key: cord-0059617-qy3zhceu
authors: Reilly, Michael
title: A Tarnished Era: China Since 2010
date: 2020-10-31
journal: The Great Free Trade Myth
DOI: 10.1007/978-981-15-8558-6_8
sha: 1d6b1c2fc610c61d1db5788cd921ff63243df120
doc_id: 59617
cord_uid: qy3zhceu

Despite regular high-level trade missions and much attention, the UK’s relative trade performance with China has barely changed over the last forty years. Although trade with China is widely considered to be inextricably linked with politics, hence the missions, there is ample evidence over many years showing this not to be the case. The view persists because it suits officials on both sides to consider this to be so, but what matters more in winning business in China is patience, determination, and good contacts. To date, however, the UK’s approach has been hampered by the lack of a clear strategy or consistent policy, with frequent and extreme changes in approach, together with an under-performing diplomatic presence in the country. This mattered less while it was a member of the EU, as this gave it ‘safety in numbers’ against possible Chinese retaliation. Outside the EU, the UK will be more isolated. It therefore needs to develop urgently a post-Brexit strategy for its relations with China. The country is too big to ignore and engaging with it over a range of multilateral issues is essential.

I arrived in Beijing on a classic north China winter's day in late February 2011. The sun shone brightly in a clear sky, the mountains visible in the distance. The thermometer was hovering around the zero mark, but the air felt much colder in the piercing wind. Bizarrely, despite the freezing temperatures, streets were being sprayed with water by patrolling carts, ostensibly to keep the dust down. This was the time of the 'Arab spring' protests in Tunisia and elsewhere in the Middle East and North Africa, and only later did I learn that the water carts were part of a tactic to prevent similar demonstrations, by spraying any demonstrators with water which would quickly freeze on them, and also by turning the streets into ice rinks if necessary, to inhibit the massing of demonstrators. It was a salutary introduction to life in China in the second decade of the twentyfirst century.

It was almost thirty years since my first visit to Beijing, and in common with most cities in East Asia it had changed almost beyond recognition in the interim. Gone were the ubiquitous drab 'Mao suits' of 1981 and largely gone were the heavy, uniform bicycles of the same era. Of modern material comforts there was no shortage-the local supermarket stocked a wide array of European beers, including some from the UK that were not available in my local supermarket back home, and close by were an excellent Italian owned and run pizzeria and an equally good French bakery. I had visited China periodically in the intervening years, including on one occasion as a guest of the Chinese government, when I was given a VIP tour of some of the country's premier cultural sites. I had also experienced at first hand the influence and impact of China on its neighbours, especially in postings to Korea and Taiwan. But this time was different. I was arriving not on a visit but at the start of a four-year posting in the country, and not as a diplomat but as a business representative.

In this role I would be face to face with many of the complaints made by foreign companies about the difficulties of doing business in China: the red tape, the forced transfer of technology, the intellectual property theft, the vagueness of regulations and more. And I would see the effectiveness or otherwise of foreign embassies in trying to address these. But I would also enjoy greater freedom to travel around the country than diplomats, most notably to Tibet, normally off-limits to them. This gave me ample opportunity to see the darker side of life in China: the armed troops and checkpoints on the streets of Lhasa, the blatantly discriminatory treatment of Uighurs in Kashgar, and more. Collectively, these experiences provided a perspective on China's development and the opportunities it offered foreign businesses that differed somewhat from the views of some diplomats, and even more from the convictions of their political masters.

Human rights concerns aside (which were troubling enough in 2011 but at least offered some grounds for optimism-matters have deteriorated considerably since then), chief among these was the view that trade and politics in China were inextricably linked. Twenty years before my own first visit to Beijing in 1981, a British diplomat had reported that '[the Chinese] have said on many occasions that politics and trade are inseparable.' 1 But the conviction long pre-dated that. As long ago as 1599, the first Queen Elizabeth tried to send an emissary to the Chinese emperor in an attempt to establish formal trading relations. Both this and a subsequent attempt failed, and for the next two hundred years what bilateral trade there was between Britain and China was carried on by freelance merchants, who in their general behaviour allegedly 'exhibited such scenes of excesses and irregularities as were peculiarly disgusting and offensive to a people, whose minutest actions are controlled by specific regulations.' 2 John Nott's complaint about businessmen preferring to frequent the watering holes of Hong Kong (Chapter 2) has a long pedigree.

In 1797, frustration at the difficulties these merchants faced, combined with the huge growth in tea consumption in Britain, all of which, at the time, came from China and was thereby contributing to a large trade deficit with it, led to another formal attempt to place trading relations on a government-to-government basis, when Lord Macartney was sent with an embassy to Peking. Unlike Elizabeth's envoys, he reached his destination and had an audience with the emperor but was otherwise unsuccessful in his objective. Macartney's mission did, however, establish the precedent, which has become so common today, of large trade missions led by a senior political figure.

My own time in Beijing coincided with one led by then prime minister David Cameron, in December 2013. Billed as 'the biggest trade mission in 200 years,' like many of its predecessors this came after a difficult period in the bilateral relationship. 3 Eighteen months earlier, China had reacted angrily after Cameron had met the Dalai Lama in London, refusing any ministerial contact for more than a year afterwards. Cameron's subsequent visit was presented as an opportunity to 'reset' the relationship and encourage more trade between the two countries.

