China Business

Beijing signals end of China-UK golden age

Oicials play down prospect of second state bond auction in London

Former chancellor George Osborne with Chinese premier Li Keqiang in September 2015 EPA

JANUARY 6, 2017 by: Jonathan Ford and James Kynge

Beijing has cooled on a series of high-profile projects aimed at fostering closer ties with
the UK as concerns mount that the golden age between the two countries lauded by the
previous British government has waned.

Chinese officials said there were now no active plans to sell further renminbi-
denominated sovereign bonds after last summers landmark Rmb3bn ($430m) auction (
http://next.ft.com/content/5bbd4d0c-2161-11e6-9d4d-c11776a5124d) by the Chinese
finance ministry, which raised hopes about a series of follow-up deals as part of the
internationalisation of Chinas currency.

There is no timetable for a second government bond issuance in London, said one
Chinese official. In any case, the next one that China issues overseas will probably go to
another centre, with Hong Kong under consideration. It is only fair that China diversifies
its issuance locations for government bonds.

In addition, Chinese financiers said that a scheme to link the London and Shanghai stock
exchanges (http://next.ft.com/content/08842b40-612e-11e5-a28b-50226830d644) had
lost momentum, damping prospects of another Sino-British project advocated by George
Osborne, the former UK chancellor, who made increasing commercial ties with Beijing a
centrepiece of his six-year tenure.

Chinese observers blame the changing mood in Beijing to several factors, including
uncertainties following Britains vote to leave the EU (https://www.ft.com/topics/themes
/Brexit) and Chinas own domestic economic concerns (http://next.ft.com/content/2dc6
12b4-978e-11e6-a80e-bcd69f323a8b).

But the stance of Prime Minister Theresa Mays new government, which has taken a more
stand-off approach to China than predecessor David Cameron, has weighed heavily on
Chinese thinking.

Related article

Surge in Chinese corporate investment into the US (http://next.

ft.com/content/b0cc57c8-d09f-11e6-9341-7393bb2e1b51)
Chinese companies invested a record $45.6bn in the US in 2016 despite a presidential campaign
heavy on Beijing bashing.
In some areas of our engagement, the Chinese side is taking a more wait-and-see
attitude following the Brexit vote, said a second Chinese official who requested
anonymity. We do not feel the same level of enthusiasm from this government as from
the Cameron-Osborne team.

The Chinese singled out Mrs Mays abrupt decision in July to review the French-led
18bn Hinkley Point (http://next.ft.com/content/2af4e1c8-5562-11e6-befd-2fc0c26b3c6
0)nuclear power plant, indicating she had national security concerns about the project.

CGN, a Chinese state energy group, has a 33 per cent stake in Hinkley, which it took with
the explicit aim of winning the right to install its own technology in a subsequent nuclear
power station planned for Bradwell in Essex.

While Mrs May ultimately decided to go ahead with Hinkley, she also announced planned
new restrictions on the foreign ownership of critical national infrastructure assets that
Downing Street has yet to clarify. These could potentially imperil the Bradwell project.

Hinkley was good, but we are concerned about what comes after Hinkley with the other
nuclear projects, said one of the Chinese officials. There is no clarity on that.

The Cameron government was heavily criticised for being too eager to appease Beijing in
order to win trade. But Mark Boleat, head of policy at the City of London Corporation,
said that Mrs Mays indecision over Hinkley had courted a breach in relations by
wrongfooting Beijing so publicly.

The Chinese might decide they are dealing with someone serious and treat them
accordingly, Mr Boleat said. But alternatively they could decide [their partners] are not
predictable and draw different conclusions.

Others share Beijings puzzlement about the change of mood under Mrs May, particularly
in light of the desire to seek new trading partners following the vote for Brexit.

The Chinese are frustrated and I am not surprised, said a former British government
official. Theres no one in the government who gets out of bed and thinks China. Its a
very old fashioned, almost Victorian view of the world.

The 'golden era' was conceived by former chancellor of the exchequer George Osborne PA

The golden era was conceived by Mr Osborne as a grand bargain in which the UK would
offer Chinese investors and companies access to its infrastructure markets in return for
privileged treatment, including the City receiving a big share of the expanding
international market for renminbi finance.

The Chinese sovereign bond programme was designed to signal Beijings official stamp of
approval for London as its key non-Asian financial centre partner. Meanwhile, the so-
called stock connect programme would have allowed UK-based institutional investors
direct access to trade in some of Chinas largest and most liquid stocks.

Related article
 China: Renminbi stalls on road to being a global currency (http:
//next.ft.com/content/e480fd92-bc6a-11e6-8b45-b8b81dd5d08
0)
New capital controls lead to doubt, especially over hopes of forcing economic reform

London Stock Exchange said that stock connect remained on track but there was no
timetable for implementation.

This is a long-term project, which will help domestic and international investors access
markets and is a key part of the strategic partnership between our two exchanges, said
Ramesh Chhabra, head of media relations.

Lord Mandelson, former Labour business secretary, said: The relationship with China is
important but it wont be sustained of its own accord. To many in Beijing we matter less
because of Brexit so we have to work all the harder to combat this perception.

The UK Treasury said that Beijing continued to rank highly in its priorities and that
chancellor Philip Hammond had visited China more than any other country since taking
office.
Print a single copy of this article for personal use. Contact us if you wish to print more to
distribute to others. The Financial Times Ltd.

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