Authors: Jonathan Ford and James Kynge
Posted on: Financial Times, January 7th, 2017



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 summer’s landmark Rmb3bn ($430m) auction by the Chinese finance ministry, which raised hopes about a series of follow-up deals as part of the internationalisation of China’s 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 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 Britain’s vote to leave the EU and China’s own domestic economic concerns.
But the stance of Prime Minister Theresa May’s new government, which has taken a more stand-off approach to China than predecessor David Cameron, has weighed heavily on Chinese thinking.
“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 May’s abrupt decision in July to review the French-led £18bn Hinkley Point 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 May’s 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 Beijing’s 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. “There’s no one in the government who gets out of bed and thinks China. It’s a very old fashioned, almost Victorian view of the world.”
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 Beijing’s 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 China’s largest and most liquid stocks.
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 won’t 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.


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