But, contrary to what might be assumed from the way in which the mission was portrayed, far from trade suffering while diplomatic relations were in cold storage at this time, as Fig. 8.1 shows, British exports not only continued to grow but their rate of growth also increased. In 2012, British exports to China overtook those from Italy for the first time in more than a decade, somewhat undermining the argument that trade and politics are inseparable in China. The improvement was already underway but carried on regardless despite the spat.

Indeed, resident in Beijing as I was at the time, outside the British embassy compound it was hard to imagine that anything was amiss in the bilateral relationship. Not only did we continue to do business as we had been doing, but the local media reported on the Olympic Games in London in positive terms, the nationalist Global Times tabloid carrying a full front page photo of a triumphant Andy Murray after he won the gold medal in tennis.

Cameron's change of approach was influenced greatly by his chancellor of the exchequer, George Osborne, an enthusiastic advocate of greater engagement with China. Under Osborne's lead, meetings with figures subject to Chinese opprobrium, such as the Dalai Lama, would be eschewed, concerns about human rights would no longer be mentioned in public, if at all, and caution generally would be thrown to the wind. In the words of one academic, British policy became 'zealously transactional' in the desire, above all, to increase Chinese investment in the British economy and to secure benefits for the British financial services industry from China's development of its own financial sector. 4 Showing a remarkable lack of judgement, if not sheer contempt for human rights concerns, Osborne even visited Xinjiang, a region with no obvious commercial opportunity for the UK, shortly after China had sentenced a prominent moderate academic from the region to life imprisonment. 5 This new policy reached its apogee in October 2015, with President Xi Jinping's state visit to Britain, the start of what was then heralded as the 'golden era' in bilateral relations.

There are no doubt many plausible explanations for the way British exports continued to grow, despite the political friction, but the history books show that, far from it being an isolated example, China's approach to trade is driven less by rhetoric and politics and more by pragmatism and self-interest, albeit dressed up in politics when it is to China's advantage to do so.

In 1961, for example, the British aircraft and engineering company Vickers won an order to supply six Viscount aircraft to China. The order was remarkable in many respects. First, at the time, China was still suffering from the huge famine incurred as a result of Mao's 'Great Leap Forward', Mao himself describing the economy as reaching a low point in 1961. Public accounts of the famine in China frequently blame it on an American embargo on trade. Not mentioned is that Mao continued to supply grain to the Soviet Union even while his people were starving. By 1961 China was finally spending foreign exchange to buy grain from overseas to alleviate the famine, but £4.5 million of its silver reserves were still used to buy the Viscounts rather than more grain. 6 Secondly, while British diplomats in Beijing initially seemed determined to read a political motive into the contract, they eventually concluded that it was dictated primarily by technical and commercial considerations. Senior Chinese had flown in Viscounts in service in other countries and found them far superior to the Soviet aircraft then used almost exclusively in China. The chargé d' affaires in Beijing described the negotiations as proceeding against a background of 'uncertainty' in the bilateral relationship but once China showed interest, negotiations were completed very quickly, in little more than a year. If there was any political angle, it was more the state of Sino-Soviet relations and China's dissatisfaction with the quality of Soviet goods and technology than China's relations with the west. 7 By placing the order, China may have hoped to sow dissension among Western countries, for delivery of the aircraft went ahead despite opposition from the USA, whose embargo on trade with the PRC was still in force. In a phrase that would resonate almost sixty years later, when US president Donald Trump was said to be 'apoplectic' with rage over the British government's decision to allow the Chinese telecommunications company Huawei a role in its new 5G mobile phone networks, US secretary of state Dean Rusk was said to be 'not very happy' when news of the Viscount sale was announced. In 1961 if not in 2020, politicians in London ascribed American objections more to domestic politics than strategic considerations, although to comply with restrictions set by COCOM (the Coordinating Committee for Multilateral Export Controls, which governed exports of sensitive items to Communist bloc countries), some American communication equipment and weather radars on the Viscounts had to be replaced by alternatives.

For all the much-vaunted 'special relationship' between the UK and USA, British politicians have been happy enough to ignore it when they have seen advantage to their relations with China in doing so: in David Cameron's time as prime minister, not long after the row over him meeting the Dalai Lama, the UK was also willing to risk American displeasure in its rush to become the first western country to sign up to China's Asian Infrastructure Investment Bank (AIIB), FCO concerns notwithstanding. 8 Although diplomatic hopes that the initial order for six Viscounts would be followed by another, larger one, this never materialised. A decade later, however, a similar opportunity arose when China bought its first civilian jet aircraft, some British Tridents bought second-hand from Pakistan. This time, the British government was more sensitive to American concerns and, mindful of the reaction to the sale of the Viscounts, initially sought to oppose the deal, only changing its mind when the US declined to block it, which it could have done either by refusing the export to China of American components on the planes, or by stopping Boeing or other American manufacturers from supplying replacement aircraft to Pakistan. 9 On this occasion China did follow up with further orders, buying six more aircraft from builders Hawker Siddeley in 1971 and another six, with options to buy more, the following year. 10 It would go on to become the largest foreign customer for the Trident. Arguably, there was a more explicit political link on this occasion, as the 1971 order came shortly ahead of China joining the United Nations at the expense of Taiwan, a move which the UK supported. Then in 1972, after Britain had closed its consulate in Taiwan, relations between the two countries were upgraded to ambassadorial level. 11 But this was not happening in isolation-Chinese entry to the UN had been widely supported and its relations with the USA were also in a very positive phase after President Nixon's visit to Beijing in 1972-so again, it is hard to read a political message into the contracts.

