Xi’s Costly Obsession With Security
How a Quest for Control Threatens China’s Economic Growth
From a Chinese perspective, Chinese President Xi Jinping’s first state visit to the United States was a disappointment. Despite long planning by both countries’ officials, the trip was overshadowed by Pope Francis’s visit, Russia’s unexpected military intervention in the Syrian crisis, and the surprise resignation of U.S. House of Representatives Speaker John Boehner. In the end, American media overlooked many of the positive results of the visit, including the U.S.-Chinese renewed dialogue on climate change, an agreement on cybersecurity, and Xi’s reassuring speech to the U.S. business community on China’s economic reforms.
Despite the disappointment, all eyes are now focused on China’s next state visit: on October 20, Xi will arrive in London at the invitation of Queen Elizabeth. His visit will include the usual symbolic perks—a stay at Buckingham Palace, a ride in a royal carriage, and an address to the British Parliament—but his stay will also feature important trade and economic announcements, and perhaps emphasize a new and unexpected honeymoon between two former enemies.
For the past two years, the United Kingdom has been cozying up to China in a way that has surprised even the Chinese. After all, it has been only 18 years since the British colony of Hong Kong was returned to China, following a century and half of Chinese humiliation. The long list of humiliations include the two opium wars, the ransacking of the old Summer Palace in Beijing in 1860, and the United Kingdom’s “borrowing” of Chinese territories (which became foreign concessions), not to mention the cession and colonization of Hong Kong—a territory where certain public places were once forbidden to ethnic Chinese residents.
The relationship began to change in December 2013, when British Prime Minister David Cameron, accompanied by six of his ministers, led an impressive 120-member-strong British business delegation to China, which included the CEOs of Rolls-Royce, BP, Royal Dutch Shell, Barclays, HSBC, GlaxoSmithKline, and Virgin, among other heavyweights. Calling for more Chinese investors in his country, Cameron declared: “I am not embarrassed that China is investing in British nuclear power, or has shares in Heathrow airport, or Thames Water, or Manchester airport. I think it’s a positive sign of economic strength that we are open and welcome to Chinese investment.” Last September, during a visit to China that took him as far as the western Xinjiang autonomous region, British Chancellor of the Exchequer George Osborne even proclaimed the advent of a “golden decade” in the Sino-British relationship.
It is now fair to say that the United Kingdom is gradually becoming China’s best Western friend. A few months ago, London was the first European country to join the China-backed Asian Infrastructure Investment Bank as a founding member, paving the way for Australia, France, Germany, Italy, South Korea, and other close U.S. allies to join and threatening Western-led financial institutions such as the World Bank and the Asian Development Bank. The United Kingdom is also helping China train some of its peacekeeping forces (in September, China committed to stabilize a UN peacekeeping standby force of 8,000 troops) and has been sending numerous consultants to China in fields as diverse as finance, infrastructure management, higher education, and civil engineering.
For the past two years, the United Kingdom has been cozying up to China in a way that has surprised even the Chinese.
Meanwhile, in less than five years, Britain has become Europe’s top destination for Chinese foreign direct investment ($16 billion in 2014). Chinese banks, such as the Industrial and Commercial Bank of China and the China Construction Bank, have been allowed to open branches in London. In southwest England, China is expected to finalize a £25 billion (almost $39 billion) contract to build the country’s first new nuclear power plant in 25 years. In this venture, China General Nuclear and the China National Nuclear Corporation will join forces with EDF, the French energy group that would be responsible for construction and operation. Huawei, a controversial Chinese telecommunication infrastructure company (which U.S. security agencies consider to be a potential threat to national security and a conduit for Chinese espionage), is now a major supplier to British Telecom. On a lighter note, the British retailer Marks & Spencer recently decided to open a flagship store in China. Chinese companies now holds a 9 percent share of Heathrow airport and a 9.5 percent share of Thames Water, through sovereign fund China Investment Corporation; they are also getting heavily involved in British rail and harbor facilities. Chinese firms have acquired smaller companies as well, such as Weetabix, Pizza Express, and Sunseekers, in addition to pursuing property deals in London worth billions of pounds.
There have been political dividends, and China is clearly appreciative of the UK’s rearrangement of priorities over the past year. In their visits to China, British politicians have publicly avoided controversial subjects, such as human rights, Tibet, or even the future of Hong Kong as a semi-autonomous region. Regarding the AIIB, Australia and South Korea are said to have decided to join the bank after the British announcement, which came as a surprise to Washington. Since the start of its open-door policy 37 years ago, China has also shown an astute knowledge of continental politics and a real aptitude for playing one European country against another. In the building of the high-speed railway between Beijing and Shanghai in the early 1990s, for example, China played German interests against those of France by requesting more and more technology transfers from companies such as Siemens and Alstom. (In the end, a Chinese consortium built the train line, with Siemens’ help,)
In the current circumstances, with Europe facing lingering currency troubles and a volatile migration crisis, China may not be looking for a European friend in London so much as a Western friend that can serve as one of the links to the United States. Just as the United Kingdom served as a bridge between Americans and Europeans in the past, London is now aiming at playing such a role with China.
This will not be particularly easy for Britain, which has retreated somewhat from its global role. But China has other options within the EU: France was the first Western country to establish full diplomatic relations with the People’s Republic of China in 1964 and retains, as another permanent member of the UN Security Council, a good relationship with Beijing. It is developing a new partnership with China on Africa and is also aiming to attract both Chinese tourists and investors. Germany is China’s top European economic partner, and the two countries have developed a mature relationship in fields such as automobiles, transport, and energy. China also increasingly considers Germany to be the leader of Europe and will welcome German Chancellor Angela Merkel at the end of October for her eighth official visit since 2005.
Although Germany has access to many of the technologies and industries that China wants and France has the postcolonial connections that China needs in Africa, Britain can boast about its sought-after service industry, real estate, and finance sectors. Despite not being a member of the eurozone, London has been granted the privilege of becoming the first yuan trading platform. Chinese Treasury bonds in RMB will soon be issued in London, which will pave the way to the internationalization of the Chinese currency.
It is fair to say that the United Kingdom is gradually becoming China’s best Western friend.
Given these links, Britain could possibly help China bring the United States closer to the negotiating table if the security situation in Asia Pacific were to deteriorate as Beijing becomes more assertive, especially in the South China Sea. Can it succeed? The so-called special relationship between the United States and the United Kingdom began to fray during the Iraq war, when Washington discovered that it could no longer rely on London to make its voice heard in Europe. At the time, Germany and France clearly rejected the U.S. decision to invade Iraq—and many would now say they were right. Will the United Kingdom be any better at convincing the United States to enhance its strategic dialogue with China than it was at convincing Europe to back the Bush administration’s military intervention in 2003? The United States is worried about a rising China militarily. Six months after the British sudden decision to join AIIB without seeking its advice, Washington has concerns about one of its key European and NATO allies, giving away some of its energy and telecommunications assets to Chinese enterprises.
China has between now and the British referendum on EU membership to find out. David Cameron may have proudly declared to the Chinese media that the United Kingdom was “uniquely placed to make the case for deepening the European Union's trade and investment relationship with China,” but the truth of that statement remains to be seen. Like the rest of the world, China is aware that the next twelve or fifteen months could see a British exit from the EU, which would lose Britain much of its advantage over its European rivals. If that were to be the case, France and Germany, who have also been baffled by Britain’s pro-China stance, would be ready to step in.