Source: Global Times    Published: 2019-3-11

Against the backdrop of a worsening international economic environment, China needs to find solutions as soon as possible in case more Western countries unite against it on some major economic issues. The country should pay attention to deepening bilateral relations with important economic and trade partners by building a more comprehensive and high-standard free trade network. And the UK could be one of the developed countries with which China could strengthen economic cooperation in a new round of changes to the international economic order.

As the fifth-largest global economy, and the second-largest economy in the EU, the UK is an important window for China to deepen cooperation with the Western world. Beijing can consider a China-UK free trade area (FTA) as a model for deals with other developed countries. For the UK, the inking a China-UK FTA would help reduce post-Brexit uncertainties by offsetting some of the negative impacts. For China, an FTA with the UK will allow it to explore development space under the pressure of the US-China trade war, facilitating domestic industrial upgrading and propelling domestic reforms in environmental protection, IPR protection and other aspects. Therefore, a China-UK FTA will be of great practical significance.

Adhering to trade rules based on free trade in manufactured goods, China is now facing enormous pressure. A series of problems triggered by the US-China trade war have seriously challenged China's free and open market environment. From the perspective of partnership building, China risks isolation during the process of reshaping international economic and trade rules. When it comes to shake-up in the global industrial chain, Southeast Asia, India, and Mexico are competing with China for the low-end market, while European countries and the US are trying to get high-end manufacturing industries back home through various policies. At the same time, the strategic competition between China and the US in terms of tariffs, investment and technology has also brought much pressure to bear on the Chinese economy.

In this sense, China needs to accelerate negotiations on bilateral free trade agreements to build our own free trade network and to improve political relations through economic cooperation.

The choice of the UK as our strategic pivot to developed countries is because the UK is most likely to achieve deep economic cooperation with China at present, which will help improve our external economic environment.

First, the UK has an important status in the global trading system, with a close financial relationship with the world's major economies. If China can start talks with the UK on an FTA, it would open the window to major trading powers.

Second, the UK also has an important status in the global financial system. The internationalization of the Chinese yuan must have policy support from a number of financial centers, and London is only second to Hong Kong in terms of the size and value of its offshore market for the yuan.

Third, Brexit will probably add to the urgency of the UK's desire to strengthen foreign economic ties. Post-Brexit, the UK will have greater autonomy in making foreign economic policy, providing an opportunity for further cooperation with China. Meanwhile, considering the short-term impact and the long-term uncertainties faced by its economic development, the UK will accelerate its pace in signing independent economic agreements with major economies. China needs the UK, and the UK also needs to strengthen economic relations with China.

Moreover, the UK has a unique influence in the Western world, and good ties with it will ensure that we won't be isolated by the West.

It is because of the UK's strategic significance and that it is a good foundation for cooperation between China and the UK that FTA talks with UK are expected to proceed smoothly once the UK leaves the EU.

In recent years, economic and trade cooperation between China and the UK has deepened. The Sino-UK trade structure is even more complementary than that between China and Japan or South Korea, as the UK has a very mature services sector, especially in finance.

The biggest challenge for the China-UK FTA talks is whether China can agree on a high degree of openness for its services sector, while the biggest uncertainty facing the UK is Brexit. There are great uncertainties as to how the UK will leave the EU and whether it is a soft or hard Brexit.

Meanwhile, as the UK is a developed country and China is developing, there are many differences between them in terms of the systems, languages and values. Also, with China moving toward high-end industries, intensified industrial competition between the two countries will weaken the basis for cooperation.

But overall, China and the UK are now facing a golden opportunity, which may not only be of significance for both sides, but may also be an important pivot for China in making economic and diplomatic policies. Thus, China needs to study its feasibility and actively push forward with the possibility.

The article was compiled based on a speech made by Li Wei, a research fellow of the Chongyang Institute for Financial Studies at the Renmin University of China, at Beijing-based think tank D&C Think on February 28.