British diplomats did try to, nonetheless. This was understandable: Mao Zedong still ruled China, the Cultural Revolution was not over, and the awarding of overseas contracts of any significance was seen as a political decision. Precedents such as this help explain the caution of the British ambassador in Peking over the opening of a Taiwan trade office, related in Chapter 5. But as with the sale of the Viscounts, it seems more likely that China was simply acting in its own self-interest: it needed new aircraft and chose those which best suited its overall needs and price. In this regard, it was behaving no differently to European countries in their aggressive pursuit of overseas orders for their national companies.

One feature common to both the Viscount and Trident deals was that the aircraft were sold at a loss. In the case of the Tridents, this led to the British government agreeing to forego a levy on the sale of each aircraft which should have been paid to recoup launch aid from the government granted to finance the original Trident programme. 12 Either the Chinese were more skilful and aggressive negotiators or, as in the case of Hawk sales to Malaysia and Indonesia mentioned in the previous chapter, or GEC's desire for a negotiated contract in Korea covered in Chapter 3, British companies simply struggled to be competitive in selling overseas. This wider dependency on government assistance in one form or another, but usually financial, is hard to reconcile with the concept of a nation wedded to free trade.

It would remain apparent in dealings with China throughout the 1980s and 1990s as the reform of the Chinese economy and its economic takeoff got under way. The competitive nationalism and neo-mercantilism that were to be such prominent features of European relations with Korea and Taiwan were equally noticeable as competition intensified in China with the lure of big infrastructure contracts, including new airports, oil and gas terminals, metro lines and nuclear power stations.

A strong focus of British government attention in this was the Daya Bay nuclear power station in Guangdong province, close to the border with Hong Kong. This would eventually be another success for GEC, who won the bid to supply the power turbines, unlike in Korea (Chapter 3). As with their ambitions there, the reactors for Daya Bay came from Framatome of France. With a value to GEC of around £250 million, in both size and complexity this was very different to the Viscount and Trident orders, and on the face of it an excellent example of the importance of political relations in winning contracts in China.

It may have helped that at the time the deal was signed, US suppliers were barred by their own government from supplying nuclear equipment to China, partly for safety reasons, and partly because of concerns that China had failed to abide by the non-proliferation rules set by the International Atomic Energy Act and had supplied 'dual-use' technology to Iran, Iraq and Pakistan. 13 Setting this aside, however, the contract was in many ways something of a text book case study of how to win contracts in China. But contrary to what might be assumed, politics was far from central to this.

GEC's success did come against the background of the successful conclusion of the bilateral negotiations between the UK and China over the handover of Hong Kong and signature of the Sino-British Joint Declaration in December 1984. But negotiations over the Daya Bay project had started earlier and would last for seven years, the contract only being signed in 1986. As Leon Brittan, secretary of state for trade and industry at the time, explained 'To have reached this position on this complex project has required exceptional patience and determination over long years of negotiation by all concerned.' It also required deep pockets-GEC had spent 'many millions' in preparing its bid, with teams of experts spending months at a time in China on negotiations. 14 Crucially, however, the success owed much to the personal relationship that GEC had established with Lord Kadoorie, the chairman of Hong Kong's China Light and Power (CLP). CLP was a joint-venture partner in the project with Guangdong Nuclear Power and therefore very influential in the contract decisions. In Kadoorie's eyes, the relationship was of mutual benefit. He told prime minister John Major that CLP had saved '4-5%' by consistently buying from GEC, while the relationship helped ensure that problems did not arise as bilateral relations between the UK and China became more difficult as the handover of Hong Kong grew closer, especially following the events in Tiananmen Square in Beijing in the summer of 1989. 15 As with repeat orders from the Taiwan Railways Administration (Chapter 5), by establishing a relationship with Lord Kadoorie, GEC was in a far stronger position to be rewarded with future business by his company. In 1990, one senior British politician estimated that CLP had helped British companies win orders with a cumulative value in excess of £1 billion since the 1970s. 16 Yet, as we have seen in both Korea and Taiwan, the lessons of GEC's success-the need for patience, persistence and building personal relationships-were often lost on or ignored by other European companies seeking to do business in the region and on their political cheerleaders.

Although all these high-profile examples-aircraft orders and a nuclear power station-were driven primarily by commercial considerations, there is nonetheless considerable contemporary evidence to support the argument that China uses trade as a political weapon. The past decade has seen it block imports of Norwegian smoked salmon after dissident Liu Xiaobo was awarded the Nobel peace prize in 2010; and imports of Philippine mangoes in 2016 after an international tribunal in The Hague found in favour of the Philippines in its case against Chinese occupation of shoals and reefs in the South China Sea. In 2018, Korean retail group Lotte was forced out of China after government inspired consumer boycotts in protest at it making land available in Korea for the deployment of the THAAD (Terminal High Altitude Air Defence) missile defence system to which China was opposed. More recently, international airlines and hotels have faced threats of unspecified retaliatory action unless they referred to Taiwan as a province of China on their websites. 17 In all these cases the Chinese behaviour was in response to matters or policies unrelated to trade. Significantly, however, while all have been high profile in terms of publicity, except for the case of Lotte and the THAAD, the impact of them on the respective bilateral trade has been modest or even minimal. In the case of Norway, for example, although media reports spoke of an immediate significant fall in its exports to China after its smoked salmon was blocked, its total exports to China were at a record high in 2011 and again in 2014 as China increased its purchases of Norwegian oil. 18 In other words, China has been careful to target such measures in ways that achieve maximum publicity with minimal impact on its own needs or interests. The same was also the case in its response to Dutch and French arms sales to Taiwan in the 1980s and early 1990s which was considered in Chapter 5.

