Written evidence submitted by Dr Jan Knoerich (CAU0037), Reader in China and the Global Political Economy, Lau China Institute, School of Global Affairs, King’s College London

The UK has no other option but to engage with China productively in many important areas, such as economics, trade, services, investment, finance, science, technology and the environment, given the significant opportunities offered by engagement with China and the need to have China as a partner to deal with many global challenges. Yet, one cannot ignore the growing implications for UK economic and national security, as well as values, brought by such engagements with China. Amid these complexities and contradictions, an equilibrium needs to be found in which UK-China relations can function effectively and in the national interest, taking advantages of the opportunities while reliably addressing associated risks.

The challenge is to identify where this equilibrium lies, given that a broad array of views and perspectives exist on China and on what UK engagement with China should look like – views and perspectives that also shift as the geopolitical environment evolves rapidly. The challenge for the UK Government is to identify a framework of processes through which this equilibrium can be found, and based on which government guidance can be offered and corresponding policy measures implemented. The following points can provide an orientation for advancing this process:

• The opportunities and value of engaging with China, as well as risks associated with such engagements, differ significantly between areas of engagement with China, and sometimes even sub-areas such as specific industrial sectors, technologies or investments. It is necessary to examine each area of exchange with China separately and in depth and develop tailored insights and recommendations for each of them. Doing this thoroughly will require the allocation of resources for this purpose.
• The development of insights and recommendations on how the UK should engage with China should build on a broad base of knowledge, views and perspectives across a wide range of stakeholders and experts. This includes perspectives from all government departments and ministries; views from a broad cross-section of relevant stakeholders, experts, public and private sector representatives, and interest groups in UK society; insights from available knowledge and research on China; and findings from specifically commissioned policy papers and academic studies. The result should be a nuanced approach to China in various areas of engagement that converges various points of view to yield viable ways forward.
• UK approaches to China should be developed so they are predictable and stable, avoiding rapid shifts following changes in government. At the same time, any framework specifying UK engagement with China needs to be flexible enough so it can evolve with changes in the character of UK-China relations or the broader geopolitical circumstances.
• Mechanisms should be put in place to regularly (re-)assess the approaches the UK takes towards China in various areas of engagement, to evaluate their effectiveness, with an option to introduce amendments if any approach taken is not sufficiently in the national interest.

In developing the specific modalities of UK engagement with China in various areas of engagement, the following aspects should form part of the consideration:

• The UK should take advantage of the opportunities available from engaging with China, as much as is possible without jeopardising its security or undermining UK values. The UK economy and society can benefit in many ways from engagement and exchanges with China.
• Robust mechanisms need to be in place to detect and respond to national security risks resulting from engagements and exchanges with China. National security threats that are hypothetical but not proven need to be monitored and, depending on the likelihood of problems emerging, relevant exchanges with China should be approached with greater caution and restraint, yet carefully balanced with the associated opportunities. Science, technology and research are especially complex areas in this context, as is China’s role in UK critical infrastructure and growing dependence on China in some key technologies and resources.
• A key foundation of the relationship between the UK and China should be reciprocity. The Government should aim to ensure that China offers the equivalent to the UK to what the UK offers China, for example in terms of market access.
• The UK should strengthen engagement with other countries, with a focus on the Indo-Pacific, especially on the issue areas that are important in the UK-China relationship, to develop alternatives to China for the UK and reduce dependencies on China.
• The United States and European Union countries are especially important partners with similar interests concerning China. Coordination among these countries on China policy can expand influence towards China on issues that are in the UK’s interests. Yet, the current rapid shifts in the geopolitical environment, accelerated by changes in how the United States approaches its alliances, need to be factored into considerations on how the UK should approach its relationship with China and the possibilities for coordination with its partners.
• UK engagement with China needs to correspond with UK values. The Government should continue to raise issues where it sees China’s approach to be at odds with UK values, whilst ensuring that the UK upholds its own values as a good example. It should be aware that an increasingly powerful China also has influence on UK values. For example, when the UK introduces protectionist measures to fend off a national security threat from China, this runs counter to the UK value of free international trade and investment.
• Especially when political and economic relations are complicated, it is important to strengthen knowledge in the UK about China, including through academic research and education on China as well as the development of Chinese language skills both at secondary schools and universities. Avenues for people-to-people exchanges should also be maintained and strengthened. Accumulated knowledge about and connections with China can be an asset that the UK can draw on to further its own interests in its relations with one of the major world powers of the coming decades.

As an example, one area where many of the issues discussed above are evident is the UK-China foreign direct investment (FDI) relationship, specifically regarding investments by Chinese multinational enterprises in the UK.

There are opportunities from welcoming Chinese FDI, and the UK should take advantage of them. The UK has traditionally been among the leading recipients of Chinese FDI in Europe, yet China is not amongst the main sources of business investment in the UK, ranking outside the top 10 source countries for inward FDI. Chinese FDI in the UK expanded considerably in the early to mid-2010s, but the picture has recently been more mixed. The UK would benefit from attracting more Chinese business investments. Notable opportunities to benefit from Chinese investments are in sectors where China is leading technologically, such as renewable energy, batteries and electric vehicles.

Yet, recent years have seen a rise in concerns about the economic and national security risks associated with FDI. For example, some foreign companies investing in the UK gain access to critical or dual-use technologies, personal data or critical infrastructure, which could be mis-used for malign purposes or to undermine UK competitiveness, including through technology transfer and espionage. Especially investments from China have been viewed as a greater potential risk, given that China is a leading world power but not allied with the UK. Many Chinese investments have involved acquisitions of companies, which offer particularly promising avenues to access technologies and data.

As Chinese investments offer both opportunities and risks to the UK, the Government needs to take a nuanced approach towards them, weighing opportunities against threats. Stakeholders have diverging views on the threat from Chinese investments. For example, the private sector often emphasises business opportunities whilst security experts focus on the risks. At the same time, there is limited knowledge or concrete evidence on the level of risk posed by FDI, and a lot of the threats remain hypothetical. More research and scientific studies should be undertaken to specify how and to what extent FDI impacts national security across various sectors. While these uncertainties remain, a nuanced approach to Chinese FDI would involve stricter Government scrutiny of riskier types of investments, such as those of larger size, acquisitions, investments in sensitive sectors involving critical or potentially dual-use technologies, and investments by state-owned firms. Smaller greenfield investments by private firms in non-sensitive sectors that are clearly aimed at market access need not be subject to high levels of scrutiny. Unfortunately, any screening of investments brings with it the possibility of rejecting benign investments that could have benefited the UK economy or still approving investments that end up problematic for the UK.

While the UK has had a very open foreign investment regime, it recently introduced investment screening through the National Security and Investment Act 2021, following a trend in recent years that involved many governments introducing or strengthening investment screening. This helped address some of the security concerns, yet it is important to continue observing the functioning of UK investment screening to assure it effectively addresses national security threats, maintains the right equilibrium between opportunities and risks from Chinese investments, and is relatively predictable and stable so the investment environment in the UK remains attractive. It should be re-assessed as knowledge and evidence about the security threats evolve.

There is also a greater need for reciprocity in UK-China investment relations. The UK has allowed China to invest and acquire firms in the UK in sectors that are restricted or closed for UK companies in China. More could be done to achieve equal level of access for UK firms in China.

5th May 2025