Cameron is right to schmooze the Chinese

 The prime minister is neatly repositioning Britain alongside the world’s rising power, just as the US did 40 years ago

To listen to some people — from the Speaker of the House of Commons to the leader of the Opposition — you would think that the Jedi had invited the Emperor Palpatine to discuss increased investment by the Death Star in the planet Tatooine.

President Xi Jinping’s state visit to London this week provided a rare opportunity for left and right to unite. Fraser Nelson, the usually astute editor of The Spectator, accused David Cameron and George Osborne of “the longest kowtow in diplomatic history”. The Labour MP Paul Flynn went further by comparing Britain to “a supplicant fawning spaniel that licks the hand that beats it”, which was the kind of thing Mao’s Red Guards used to chant during the Cultural Revolution.

Similar nonsense was published when Henry Kissinger and Richard Nixon made their historic trips to China in 1971 and 1972. “To judge from what we are willing to do for China in appreciation of China’s willingness to play ping-pong with us,” wrote the conservative journalist William F Buckley, “one supposes we’d have cancelled the Normandy landings if Hitler had invited us to play a game of badminton.” Nixon’s rapprochement with China, Buckley fumed, amounted to a “staggering capitulation”, whereby the United States “lost — irretrievably — any sense of moral mission in the world”.

This all seems pretty silly now. With the benefit of hindsight, few would now deny that the opening to China was the single most important strategic chess move of Kissinger’s career. He and Nixon were able to exploit the Sino-Soviet split, transforming the Cold War from an ideological duel into a multiplayer game of national interests. Kissinger achieved his goal of pressurising the Soviets to accept the first meaningful limitation of the nuclear arms race. Nixon achieved his domestic political goal of casting himself as a peacemaker, going on to win all but one state in the 1972 election. And, despite the dark forebodings of Buckley and other conservatives, the opening to China did not do any significant harm to the existing American network of alliances.

This is not to say that “Xi Jinping in London” is equivalent in its historical importance to “Nixon in China”. I very much doubt that an opera will be written by John Adams to immortalise the Chinese president’s visit, though the raw material is certainly there for a comic operetta in the style of Gilbert and Sullivan. (Act I, Scene i: The Queen and the President Xi parade down The Mall in the gilded Diamond Jubilee state coach. Act I, Scene ii: David Cameron and Jeremy Corbyn sing a discordant duet as they await President Xi’s speech in parliament.)

The point is that the British government is elegantly executing a major strategic move: a reorientation of UK foreign policy that is as much about geopolitics as it is about economics. Start with the economics. When the foreign secretary Philip Hammond, says he wants Britain to be “the most open economy in Europe to Chinese investment”, he is acknowledging that there is a real competition going on. Over the past ten years the UK has been the top destination for Chinese capital in Europe. But since 2010, Britain has fallen behind Italy, even as the UK current account deficit has widened— reaching an eye-watering peak of 6 per cent of gross domestic product in the last quarter of 2014.

The planned nuclear power plant at Hinkley Point has attracted more attention than it merits this week. Though the Chinese will be investors in the project, it is in fact French-led. So contain your James Bond fantasies of a dastardly east Asian plot to turn Somerset into a radioactive wasteland. As for those who blame the Chinese for job losses at an Indian-owned steelworks, get your story straight. Either you are for Asian investment in the UK or you are against it. Either you are for the price-lowering effects of global free trade, or you are against it.

The real economic issue is the potentially vast amount of Chinese money that could flow abroad in future years if, as promised, Beijing liberalises its capital account, making it easier for its citizens to invest overseas. In an important but largely ignored paper published in 2013, the Bank of England estimated that, with capital account liberalisation, China’s gross international investment position could reach 30 per cent of world GDP by 2025, compared with around 5 per cent now. Think of it as the Great Wall of Chinese money.

Given London’s importance as an international financial centre, it would be gross negligence on the part of Mr Osborne not to prepare for this eventuality by, among other things, encouraging the growth of the City’s offshore yuan market. Offshore yuan could be the next eurodollars.

True, China has had its economic problems this year, but even a slower-growing China is still on course to catch up with a US economy growing less than half as fast. When Nixon went to China, its economy accounted for about 2 per cent of global GDP. By 2020, according to the IMF, the Chinese share will be nearly 19 per cent. Adjusting for differences in domestic purchasing power, the US share will be 15 per cent.

Yet the inexorably shifting balance of global economic power is only part of the government’s motivation for schmoozing President Xi. Equally important is the perception in Downing Street that all is not well with the transatlantic “special relationship”. The government’s decision earlier this year to join the Beijing-led Asian Infrastructure Investment Bank elicited a less than diplomatic response from Washington. The accusation of “constant accommodation” of China was just the latest American slight that Mr Cameron has had to endure. From the vantage point of London — and indeed Beijing — the problem with US policy towards China is its inconstant character. No one quite knows what the much-derided “pivot to Asia” really is. Is President Obama trying to contain China? Or just to compete with the big European economies for China’s business?

Mr Cameron has come a long way since his ill-advised meeting with the Dalai Lama in 2012. He has come to see that public exhortations to Chinese leaders to “improve human rights” achieve nothing. He does not expect to hear Xi Jinping announce multi-party elections in China next year. And it has presumably also not escaped his notice that it was uncritical subservience to the US that destroyed the reputation of another prime minister not long ago.

In seeking a strong bilateral relationship with the world’s rising power, Mr Cameron is showing good historical judgment — not least about how best to regain the respect of the world’s established power. A shake-up of British foreign policy was long overdue. Now, to quote George Lucas, the force awakens.

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