For the most part, the Chinese government has also been careful to follow the letter of WTO law in such disputes, not least to make it harder for injured parties to take countervailing action. By dressing up the boycotts as the action of outraged nationals, as in the case of the consumer boycotts of Lotte, or in threats to airlines unless they refer to Taiwan as a province of China on their websites, China makes it difficult to take formal retaliatory action.

The policy is not new, Korean governments in the 1990s indulged in similar behaviour, especially after the 1997 Asian financial crisis. Nor is it so different from the competitive nationalism pursued in business opportunities by European countries, the UK included. The difference this time is in the scale of the impact.

The issues that both Europe and the USA face today in their commercial relations with China are not dissimilar to those they faced in their relations with Japan in the 1980s, also then running a large trade surplus and standing accused of unfair trading practices. There were similar tensions in its relationship with the USA, including its purchase of supposedly 'vital' parts of the 'American landscape,' such as New York's Rockefeller Center or Hollywood's Columbia Pictures. 19 Largely forgotten now are the 'voluntary restraint agreements' that Japan was pressured into agreeing to protect supposedly vital sectors of European economies (one reason why, with the advent of the Single Market, Japanese companies were so eager to set up manufacturing facilities inside the EC), or that the Japanese were exhorted to increase domestic consumption, especially on their homes, which one Commission official reportedly likened to 'rabbit hutches.' 20 In the case of Japan in the 1980s, however, the USA and EC countries for the most part had a single objective which was to reduce, if not eliminate, their bilateral balance of trade deficits. In 2020 that remains the focus of efforts of the Trump administration in the USA but for many European countries a bigger objective is to secure Chinese investment in their own economies, or even Chinese help in financing their government deficits (as it does the US government deficit through its purchase of Treasury bonds).

Competitive Nationalism

The eagerness with which European politicians sought to secure such assistance in the aftermath of Europe's financial problems after the 2008 financial crisis displayed a remarkable lack of understanding, of basic knowledge even, of Chinese attitudes and sensitivities. As one journalist explained: 'in the dirty, overcrowded wards [of a Beijing hospital], visitors can glimpse why there is little enthusiasm in this country for bailing out rich Europeans while most Chinese lack access to even basic social services.' 21 European supplicants, worried about the impact of tough adjustment measures on their own societies, often seemed ignorant of the extent to which parts of the Chinese economy have gone through major restructuring in recent years. This has affected the north east of the country, sometimes referred to as China's rust belt, particularly hard. On a September 2014 visit to the shipbuilding city and port of Dalian, for example, I was told of a Korean owned shipyard which had closed down abruptly with the loss of 40,000 jobs and big debts outstanding to local banks after the parent company went into liquidation. One leading Chinese academic has written graphically of the impact on his generation of being sent to work in the countryside during the Cultural Revolution, saying 'The hardships we had to put up with then are more than you could imagine today.' 22 People who have experienced such sufferings are hardly likely to be sympathetic to the problems of those they probably consider to be effete westerners.

A widely held belief in Europe is that China pursues a 'divide and rule' approach in its dealings with the EU. But European engagement with China is too frequently driven first and foremost by national selfinterest, often short-term in nature. One prominent European think-tank has shown how this engagement is very similar to engagement with Taiwan in the 1990s; the objectives are similar so, too, is the frequent failure to achieve the hoped for results. As in Taiwan twenty years earlier, European countries compete with one another for attention in China: between January 2016 and May 2017, the UK alone had 14 'direct Ministerial encounters,' with Chinese counterparts, while Germany had nine and a 'near full-on yearly government-to-government exchange.' The UK, Germany and France all compete to hold 'strategic' or 'security' and financial dialogues. As a result, China practises 'pick and choose' in its relations with the EU, focusing on its direct interests and often ignoring EU norms in its proposals. 23 Another academic analysis has shown convincingly how the potential for a closer relationship is repeatedly undermined by major political differences, not only between China and the EU but also within China and within the EU. These include fundamental differences over the role of the market, the division of competences within the EU between the Union and member states, making it almost impossible for the EU to deliver a coherent external economic policy, and an unresolved debate within the EU over whether such a policy should be values based or interests based. The upshot, the authors conclude, is that the EU-China relationship remains underdeveloped and the EU largely 'operationally dysfunctional' in managing the key EU-US-China relationship. 24 

The UK might be expected to understand this better than most of its erstwhile partners. Not only does it have a long relationship with China, albeit a frequently controversial one, its responsibility for Hong Kong until almost the end of the last century gave it responsibilities, connections and insights into China that were less readily available to other EU members. Today, the embassy in Beijing is one of Britain's largest, and with the supporting consular offices around the country in Shanghai, Chongqing and Wuhan, it is collectively Britain's largest diplomatic presence overseas, with more and more of its diplomats fluent in Chinese.

