The Importance of China’s Financial Internationalization for the China-UK Relationship

Dr. Jan Knoerich's picture

Economic relations between China and the UK have changed substantially since the last time a Chinese president visited Britain. When former Chinese President Hu Jintao came to the UK in 2005, Chinese outward FDI was modest, China had not yet shaken the structures of global development finance, and internationalization of the RMB was an issue of the future. But in the run-up to President Xi Jinping’s visit to Britain later this month, these aspects of China’s growing international presence take center stage on the list of important economic issues that shape the bilateral relationship. Xi’s visit helps underscore Britain’s aspirations to become the leading supporter of China’s outward internationalization in Europe. Earlier this year, the UK surprised the world when it became the first Western economy to announce its participation in the China-led AIIB. The City of London has also made great efforts to become a hub for RMB internationalization in Europe, and Britain proudly presents itself as the leading recipient of Chinese FDI in the EU. The UK has been very open to Chinese investments, which included welcoming Chinese participation in critical infrastructure and energy projects such as telecommunications and nuclear power. Such keenness in presenting itself as the forerunner in these areas must be seen in the context of the British economy’s reliance on its status as a global leader in the financial sector, which requires the continuous maintenance of a competitive edge vis-à-vis European counterparts. Being a forerunner in supporting China’s financial internationalization is seen as a strategic investment, with important economic payoffs to be expected in the not-too-distant future when China has become a global financial power. Only time will tell whether this is true and the China-UK bilateral relationship is about to enter a “golden age,” as suggested recently in official announcements and the media.