Starmer’s great crawl to China

This report is from this week’s CNBC’s UK Exchange newsletter. Like what you see? You can subscribe here.

It is now more than a decade since George Osborne delivered a speech on the floor of the Shanghai Stock Exchange expounding the virtues of a strong partnership between the U.K. and China.

Scores of dignitaries, including chief executives, civic leaders and heads of cultural institutions, heard the then Chancellor of the Exchequer [Britain’s term for finance minister] declare: “Let’s stick together and make Britain China’s best partner in the West.

“Let’s stick together and create a golden decade for both of our countries.”

In his speech, on Sept. 22, 2015, Osborne speculated that, if the U.K. maintained its market share of trade with China, the country’s exports could be worth more than £30 billion [then $46.43 billion] by 2020.

He was not to know, of course, that 2020 would see the world gripped by a pandemic that originated in China. But doubtless he would have been disappointed to learn that British goods exports to the country that year would be just £14.5 billion, down £9.1 billion on 2019.

That 39% slump was not just due to Covid-19. 

By 2020, British politics had been upended by a vote to leave the EU, while relations between the two countries had become strained after Beijing introduced new security laws in Hong Kong seen as breaking the terms of the former British colony’s handover to China in 1997.

They worsened when, in July 2020, Boris Johnson’s government – urged by Donald Trump in his first term as U.S. president – banned purchases of new 5G equipment from Huawei, one of China’s flagship companies, while ordering all Huawei equipment to be completely removed from 5G networks by the end of 2027.

This is the unpromising backdrop to Keir Starmer’s trip to Beijing this week in the first by a British prime minister since Theresa May visited eight years ago.

Accompanying Starmer and Rachel Reeves, the chancellor, will be executives from top British companies including BP, Rolls-Royce, AstraZeneca, Jaguar Land Rover, the London Stock Exchange Group, Octopus Energy, Diageo and Prudential. Brendan Nelson, the newly appointed chairman of HSBC Holdings, is reportedly in the delegation.

The visit is part of a bid to reset relations with the world’s second biggest economy.

Starmer set the scene when, on Dec. 1 last year, he told the Lady Mayor’s banquet in the City: “For years the narrative ran that China was the coming power. Well now it has arrived.

“And the U.K. needs a China policy that recognises this reality. But instead, for years we have blown hot and cold. 

“We had the golden age of relations under David Cameron and George Osborne, which then flipped to an Ice Age, that some still advocate. 

“The result is that, whilst our allies have developed a more sophisticated approach, the U.K. has become an outlier.”

Reminding his audience that Trump met President Xi Jinping in October and would visit China again this April, he pointed out that French President Emmanuel Macron had visited China three times since early 2018 while German leaders had visited four times – with Chancellor Freidrich Merz due again next month.

Noting that, until he met Xi in November 2024 there had been no leader-level meeting at all for six years, Starmer framed resetting relations with China alongside how he has sought to accommodate Trump in his second term and how he has tried to rebuild post-Brexit relations with the EU.

The reset is something on which Starmer and his team have worked since coming to office in July 2024. Shanghai and Beijing were the destinations when, that October, David Lammy, Starmer’s first foreign secretary (the U.K. equivalent of the U.S. secretary of state), made his first overseas trip in the post. Poppy Gustafsson, then the British investment minister and the former CEO of cybersecurity firm Darktrace, hosted a major trade event the following month.

Then in January last year, Reeves led a delegation of business leaders to Beijing who were joined by Andrew Bailey, governor of the Bank of England. Other Sino-British business events have since taken place in London while other ministers, including the Energy Secretary Ed Miliband, have also visited China.

So this week’s visit — and last week’s controversial decision to approve China’s new ‘super-embassy’ on the fringes of the City — must be seen in that context: it is a strategic imperative as Starmer’s government seeks to encourage inward investment.

It must also be seen in the context of some of Labour’s priorities in government, such as the race for net zero, in which China – as the biggest supplier of solar panels to the U.K. and an increasingly important supplier of wind turbine components – will play a crucial role.

It is not without risk: the influential Daily Mail newspaper called it a “kowtowing trip” while many in Starmer’s party, along with some in diplomatic and security circles, dislike the rapprochement with Beijing.

To that end, Starmer is expected to raise alleged human rights abuses with Xi, including the case of Jimmy Lai, a Hong Kong-based businessman imprisoned for his pro-democracy campaigning. Beijing’s support for Vladimir Putin, following his war on Ukraine, is another potential source of disagreement.

But Starmer’s circle argue he has little choice but to engage given how the likes of France and Germany are cosying up to China.

He will also have seen how Beijing is increasingly happy to weaponize its economic advantages, such as its domination of rare earth metal supplies, which forced Trump to come to terms with it last year. And how the likes of Australia, South Korea and Lithuania have, in recent years, been threatened with restrictions to trade or market access after crossing Beijing.

The potential model for how the future relationship could unfold is Canada, whose Prime Minister Mark Carney visited China earlier this month, returning with what the former Bank of England governor called “a preliminary but landmark trade agreement to remove trade barriers and reduce tariffs.”

Then again, given Trump’s furious reaction to that agreement, in which he threatened Canada with 100% tariffs should it strike a free trade deal with China, it may not be. 

UK Chancellor Rachel Reeves says her fiscal rules and increased headroom will provide a buffer against any shocks from U.S. tariffs.

The U.K.’s Business and Trade Secretary, Peter Kyle, tells CNBC in Davos that European leaders are coming together during this “moment of disruption,”

Amjad Bseisu, CEO of Enquest, discusses the contrasting energy industries in the U.S. and the U.K. and expanding the firm’s business to Asia.

— Holly Ellyatt

U.S. still ‘the closest of allies’ with the UK despite rift, Finance Minister Reeves says. The U.S. remains the “closest of allies” with the U.K. despite a growing rift between the U.S. and Europe over the future of Greenland, Chancellor Rachel Reeves told CNBC Wednesday.

Nvidia and Alphabet VC arms back AI startup Synthesia at $4 billion valuation. Nvidia and Alphabet’s VC arms have backed British AI startup Synthesia in a $200 million funding round, amid a surge of private investment in promising young tech companies seeking to capitalize on the AI boom.

This university campus is heated by an AI data center. Your home could be next. Data centers have always generated excess heat, but integration with district heating networks has been slow. That’s now changing. 

— Holly Ellyatt

Quote of the week

London-listed stocks traded higher this week, with the FTSE 100 closing Tuesday’s session 0.58% higher to reach 10,207.80, up from 10,138.09 a week ago.

Meanwhile, the pound’s advance against the sliding dollar gathered pace over the past week, with sterling approaching its highest level against the greenback since August 2021 at $1.3759 on Tuesday afternoon. That compared to last Wednesday’s high of $1.3425.

Elsewhere, yields on the U.K. government’s benchmark 10-year bonds — also known as gilts — moved higher to reach 4.528% on Tuesday, up from 4.459% a week ago.

— Hugh Leask

Coming up

Jan.29: U.K. car production for December

Jan.30: Nationwide house price data for January

Jan.30: Bank of England mortgage data for December

— Holly Ellyatt