But despite these undoubted advantages, British policy towards China appears almost remarkably ineffective, characterised by sudden, sometimes almost quixotic, changes in policy and seemingly lacking any considered, strategic approach. In the 1980s and 1990s this was, perhaps, understandable, the over-riding priority being to negotiate a successful handover of Hong Kong. This may have led policy makers and diplomats to ignore broader issues. As Margaret Thatcher admitted to Korea's president Roh Tae-Woo in November 1989 after the events in Tiananmen Square the previous summer, Britain 'had thought the Chinese were making progress in the right direction…We had never thought [Deng Xiaoping] would impose [a Cultural revolution situation] on his own people…the events of the summer have been very worrying for the people of Hong Kong.' 25 One former diplomat in the Beijing embassy has ascribed the shortcomings to something more fundamental, however, namely the failings of his own colleagues in their dealings with the Chinese government. He ascribes this weakness to what he calls dismissively the 'Cradock approach,' after Sir Percy Cradock, British ambassador in Beijing in the early 1980s, who was also heavily involved in the agreement on the handing over of Hong Kong. This approach betrays a seeming lack of interest in all but a very narrow range of matters, which the writer ascribes to 'a sense of imperious self-importance and lack of emotional empathy, with little real substance to back it up,' in which 'the Chinese…were a grand bureaucracy with whom interaction was confined to a dozen people' and that interaction confined to matters of direct interest only to themselves, presumably. 26 It is an attitude I have also experienced over the years, from my first visit to Beijing in 1981 (when Cradock was still the ambassador) to my time as a business representative from 2011. The 1981 visit was to learn more about North Korea, on which I was expected to report from my position in the embassy in Seoul. Beijing was where the few foreign journalists who had been able to visit Pyongyang were based, as well as some diplomats accredited to the north but not resident there, and China was of course one of North Korea's closest allies. All this was irrelevant to my colleagues in the embassy, who considered my visit as no more than a distraction and objected to it in strong terms.

After pressure from London, they eventually gave way and arranged for me to meet the head of the Korea desk in the Chinese foreign ministry. Contrary to their assertions beforehand, in a meeting conducted entirely in Korean, without interpretation, he interrogated me closely about European attitudes towards the Korean peninsula. With no embassy of their own in Seoul at the time, this was a rare opportunity for the Chinese to garner first-hand information, something my colleagues had failed even to consider. Earlier that year, François Mitterrand had been elected president of France, and as explained in Chapter 3, there was an expectation that he would move to recognise North Korea as a state. I was quizzed hard about French intentions, an issue on which I felt wholly unprepared given the attitude beforehand of colleagues towards the meeting. China was clearly anxious to try to learn how South Korea might react to any such move and what, if any, wider European reactions there might be.

My counterpart in the meeting, Zhang Tingyang, was one of the most senior Chinese officials to handle relations with both the Koreas (he had studied at Kim Il Sung University in Pyongyang and had been the interpreter in high level meetings between China and North Korea) and would go on to be the first Chinese ambassador to South Korea in 1992. But colleagues in Beijing made no attempt to follow up this contact. Presumably, they did not consider the two Koreas' relations with China to be of any interest. 27 Thirty years later, heeding the advice of former colleagues, I sought their help in seeking a call on officials in the National Development and Reform Commission (NDRC), China's pre-eminent economic planning and co-ordination body, to brief them on our company's strategy in China, only to be told apologetically that this would be too difficult for the embassy. British trade officials in the country were also unable to help with gaining appointments at one of the country's largest automotive companies. Neither issue proved to be of any consequence as I found that my own Chinese colleague was more than capable of arranging such meetings without any embassy involvement. But they do raise questions about the role and effectiveness of the large diplomatic effort in China, the more so given the freeze in relations after the Cameron-Dalai Lama meeting in 2012. During this supposed hiatus, former colleagues in the embassy complained that Chinese counterparts would not even answer the phone when they tried to call. But our business contacts and discussions carried on regardless, including with senior Chinese officials when appropriate.

To suggest that the large trade mission that accompanied David Cameron to Beijing on his December 2013 visit was part of an established pattern of a hiatus in relations being followed by such a mission is probably to read too much into the tea-leaves but there were certainly precedents. In 1995, also against a backdrop of poor bilateral relations over Hong Kong, Michael Heseltine as President of the Board of Trade took 150 businessmen on a jumbo-jet to China 'to help knock a hole in the trade deficit.' 28 But while the politicians were fretting about the size of this, together with the poor state of bilateral relations, and lobbyists were urging them to address it, British exports to China were growing at a faster rate than those of Germany, France or Italy, the three other large European economies, increasing more than 200% in the three years from 1992 to 1995. 29 By the time of Cameron's visit in 2013, however, the £800 million trade deficit at the time of Heseltine's mission had grown to over £20 billion.

This growth in the size of the trade deficit should be seen in the context of the increase in bilateral trade, which peaked briefly in 2014, then declined before peaking again in 2018. But political attitudes ebbed and flowed in line with its expansion, alternating between paying attention to human rights concerns and focusing on trade instead. Policy fluctuated accordingly, as demonstrated better under David Cameron than under any other British prime minister, relations swinging from the deep freeze after his meeting with the Dalai Lama to the 'golden era' in bilateral relations just three years later.

