(Bloomberg) -- The UK Treasury has drawn up proposals for closer economic ties with China focused on financial services and clean energy, as Keir Starmer presses ahead with his bid to reset ties despite national security concerns.
The draft proposals — which are being worked on by Treasury officials ahead of Chancellor of the Exchequer Rachel Reeves’ trip to China in January — include the aim to boost trade and investment in both directions and a particular focus on banks in the City of London, according to a document seen by Bloomberg and people familiar with the matter who spoke on condition of anonymity.
Starmer, whose Labour Party came to power in a landslide in July, has said he wants to mend relations with Beijing after years of tensions since the pandemic under the Conservatives. The prime minister campaigned on a promise to spur economic growth and sees trade with China as a key part of that. He met Chinese President Xi Jinping at the Group of 20 summit in Brazil last month — the first meeting between the leaders of the two nations in almost seven years.
“We should trade and seek investment when it is in our national interest to do so,” Reeves told broadcasters on Wednesday, adding that the UK would take a “pragmatic” approach to relations with Beijing.
But the Treasury’s proposals show how far along the work is on China policy, and how officials are pushing ahead even before the government completes a promised audit of the relationship with Beijing. That goes beyond trade to include sensitive issues like national security, and was meant to be done before Reeves’ visit but has been delayed, people familiar with the matter said.
The timing is politically risky for Starmer. His Home Office is concerned about the threat posed by Chinese state-backed actors in the UK, an issue that has dominated the media in recent days after a Chinese businessman with close links to Prince Andrew — King Charles III’s brother — was deemed a danger to national security.
More broadly, the prime minister has faced accusations that his China policy is not joined up. His government recently sanctioned Chinese firms over equipment supplied to Russia for use in Ukraine. His critics have also questioned whether getting closer to Beijing will serve UK interests at a time Donald Trump is returning to the White House, and the European Union is trying to increase pressure on China over its stance on Russia’s war in Ukraine.
The Treasury declined to comment. The UK’s policy is not finalized and is still subject to change before it is published, a government official said.
According to the draft, the UK will propose that both sides commit to expanding relations between British and Chinese banks and financial services companies, as part of the resumption of the UK-China Economic and Financial Dialogue. That initiative to boost trade began in 2008, but was last held in 2019.
Boosting opportunities for the financial services sector would be the centerpiece of Reeves’ trip, one person familiar with the matter said. The Treasury wants to set up working groups between British and Chinese ministers to explore increased cooperation in a range of sectors, including:
- A UK-China dialog on capital markets to expand channels for UK-China capital flows in both directions.
- Increased connectivity between financial markets and bond markets.
- Exploring the resumption of the London-Shanghai Stock Connect — to allow dual listings — which was first proposed in 2015 but halted in 2020.
- Deeper cooperation between UK and Chinese asset management and insurance sectors.
- Cooperating on financial regulation, including of fintech firms.
- Sharing expertise on pensions and taxation.
- Commitment to work together to combat fraud and money laundering.
- Establishing a minister-led climate change forum to aid cooperation on clean energy, net zero targets and exploring carbon pricing.
- Boost investment in both nations’ energy sectors and green technology.
The UK will also ask China to make commitments on international law, human rights and domestic labor conditions, according to the draft. That appears to be an attempt to assuage British concerns about China’s support for Russia’s war in Ukraine and a crackdown on pro-democracy activists in Hong Kong.
Such commitments could help UK regulators approve a potential London listing for the fast fashion giant Shein — though it is far from clear whether China would agree or how any agreement would be enforced.
Separately to the Economic and Financial Dialogue, Starmer is likely to accept advice from the Treasury that businesspeople working with the Chinese state should not face greater restrictions on their activity in Britain, a decision that would be welcomed by many in the City of London, the people said.
Bloomberg has previously reported HSBC Holdings Plc, Standard Chartered Plc and other banks have lobbied against restrictions on Chinese business activity.
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