The UK-China Economic and Financial Dialogue (EFD) has returned after a five-year hiatus, bringing agreements worth £600 million to the UK economy over the next five years. Projections suggest this amount could grow to £1 billion.
This collaboration, led by UK Chancellor Rachel Reeves and Chinese Vice Premier He Lifeng, was the first step towards new efforts to foster growth through trade and investment while addressing ongoing disagreements.
Conversations were held over financial services, agriculture, clean energy, and sustainable finance. For the UK, this is a big step towards revitalizing its economy during a tough period, while China aims to diversify its international partnerships.
Tough times for the UK economy
The UK’s renewed engagement with China comes as the country grapples with serious economic challenges.
Government borrowing costs surged last week, with yields on 10-year gilts reaching 4.89%, the highest since 2008.
Elevated debt servicing costs leave the Treasury with limited fiscal headroom to address domestic economic pressures. Analysts warn that additional tax increases or deeper spending cuts may be required to adhere to fiscal rules set by Reeves in October 2024.
Compounding these pressures is declining business confidence. A December 2024 survey by Deloitte found a net 26% of UK chief financial officers were more pessimistic about their companies’ outlook compared to three months prior.
This was the first net pessimism score recorded since mid-2023, shortly before the UK entered a technical recession.
Financial services agreements boost collaboration
The financial services sector emerged as a major focus of the dialogue. The UK-China Stock Connect, which links the London and Shanghai stock exchanges, is set to be further enhanced. Additionally, China plans to issue its first overseas sovereign green bond in London in 2025, a move highlighting the shared focus on sustainable finance.
Major UK firms such as HSBC, Schroders, and Abrdn have gained new licenses and quotas to expand their operations in China, strengthening the UK’s position as a leading financial partner for the world’s second-largest economy. These developments also create opportunities for Chinese institutions to integrate more deeply with global financial systems.
The agreements can be described as a pragmatic approach to fostering mutual growth while addressing broader geopolitical and security concerns. Reeves emphasized that economic collaboration can coexist with open discussions about disagreements.
Agricultural trade receives a major boost
Agriculture was another significant area of progress. Trade barriers that previously restricted UK exports to China have been lifted, opening the door for British products such as pork, poultry, wool, and pet food to re-enter Chinese markets.
China is already the UK’s largest market for pig meat, and the expanded access is expected to create jobs and support trade growth.
The British Poultry Council welcomed these developments, highlighting the potential for innovation and market expansion. Similarly, the pet food industry views the new export protocol as a critical step toward competing with EU and US producers in one of the fastest-growing global markets.
Shared goals in clean energy and sustainability
Both countries committed to strengthening their partnership in clean energy and sustainability. Discussions included enhancing the UK-China clean energy partnership and exploring a Wealth Connect program to advance asset management initiatives.
China’s decision to issue a green bond in London indicates how important sustainable finance is in addressing global issues like climate change. This move could provide a framework for other countries looking to combine financial growth with environmental responsibility.
Will this be a smooth partnership?
Despite the economic opportunities, Reeves made it clear that the UK is not ignoring contentious issues.
Discussions included concerns over China’s support for Russia’s war in Ukraine, cyber activities attributed to Chinese actors, and human rights violations in Hong Kong and Xinjiang.
Reeves raised these issues during her meetings in Beijing, emphasizing the importance of maintaining open communication channels while protecting national and economic security. Both sides acknowledged the need to continue discussing sensitive topics, signaling a willingness to address underlying tensions.
The bigger picture for UK-China ties
The UK faces economic uncertainty following market instability and is seeking to attract foreign investment to stabilize growth. For China, this partnership offers an opportunity to strengthen its global relationships amid trade tensions with the US.
Businesses and policymakers alike are optimistic about the potential benefits. Financial services firms stand to gain from expanded access to Chinese markets, while agricultural exporters see new opportunities for growth. The clean energy initiatives further underline the importance of aligning economic goals with global sustainability priorities.
As this partnership develops, it will serve as a litmus test for how two major economies can navigate shared interests and challenges in a rapidly changing global landscape. The outcomes will shape not only bilateral trade but also broader economic trends for the future of both countries.
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