The driving force for this volte face was not Cameron, nor the FCO, but his chancellor, George Osborne. By his own admission, Osborne's fixation with China started in his youth when he spent a holiday backpacking around the country. But the pro-China policies he promoted as chancellor also appear to have been heavily influenced by a select coterie of individuals with specific business interests in the country, in the financial services and property sectors. 30 Osborne and his supporters would argue that promoting inward investment and British financial services were entirely appropriate for the chancellor of the exchequer, trade promotion more generally being the remit of the business secretary or trade minister. But the attention he devoted to these efforts was arguably out of all proportion to the contribution financial services make to British exports to China generally. Although the services sector is undoubtedly important to the British economy overall, and to British exports, in 2018 exports of services to China were just one quarter those of exports of goods. Exports of machinery at £2.7bn were seven times those of financial services. 31 Furthermore, although the ostensible justification for the change in tack was Chinese reaction to the meeting with the Dalai Lama, not only were British exports continuing to grow regardless, but China was also content to allow a visit by the Lord Mayor of London (who is accorded ministerial rank on overseas trips) to Beijing to promote London's role as a centre for handling renminbi denominated business during this period. 32 For all that, in its 'values-free' and transactional approach, the Osborne policy was no more successful in achieving broader trade objectives than the determination to help GEC win the power turbines contract in Korea had been more than thirty years earlier. By 2013, the UK share of the Chinese market had fallen to just 1%, lower even than the 1.7% market share for Korea that had prompted heart-searching in the Department for Trade in London in the mid-1980s (see Chapter 4). 33 And, as noted, despite the publicity given to exports of services, manufactured goods remain much more important in British exports to China.

If Osborne's policy was no more successful than previous ones, nor was it any longer lasting, for by 2020 it had been overtaken by 'Project Defend,' ostensibly a strategy to strengthen Britain's trade links but driven by a desire to reduce reliance on China for a wide range of imports considered vital to the economy, or for national security. 34 The change in attitude was even more dramatic than that which presaged the 'golden era'. Several of the ministers in the government in 2020 had also been in government in 2016, when, against both the USA and most of its then EU partners, the UK was arguing in the WTO for China to be granted market economy status. Although, seemingly contradicting its avowed free-market philosophy, a government spokesperson was also quoted then as saying that the government had gone further than previous British governments in supporting EU tariffs on steel imports, including from China. 35 The catalyst for the latest change in attitude was, according to those involved, China's handling of the Covid-19 pandemic and its imposition of a draconian national security law on Hong Kong, in apparent contravention of its obligations under the Sino-British Joint Declaration of 1984. But these moves are entirely consistent with Chinese behaviour over the last decade and before, including its reaction to the awarding of the Nobel Peace Prize to Liu Xiaobo in 2010, its rejection of the July 2016 ruling by the Permanent Court of Arbitration of its claim to most of the reefs and shoals in the South China Sea, its steadily more repressive policies in Xinjiang and more. 36 It is British policy that has changed over the years, seemingly according to the whim of whoever happens to be most influential or most engaged at the time within the British government.

Presumably, neither Osborne nor his successors have read Sun Tzu's On the Art of War. 37 Had they done so, preferably in the first English translation by Lionel Giles, they would know from the translator's comments that China's experience of war in all its phases has been such as no modern state can parallel. 38 That is certainly consistent with Chinese diplomacy in the Mao era, characterised as it was by a Napoleonic zeal in trying to export revolution. But it goes much deeper, something that contemporary observers, who are prone to equate current Chinese assertiveness with the Communist Party, or Xi Jinping personally, too often overlook. The Qing dynasty, for example, was responsible for what was probably the first case of genocide in the modern era, in its extermination of the Dzungars in the mid-eighteenth century, while ninety years ago, a western traveller in Xinjiang summarised Han Chinese attitudes towards the Uighurs as 'invariably contemptuous and invariably afraid,' an attitude reflected, surely, in the current incarceration of perhaps one million Uighurs in what are, in effect, concentration camps. 39 Yan Xuetong, probably the country's most influential foreign policy analyst, cites Mencius, no less, as saying that undertaking war to preserve dying states, ensure succession for those without an heir, overthrowing tyranny and ending slaughter is right. But Yan goes much further. He argues that relations between states should be based on a hierarchical principle, hegemony in other words, and chillingly advocates maintaining a hard line policy towards Taiwan, a policy of repression as he puts it, using force if necessary to prevent any formal declaration of independence. 40 With attitudes like this, how should the UK handle its relations with China, especially now that it has left the EU? For all its historic experience of dealing with China, as in other instances, it could do worse than look at how Germany conducts its relations. At one level, the two have much in common. Senior politicians in both Germany and the UK share an apparent enthusiasm for leading trade missions to China. By autumn 2019 German chancellor Angela Merkel had paid no fewer than twelve visits to China as chancellor, almost invariably accompanied by senior figures from German industry and announcing large new deals each time.

