Welcome for Xi in Hopes of ‘Golden Era’ in China Trade

The U.K. is rolling out the red carpet for Chinese President Xi Jinping’s state visit starting Monday. Amid the pomp of a 41-gun salute, lunch with Queen Elizabeth II and lodging at Buckingham Palace, Prime Minister David Cameron will be looking to Xi to open up the purse strings and dole out billions of pounds of new investment.

China opening the investment spigot would help redress a lopsided trade relationship that’s left the U.K. lagging its continental peers in winning Chinese largess. Chinese officials have said the amount of deals Xi will announce during the trip will be “huge.”

The U.K. is back in China’s good graces after Cameron’s May 2012 meeting with the Dalai Lama plunged the two countries into a near two-year diplomatic freeze.
Chancellor of the Exchequer George Osborne reflected the U.K.’s more accommodative tone on a September trip to China when he signaled the U.K. would refrain from criticism on human rights and not engage in “megaphone diplomacy.” The U.K., the first major Western country to get behind China’s Asian Infrastructure Investment Bank, was striving to be China’s “best partner in the West” and usher in a “golden era” between the countries, he said.

Here is a quick look at how Britain lags, and what Cameron wants to do about it.

While the U.K. is now China’s second biggest European Union trading partner after Germany, it has the biggest trade imbalance of the five largest EU economies. That trade deficit reflects its relatively weak exports of goods and services compared with imports from China. The U.K. is counting on Xi making progress in his drive to transform China’s economy from an export-driven model to a consumption-driven one to create new markets for British firms.

China’s Silk Road — an ambitious plan to revive historic trade routes through a string of infrastructure projects linking China with Europe via land and sea — is another opportunity for British companies. To show how seriously the U.K. takes getting a piece of the “One-Belt, One-Road” action, Osborne became the first British minister to visit the northwestern province of Xinjiang, despite protests from human rights organizations which report widespread repression of Uighurs, a Muslim minority. Many of the overland routes will pass through Xinjiang.

Cameron is keen for Chinese companies to invest in Britain, and China has signaled it’s willing to do so. In an interview with China’s state-run CCTV he described the diplomatic relationship between the two countries as being in “a very special moment” and added it created an opportunity for “Chinese investment into United Kingdom, that is absolutely both beneficial for Britain and China.” Zhang Ji, assistant minister of commerce, said this month China and the U.K. will sign investment deals that will be larger than during any previous visit by a Chinese leader. Industries that will benefit include finance, real estate, energy, autos and technology, he said. During his trip Xi will visit Huawei Technologies Co., China’s largest maker of telecommunications equipment including smart phones. Huawei, which was banned in the U.S. over security concerns, supplies network equipment in the U.K.


Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.