“The way he treats Huawei will be closely followed by other Chinese companies,” said China’s ambassador to the United Kingdom, Liu Xiaoming, during a press conference. “Mutual trust was undermined. It will be very difficult for companies to have the confidence to have more investment.”
The ban is “the reversal of a long-standing policy by successive British governments of trying to attract Chinese companies to invest in the UK, and in particular to attract Huawei,” said Tim Summers, a senior consultant at the Asia Pacific program in Chatham. House, a group of experts from the United Kingdom.
The action against Huawei may lead other Chinese companies to think twice before investing in Britain if they are concerned that the policy may interfere, he added.
Britain needs all the friends it can get as it strives to replace the trade deals it enjoyed as a member of the EU and find the new opportunities that Prime Minister Boris Johnson promised will emerge from Brexit.
China was the third largest UK export market in 2019 after the United States and the European Union, accounting for 4% of all UK goods and services exports at a record value of £ 30.7 billion ($ 38.7 billion), according to the National Statistics Office.
Going nuclear?
London has also been a major beneficiary of Beijing’s moves to relax control of its currency. The city is the main hub for trade in the Chinese yuan, or renminbi, with an average daily volume of £ 82 billion ($ 103 billion) in the third quarter of 2019, according to the City of London Corporation. There are over 30 Chinese institutions in London’s financial district, and more were planning to open representative offices, the corporation said in February.
These links may now be at risk. China could delay regulatory approvals for new stock lists or freeze market access for UK companies, said Paul Triolo, head of geotechnology at the Eurasia Group in a research note. It could also suspend investments in nuclear power or pause talks on a trade deal, he added.
Many UK companies rely on Chinese suppliers, who imported almost £ 47 billion ($ 59 billion) of goods last year.
Strained relationships
Britain is already on thin ice. The UK government has angered Beijing by condemning its imposition of a controversial national security law in Hong Kong and offering millions of Hong Kong citizens a path to British citizenship.
Ambassador Liu warned last week that Britain will have to “bear the consequences” if it treats China as a “hostile country.” Chinese state tabloid The Global Times said in an editorial on Wednesday that retaliation should be “public and painful” for the UK.
Beijing did not hesitate to apply tariffs to imports of barley and beef from Australia after its government led calls to investigate the origins of the coronavirus.
But China may be reluctant to take a similar line with Britain, as it remains a valuable market for Chinese products, and countries like Germany and the Netherlands, which are even more important to Chinese companies, will closely follow any reaction.
Taking a “harsh retaliatory stance” could close the door on future investment elsewhere in Europe, said Veerle Nouwens, a researcher at the Royal United Services Institute, a British defense and security think tank.
“Regardless of Chinese grandeur, we cannot forget that China is also recovering economically from the pandemic. Therefore, it may appear that the costs of reacting strongly against the UK may outweigh the benefits of doing so,” added Nouwens.
Retaliation is likely to be moderate
There are other factors that could make it more difficult for Beijing to significantly harm trade between the UK and China.
For example, Chinese consumers and businesses will still want to buy British brands and visit the UK, said Summers of Chatham House. “Those kinds of things are not going to completely change overnight,” he added.
UK luxury shops, restaurants and universities desperately need Chinese travelers to return. Travel and tourism expenses have been decimated by the pandemic. Members of Walpole, the British luxury goods association, say they see only 5-10% of their normal sales volume, according to CEO Helen Brocklebank.
China sent more students to the UK than any other country in 2018-2019, an increase of 34% compared to four years earlier, according to the UK Higher Education Statistics Agency. Those 120,000 students spent an estimated £ 1.9 billion ($ 2.4 billion), according to the Cambridge Econometrics report. And more than a million Chinese tourists visited the United Kingdom last year, five times more than in 2009.
“We are going to see some kind of punishment, but I don’t think we should exaggerate how bad it will be,” Parton told CNN Business. Parton pointed to disputes between China and other countries, such as South Korea, that still saw overall export growth to China during the years when economic sanctions were applied.
While there may be some “missed opportunities,” the threat is “greatly exaggerated,” he said.
– Sharon Braithwaite, Shawn Deng, Isaac Yee and Sherisse Pham contributed to this report.
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