Like David Cameron, she has also incurred Chinese displeasure by meeting the Dalai Lama, in her case in 2007. Again, China cancelled ministerial contacts in protest although in this case a single meeting, rather than an indefinite suspension of contacts. But Merkel has adopted a much more consistent approach on human rights matters than have British governments. She was the first EU leader to announce that she would not attend the opening of the 2008 Olympic Games in Beijing because of concerns about China's policy in Tibet. 41 In 2018 she was probably instrumental in securing the release from house arrest in China of Liu Xia, widow of Nobel Peace Prize laureate Liu Xiaobo, and arranging for her to travel to Germany for medical treatment. This came only weeks after Germany had also become the first European country to grant refugee status to Hong Kong activists. 42 Angela Merkel has also regularly raised human rights issues on her visits to China, both in public and, it is assumed, more forcefully in private conversations with China's leaders. The difference in approach between Germany and the UK led one prominent European think-tank to place them at extremes in terms of attitudes towards China, Germany receiving praise for actively seeking an EU free trade agreement and raising human rights, while the UK 'openly prioritised its bilateral relations with China over a coordinated European approach.' Similarly, the UK 'chose financial benefits over values in their dealing with Beijing at important junctures.' 43 UK officials might argue that Germany's regular surplus in its trade with China places it in a stronger position than the UK in its dealings, but Germany's bilateral trading relationship has been by no means problem free. In 2012, in response to a petition from the European association of solar panel manufacturers, the European Commission launched an antidumping investigation into European imports of solar panels made in China. By this time China was the world's largest manufacturer of such panels and the EU the largest user. In 2013, the Commission concluded that Chinese panels were being sold in Europe below the cost of their manufacture and increased the import duty on them from 11.8 to 47.6%.

China retaliated by announcing an anti-subsidy probe into wine imports from the EU. 44 Although the dispute was ostensibly between the EU and China, Germany was the EU country most affected. The initial petition on behalf of the European manufacturers' association was at the behest of a German company, Solarworld, the largest panel manufacturer in the country. Although the immediate target of the Chinese response was European wine imports, half of which came from France, it also threatened to investigate the import of luxury cars, which would affect German manufacturers above all.

While the European Commission is able to launch anti-dumping measures on its own, without the authority of member states, Merkel soon made Germany's position clear, announcing in a joint press conference with Chinese premier Li Keqiang in May 2013 that 'Germany will do all it can so that this won't lead to import tariffs. That's not something we believe in.' Her very public stance undermined the Commission, which just two months later announced that it had reached agreement with China on a minimum price for imported solar panels. 45 Germany, in short, appears to have been able successfully to pursue a broad-based approach to its relations with China, of which trade missions are but one part of wider objectives rather than being an end in themselves, as they can seem to be in the case of the UK. Nor is Germany unique. My own time in China coincided with that of one particularly energetic ambassador from an ASEAN country who delighted in trying to overcome the everyday obstacles to pursuing relations, rather than collapsing in front of them.

Apologists for Britain's approach argue that it is fundamental to doing business in China, a view to which many of its own diplomats appear to subscribe. But it is surely right to question whether the high-level trade missions to which politicians seem to remain so attached serve any useful purpose given the huge changes in the Chinese economy over the last forty years. Notwithstanding the continuing centralising tendencies of the Communist Party, especially under Xi Jinping, and the continuing importance of State-Owned Enterprises (SOEs), the Chinese economy is now far more diverse, being an integral part of global supply chains and with a large and thriving private sector. Just one foreign company, Taiwan's Honhai Precision (or Foxconn), employs as many as one million Chinese workers. 46 And even in SOEs, one can reasonably ask to what extent contract decisions are taken on political grounds, especially if one considers precedents stretching back sixty years.

More likely, arguments in favour of trade missions may simply reflect established ways of working with the Chinese government and a reluctance to change. For, while the foreign ministry in Beijing is not a high-status or powerful department, being disparaged by many Chinese officials as the 'ministry for translations,' for foreign embassies, it acts as a 'gatekeeper,' seeking to control their access to all other organs and departments of government. Working around this requires tact, patience, and ingenuity. Much easier simply to go along with it, so that 'cautiousness, a love of easy outcomes and addiction to external pomp and ritual' predominate in British dealings with the Chinese authorities. 47 Such attitudes all too easily reinforce a transactional approach to diplomacy, in which a single contract signing, or the award of a licence to a specific firm, are all too easily presented as 'successes,' while the fundamental obstacles or differences remain unresolved. British diplomats would do well to bear in mind the advice of one of their predecessors, a governor of Hong Kong who described the Chinese as 'bloody tough' negotiators, or learn from Lord Kadoorie and his success in doing business in the country. He reportedly described the Chinese as 'the most conceited people he had ever met [who] could not forget that they had been in silk while we were still in woad.' 48 One presumes that flattery was part of his negotiating strategy.

There are plenty of reasons for embassies to be helping ease the path of doing business in China. The challenges and frustrations that non-Chinese companies face in the country have been documented extensively. The theft or pirating of intellectual property, the hacking of computers to seek information, the compulsory transfer of technology, the barriers to trade and more have been reported frequently, perhaps most prominently in the very public pressure from the USA since 2019 in the course of President Trump's trade war with the country. The British embassy has a mini-army of staff to address them, added to which is another veritable army of personnel in cities around China, dedicated to the task of helping British companies win business contracts by opening doors, making connections, smoothing the way, offering advice and more.

