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China trade at a crossroads – is it possible to rebuild trust?

China trade at a crossroads – is it possible to rebuild trust?

As figures show that last year Chinese business activity in the United Kingdom remained resilient despite the backdrop of trade tensions and disruption, we asked Hume Brophy’s international trade expert and former representative of Hong Kong to the WTO, Stuart Harbinson to  shares some thoughts on what may come next for China’s trade relations with the UK and major trade superpowers.

Inexorable growth, inevitable concerns

According to recently published Eurostat figures, China has now overtaken the US as the EU’s largest trading partner in goods. Last year, EU imports from China grew by 5.6% while trade with the US suffered with a drop in both imports (-13.2%) and exports (-8.2%).

Looking ahead, the International Monetary Fund has forecast that China will record the globe’s second highest level of growth in 2021 and German economist Carsten Brzeski remarked that it is evident that China’s V-shaped recovery is facilitating its budding relationship with the EU.

Despite China’s status as a key trading partner, mistrust has intensified over the past year. The US, EU and UK are each to a varying degree seeking to restrict China’s influence.

Since the outbreak of Covid-19, high-profile doubts about China, its reputation and role in the world have increased in the West. The concerns expressed range from security risks to promotion of propaganda to investigations of alleged human rights abuses. Such unresolved issues put a question mark over the future, including the EU Commission’s proposed EU-China investment agreement as MEPs grapple with their ethical concerns.

Cautious optimism

What comes next? Hume Brophy Senior Consultant and International Trade Specialist Stuart Harbinson, a former lead trade negotiator for Hong Kong and head of its representation to the World Trade Organisation (WTO) recently wrote about his hopes for a new dawn for trade multilateralism with the arrival of the Biden Administration. Writing for the Asia Global Institute, he expressed cautious optimism that progress can be made between the three trade superpowers – the US, EU and China – with skill, patience, self-restraint and commitment.

With recent reports of a possible high-level meeting between the US and China in the near future, there are hopes for some improvements in international economic cooperation.  Is it possible to have a more constructive dialogue than over the past four years, and is there scope for a reset?

Where does the UK stand on this?

With the Cameron ‘golden era’ giving way to the Sinosceptic views of the China Research Group, and amendments to the Trade Bill affected by parliamentary ping-pong over relations with China, it is perhaps unsurprising that only 22% of Britons now favour British economic engagement with China. 41% of respondents even regard China as a threat to Britain, which is an increase of 30% from last year, as per the British Foreign Policy Group’s 2021 survey on public attitudes.

However, some say that this puts ‘Global Britain’ at a disadvantage and that rifts with China should not deepen when an economic boost is much needed for the UK. As Harriet Moynihan, a former legal advisor to the UK Foreign and Commonwealth Office, highlighted at a virtual debate hosted by the Cambridge Union we should not retreat to a ‘threat narrative’ or we risk escalating conflict. Plus, it should be acknowledged that China has become a leader in ‘climate change diplomacy.’

In Stuart’s view, the UK may end up taking its cue largely from the US, where the Biden Administration has signalled that it will remain tough on China trade issues.  Biden may not however operate unilaterally as Trump did but prefer to work together with allies in a more coordinated approach.  The UK might be amenable to that, seeing it as an opportunity to have some input into US policy and the crucial relationship with China, as well as to improve the prospects for its own FTA with the US.  The UK, like most Western countries, has become more sceptical of the benefits of international trade.  But it remains one of the more pro-trade major economies and is a strong supporter of a rules-based global trading system.

Relations at an inflection point

We are now approaching an inflection point: the EU on the cusp of an investment deal with China, a US President more open to strengthening its ties with Asia as well as with its traditional allies in Europe, and the UK free to negotiate its own trade agreements (including in the Asia-Pacific region). This comes at the same time as a shift towards new global corporate governance standards for business, adaptation to new economic surroundings as recovery momentum builds, and the ‘greening’ of trade. The business environment has never been more complex – but also holds significant opportunities.

For Chinese enterprises with international interests and aspirations, the key to protecting business interests lies in transparency, engagement and communication of how global trade standards are being met.

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