Rachel Reeves hailed a new era of “respectful and consistent future relations with China” as pressure grew on the embattled chancellor to deliver on her government’s central promise to fire up UK economic growth.
After meeting China’s vice-premier, He Lifeng, in Beijing, Reeves said Britain’s relationship with the world’s second largest economy would be “frank and open on areas where we disagree”, while stressing it would be pragmatic in “finding opportunities for safe trade and investment”.
The chancellor’s three-day visit to China, ending on Monday assumed an even greater significance after a turbulent week on the financial markets in which UK borrowing costs climbed close to a 16-year high on Friday, leaving Reeves in danger of having to raise taxes again or cut spending.
Politically, either choice would be disastrous for the chancellor, who has insisted since her first budget last October that she would not put up taxes significantly again in the short to medium term, and that a return to austerity was not on the cards.
With many Labour MPs and business leaders now calling for a clearer “plan for growth” from the government, the landmark China visit took place amid intense Treasury briefings about how to boost the economy.
Before leaving for Beijing on Wednesday, Reeves met the CBI’s Rain Newton-Smith, Make UK’s Stephen Phipson and the British Chambers of Commerce’s Shevaun Haviland to discuss what the government could do.
With UK businesses still suffering from the consequences of Brexit, which has replaced open borders with barriers and regulation and led to falls in trade volumes in key sectors, Reeves said her visit to China had secured benefits worth up to £1bn for the UK economy, with improved access for UK financial services firms to the Chinese market and a range of other agreements.
The Treasury said: “The lifting of barriers that restricted export to China across a range of goods and services will support UK exports and innovation, particularly in the agri-food sector where a package headlined by pork, wool, poultry and pet food stands to boost UK trade with China and support new jobs.”
Exports of British food to the EU have dropped by nearly £3bn a year since Brexit, a trade thinktank reported last month, with new physical and documentary checks at the borders complicating trade.
The Centre of Inclusive Trade Policy (CITP) found that exports of UK food and agricultural products to the EU had fallen by more than 16% on average across the three years since Britain left the single market, when compared with the three years before the exit. With China concerned about food security for its 1.4bn population, breaking down barriers for UK exporters is seen as a key post-Brexit opportunity.
Reeves was at pains to make clear that she had raised human rights and security concerns with the Chinese. A group of nine Labour MPs had urged Reeves to demand the release of the pro-democracy media mogul Jimmy Lai during her visit, the first by a UK chancellor in nearly a decade.
The Treasury said Reeves had raised the Lai case and other human rights concerns, including those over forced labour. Lai, a British citizen who founded the pro-democracy newspaper Apple Daily, is accused of conspiracy to commit foreign collusion in Hong Kong’s most high-profile national security trial. He has been in jail since December 2020 and turned 77 in solitary confinement last month. Keir Starmer raised concerns about Lai’s health when he met President Xi Jinping in November.
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Reeves’s pursuit of closer economic ties with China, and a relationship based on pragmatism, also comes amid fears that Donald Trump’s return to the White House will trigger a global trade war. Trump has pledged to slap 20% tariffs on imports into the US, and 60% charges on those from China. With market uncertainties forcing up borrowing costs, Reeves’s financial headroom has begun to look severely limited.
Ben Zaranko, associate director at the Institute for Fiscal Studies, said: “As it stands, the chancellor could face a rather unenviable set of options. This unfortunate predicament is largely the consequence of a difficult fiscal inheritance and global economic factors.
“But it also reflects a series of government choices and mutually incompatible promises: to stick to a hard, numerical fiscal rule while leaving only the finest of margins against it; to prioritise public services and avoid imposing another round of austerity; not to raise the biggest taxes, and not to raise taxes again after the autumn budget, and to hold only one fiscal event per year.
“If higher interest rates wipe out her so-called ‘headroom’, something will have to give.”