Without doubt, the FCO and the Department for Trade in London will be able to produce statistics showing the value of this operation in terms of export orders won and assuage doubters as to its effectiveness. But much of it seems badly out-dated in today's China, where young Chinese with a modicum of initiative and enterprise can open doors in some of the country's largest organisations more effectively than can an embassy official. Business interests and lobby groups are also large, well organised and effective in China, both the American and EU Chambers of Commerce having representation not only across the country but in different sectoral groups, reflecting the interests and concerns of members. Their size and influence mean they enjoy regular access to senior officials, although they would undoubtedly welcome more, and more positive responses from those officials to their concerns. This is especially relevant in the context of Brexit, not least given the argument of some Brexiters that the UK will now be able quickly to negotiate a bilateral FTA with China. They might be well advised to take a hard look first at the lack of progress that the European Commission has made to date in its six years of negotiations with China over a comprehensive investment agreement, not least because the EU has been attempting to include in this an agreement on trade in some services, which would have been of benefit to the UK. They should also look carefully at the experience of Switzerland, a European country which has already signed an FTA with China but in which the benefits are very much to the favour of China. 49 These experiences suggest that Brexiter optimism about an early agreement is probably misplaced, and that instead the UK should be asking whether the considerable resources currently devoted to commercial relations with China are really justified or could be used more effectively elsewhere.

To date, China has not imposed or threatened trade sanctions against the EU other than in specific trade disputes, such as the solar panel case outlined above. At the time of writing, however, a worrying cautionary tale may be found in China's relations with Canada, pertinent not just because of British government aspirations for a post-Brexit trading relationship with the EU modelled on that between the EU and Canada. At the start of December 2018, Canadian authorities detained Meng Wanzhou, chief financial officer of the Chinese telecommunications giant Huawei and daughter of the company's founder, in response to an extradition request from the US to face charges of breaching American financial sanctions against Iran. In retaliation, China promptly detained two Canadian citizens resident in the country on espionage charges, without access to either lawyers or their families, and only very limited consular access. 50 British politicians should be under no illusions that China would behave differently towards the UK. In the early 1950s, British business representatives were prevented from leaving China, held hostage in effect as leverage in bilateral negotiations, while in 1967 Reuters correspondent Anthony Grey was held in the basement of his house in Peking, in retaliation for the detention in Hong Kong of eight pro-China journalists who had violated emergency regulations during Chinese-instigated riots. 51 In 2009, a Briton was executed after being convicted of drug smuggling, despite a personal request for clemency by the prime minister, the only European to be executed by China in sixty years. 52 Two high profile cases from my own time in China were the murder by the wife of a prominent senior politician, Bo Xilai, of British businessman Neil Heywood, and the imprisonment of private investigator Peter Humphrey and his wife after they had been recruited by GSK in an attempt to investigate a whistle-blower who had revealed that the company was engaged in widespread bribery and corruption in the country. 53 Each case demonstrated, albeit in different ways, that China was a country where rule by law was applied at the whim of the government, but that the embassy seemed oblivious to events in the country in which British interests or individuals were directly involved.

These examples are worrying in themselves. To date, however, China has not threatened to impose trade sanctions against any EU member state, other than in direct response to specific trade-related measures that the EU was considering imposing. Presumably, the collective might of the EU in trade terms has given its members protection from such threats. The same was not the case for Canada, however, which as well as seeing its nationals detained, suffered temporary bans by China on imports of its vegetable oil, pork and beef (the pork ban was rescinded as China faced major shortages following the outbreak and spread of African swine fever in its domestic herds). 54 Would the UK, outside the EU face similar risks? A further cautionary note from the Meng Wanzhou case, and that of Lotte and THAAD, is that in each case the government concerned-Canada and South Korea-had previously been making considerable efforts to establish good bilateral relations with China. Perhaps China still expects its friends to behave like client states, a view reinforced by its ambassador's reaction to the British government's decision in July 2020 to order the removal of all equipment made by Huawei from the country's 5G mobile phone network by 2027. He told journalists that 'if you want to make China a hostile country, you will have to bear the consequences.' 55 Along with examining its trade promotion effort in China, both the Meng case, and more especially the more recent Huawei one, suggest that the UK urgently needs a clear strategy for its trade policy for China generally, one that includes a hard-headed examination of the risks as well as potential benefits, and that goes more deeply than meaningless soundbites about a 'golden era. ' Post-Brexit, the UK is going to face difficult choices and decisions in its foreign policy, including in its relationship with China. Not dealing with it is not an option-not only is the country too big to ignore even on trade terms alone, but as a fellow permanent member of the UN Security Council, a country with major domestic human rights concerns, not least in its treatment of the Uighur minority, a major emitter of carbon and pursuing an increasingly assertive foreign policy, especially towards its neighbours, engaging with it over a range of multilateral issues is essential. And bilateral matters can be equally difficult. At the time of writing, the British government finds itself firmly in the middle of a spat between the USA and China over the use of technology from Huawei, and involved in sharp public exchanges about the introduction of a national security law in Hong Kong.

While many British politicians and indeed diplomats may think otherwise, for most of the last forty years the country's foreign policy has been essentially a neo-mercantilist one, in which the pursuit of supposed business advantage for the UK has been placed first and foremost. But its relative trade performance with China has barely changed in that time, suggesting that it has not been a particularly successful policy. Being a member of the EU has given the UK an element of 'safety in numbers' against possible Chinese retaliation, however, as well as the resources (in the Commission) to try to negotiate a more favourable trading arrangement on its behalf.

This will no longer apply in the future. Tempting though it might be to continue along the 'golden era' path, and there will be many with vested interests arguing Britain should do just that, policy makers should instead consider Germany's experience. As in Korea in the case of the trial of Kim Dae Jung in 1980, and in China forty years later, it seems willing to take a more robust line on human rights without suffering any adverse effects on its trading relations. Rather than continuing to pursue transactional and neo-mercantilist diplomacy, British policy makers would do well to heed the advice of another former diplomat that being 'courteous and

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