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Deference and deal-making: The absurdity of Xi's UK tour

By NexChange
Capital Markets

China’s decision to invest 6 billion pounds ($9.2 billion) into the U.K.’s Hinkley Point nuclear plant project is one of many deals being struck between the two countries as the U.K. rolls out the red carpet for Chinese President Xi Jinping. But the lavish welcome has both baffled economists and worried the U.K.’s traditional allies.

The U.K. has spared little pomp in welcoming their guest. Highlights so far have included a state banquet at Buckingham Palace, afternoon tea with members of the royal family at Clarence House, and a ride in the Queen’s diamond jubilee state coach.

The U.K. government is selling the five-day visit — now in its third day — as a boon for the U.K. economy, claiming the trip has already drummed up 40 billion pounds worth of business. But Prime Minister David Cameron has also come in for a lot of flak both at home and abroad, accused of "kowtowing" to Chinese interests.  

The PM’s own former advisor Steve Hilton — now a Silicon Valley CEO — took to the pages of The Guardian newspaper to accuse Cameron of “sucking up to despots” and questioned the economic sense of chuming up so closely to China.

He is not alone. Former Wall Street trader Michael Pettis, now professor at Peking University’s Guanghua School of Management, has also used his blog to call out the PM for the "almost teenagerish excitement" with which he has been “BFFing” China, He writes:
“For a rich, developed country like England, inward investment almost always affects growth adversely (unless it brings technological and managerial advances with it) and never more obviously so than when interest rates are struggling against the zero bound and every country is urgently trying to export excess savings. As one of my exasperated PKU students asked me after class last Saturday when we discussed the president’s trip: ‘So everyone agrees that it is good for England to get much more foreign investment, and everyone also agrees that it is bad for England to have a much bigger trade deficit. Don’t they know it’s the same thing?’”
And then there are the U.K.’s long-standing diplomatic partners. The Financial Times has reported the U.K.’s efforts to accommodate China has caused U.S.-U.K. relations to become frayed. Patrick Cronin, an Asia expert at the Center for A New American Security, warned:
“There is a growing concern in Washington about China’s intentions with respect to deepening ties with our key ally in Britain. The Chinese are definitely insinuating themselves way into the inner sanctum of the British national security [world] through these investments.”
Its easy to see how in the long run China may be the one that stands to gain the most from this new relationship. Not the U.K.
Photo: Foreign and Commonwealth Office

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