, or at least trying to buy, high-tech companies. In Europe, it is building stakes in key industries such as the motor business. Just last week, Daimler revealed that it was selling a half-share in its loss-making Smart car to Geely, the Chinese motor firm – which also makes London black cabs and Volvos.

So why is the UK so important to them? Part of the answer is that we are not the US. We are not in any way a rival to China. Another part is that we are unusually open to foreign investment. Some would say too open, but right now such investment is most welcome. Another is that many young Chinese people have been educated here, with the UK second only to the US as a destination for Chinese university students.

But there is another part of the answer still. It is that we can be trusted to be impartial. There was an example of that last week, when the Government-led review of Huawei telecommunications equipment in Britain criticised the company. It said that problems with its software ‘significantly increased risk to UK operators’. But crucially, it made it clear that the problems were basic design weaknesses that made the gear vulnerable to cyber-attacks. It did ‘not believe that the defects identified are a result of state interference’. Huawei is the world’s largest producer of telecom equipment, but most of its sales have been within China. It wants to get into foreign markets, and the UK is a key one.

The US is concerned, to put it mildly, that if Huawei installs its kit around the world, the Chinese government will be able to spy on the West. The daughter of the founder and the company’s chief financial officer, Meng Wanzhou, is being held in Canada at US request, and faces extradition.

The UK panel has GCHQ representatives on it. If it makes it clear that there are indeed security problems, but this is not an instance of installing spying bugs, then – well, it is something other countries will listen to. It was not saying this because the UK wants to cuddle up to China, or conversely support its ally, the US. It was being straight.

There are, of course, real concerns. The Chinese have different standards and global objectives to the UK – and there is no need to kowtow to them.

Whether we remain the biggest footprint for China in Europe I don’t know, but I do know that should be our aim. And, with so much concern about our place in the world economy as and when this Brexit business eventually subsides, I know something else: trust in international relations will matter more over the next 20 years than it does even now.

Why is the UK so important to them? It’s partly because we are not the US