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Rachel Reeves will next month head a delegation of leading bankers to Beijing to seek closer ties across a range of financial services, while quietly sidelining security fears over the UK-China relationship.
The chancellor has been leading opposition to China’s inclusion in the “enhanced tier” of a new scheme that would force companies acting for foreign entities to flag their work on a central register, according to government officials.
She fears that including Chinese nationals in the scheme — which is intended to allow the UK to monitor potential foreign influence — would hobble business ties with the People’s Republic.
A scandal over alleged Chinese spying at the heart of the British establishment this week has complicated Reeves’ visit in January.
The chancellor will be accompanied by City minister Tulip Siddiq and leading financial figures on the trip, which is expected to relaunch the UK-China Economic and Financial Dialogue, last held in 2019.
The talks will cover issues such as co-operation in capital markets, increased connectivity between financial markets and bond markets, co-operation on regulation, and clean energy, according to people briefed on the agenda.
Yet leading Conservatives said this week’s spy scandal showed that Britain should take a much tougher line with Beijing.
Tom Tugendhat, former Conservative security minister, said it was crucial that China was placed on the “enhanced tier” of the new “foreign influence registration scheme”, which he devised.
The scheme is a two-tier programme that will force companies acting in certain capacities for foreign powers or entities to flag that activity on a central register. It is aimed at bolstering the UK government’s understanding of the nature and extent of foreign influence domestically.
Loosely modelled on the US Foreign Agents Registration Act, the scheme was first proposed by Rishi Sunak with a view to it becoming active this autumn.
But it has been delayed since Labour entered office, as Sir Keir Starmer has grappled with the same debate that beset his Tory predecessors: whether to include China in the more stringent level.
Tugendhat said this week the advice from MI5 had been “very, very clear” that the scheme would “not be worth having” if Beijing was not in an enhanced tier, which requires extra scrutiny of some foreign nationals.
Reeves and Jonathan Reynolds, business secretary, are among those opposed to including China, according to government officials. “It would have a clear impact on the financial services sector,” said one.
Reeves said on Monday that Britain would take a “pragmatic” approach to relations with China and that national security would be the top priority — but added that commercial considerations were vital too.
“Like other countries around the world, we should trade and seek investment when it is in our national interest to do so, and that will be the approach of this government,” she said.
City of London lobbyists decline to speak publicly for fear of inflaming the issue, but argue the scheme will complicate business with China and create a more onerous regime than that seen in competitor countries.
One said: “It would capture a lot of day-to-day business. There hasn’t really been any consultation. North Korea or Iran [who are both on the higher tier] are very different to China, given the level of commercial interaction.”
Reeves’ Beijing talks will focus on financial services. According to a document first reported by Bloomberg News, they will include discussion of a resumption of the London-Shanghai Stock Connect — to allow dual listings — first proposed in 2015 and halted in 2020.
The discussions will also consider improving the regulatory environment for financial tech firms and deeper co-operation between UK and Chinese asset management firms. The Treasury declined to comment.