Robert Clark, Research Fellow, Global Britain Programme, Henry Jackson Society – Written evidence (TRC0008)1

House of Lords International Relations and Defence Committee The UK’s Security and Trade Relationship with China

Submission of written evidence

Robert Clark Research Fellow, Global Britain Programme Henry Jackson Society

March 2021

Introduction to evidence

The Global Britain programme at the Henry Jackson Society aims to educate the public on the need for an open, confident and expansive British geostrategic policy in the twenty-first century – drawing on the United Kingdom’s unique strengths not only as an advocate for liberalism and national democracy, but also as a custodian of both the European and international orders.

This evidence sheds further light on this inquiry’s work, in particular regarding China’s approach and its pursuit of major international strategic initiatives, and how China uses economic strength as a foreign policy tool. It will end with a series of suggested policy recommendations for the UK government going forwards in order to mitigate against some of the issues presented.

Some of this evidence here has helped inform and shape recently published research papers concerning both the role of China in international institutions, and China’s role in UK research institutions and universities sponsoring and collaborating on sensitive dual-use

1 As noted in the introduction, this submission draws on two reports co-authored with Dr Radomir Tylecote. Please also see the written evidence submitted by Dr Tylecote (TRC0002) technologies. Both reports, co-authored with Dr. Radomir Tylecote, have fed into this evidence, as has other published research conducted by myself and that of the Henry Jackson Society.

What will follow is a brief summary outlining this evidence and where it fits within the inquiry’s mandate, before first addressing the inquiry’s question; ‘In what ways has UK policy to China changed between the premierships of David Cameron, Theresa May and Boris Johnson?”. Leading from this, the inquiry’s questions; “What are the implications of China’s pursuit of major international strategic initiatives (such as the Belt and Road Initiative) for the UK’s foreign, development and security interests?”, and “How and in what ways does China use its economic strength as a foreign policy tool? How should the UK respond to this approach?” will be addressed.

Summary

 This evidence seeks to address the recently announced UK government’s Integrated Review paper, ‘Global Britain in a Competitive Age’. This document, whilst managing to appropriately determine that he world in which a Global Britain will be increasingly operating in defined as one characterised by state- based threats to the UK, fails to adequately address the challenges in which it pointed firmly at Beijing.

 These challenges are rooted in the appropriate classification in the document of China being the number one threat to the UK’s economic security. There is strategic incoherence however when the document leads on to promote increased Chinese trade and direct investment into the UK economy.

 There is further classification of China as a system competitor to the UK strategically. This is in relation to China’s authoritarian governance structure which it seeks to export abroad in both client nations and international organisations. This governance structure does not respect human rights and freedoms of action at the individual level.

 Therefore, this inquiry’s questions regarding the policy stances on China under the recent Conservative governments – the so-called ‘Golden Era’ – will help shed light on to why the UK finds itself in the positon in which it currently evidently seeks to strike a balance in favour of economic relations at the detriment to national security.

 This cannot be allowed to mature. The inquiry’s further questions concerning China’s long-term strategic initiatives, and Beijing’s use of economic tools to shape its foreign policy agenda, will then be addressed in order to firmly the strategic incoherence currently at play.

Context

Starting with Kissinger and his ‘rapprochement’ doctrine in the 1970s, the west has gradually sought to embrace China into the liberal world order and capitalist global economy. Galvanized since the fall of the Berlin Wall and the end of the Cold War, both the US and the UK have been particular architects in this effort to incorporate China into the global rules-based order. However, under the premiership of Xi Jingping, China’s role in global affairs has increasingly sought to undermine this order. A tightening grip upon domestic security issues, culminating in the reported concentration camps in Xinjiang since 2018, in addition to an increasingly totalitarian approach to human rights issues in Hong Kong, the Chinese Communist Party (CCP) have little regard for the liberal values, civil and human rights that the west has promoted consistently for the last century, and the mechanisms and global institutions which underpin these values.

Internationally, this has led to a much more assertive, regressive geopolitical outlook and subsequent foreign policy which aims to transform China into a global hegemon, replacing both the US and NATO as the current custodians of the global economy and international security. This paper seeks to chart this transformation of a potential hegemonic China, by demonstrating that current Chinese strategy is attempting to achieve two things simultaneously. First, is the co-opting of existing, predominantly western-led international organisations, such as the UN, in an attempt to corrupt, coerce and influence these bodies to fulfil Chinese national interests; interests which often run wholly contrary to those of the liberal world order. Concurrently to this, Beijing is creating, shaping and controlling rival international organisations and institutions, which it has a much higher degree of autonomy over than pre-existing organisations, to challenge the established world order, its governance structures, and its norms and values, which do not align with China’s own interests. This pincer movement is central to Chinese geostrategy, and it is being played out daily on the global stage.

This evidence will explore the rise of China as an authoritarian-capitalist state, exploiting mercantilist economic policies abroad, particularly in the global south, which aim to vastly increase Beijing’s smart power and diplomatic leverage. Viewed from the UK perspective, this analysis will begin with the Conservative government under David Cameron, and the economic red carpet which former Chancellor George Osbourne rolled out to drum up much coveted Chinese foreign investment into the UK economy. This desire for greater Chinese investment paved the way for a so-called ‘Golden Era’ of UK-Chinese relations, encouraged by various senior Conservative government ministers and politicians keen for this symbolic but ultimately flawed bilateral relationship based upon a mutual interest for investment. This quickly led to the rise of Chinese state- controlled influence in key UK engineering and tech industries and digital infrastructure, culminating in the much-criticised Whitehall decision in early 2020 to allow Huawei into the UK’s next generation 5G network.

Central to this evidence is how the Covid crisis has demonstrated major problems with China’s ‘normalisation’ in international relations, and how this is now harder to ignore. The manner in which the CCP have conducted themselves over the pandemic is but the latest stark reminder of how Chinese foreign policy takes virtually no account of the current liberal world order, but instead, seeks to change and shape the global system to serve its own ends.

This is particularly poignant regarding Beijing’s increasing influence within international organisations, especially the World Health Organisation (WHO). Issues relating to funding and influence of the organisation, in addition to the role of the WHO Director General, will be explored in greater detail to demonstrate the CCP’s increasingly malign behaviour against the liberal order. This ties into a much broader realisation of the role China has in international institutions more generally: evidence for the Chinese co-opting of these institutions, including trying to define international technical standards and impact on growth, again testify to China’s strategic ends which are, ultimately, directly in contrast to those of the UK’s and the west’s more broadly.

Through Beijing’s response to the Covid pandemic and the subsequent global outcry, it has been possible to elucidate further this broader revelation of Chinese behaviour within the international system. In addition to the co-opting of international institutions by China, there has been the use by the CCP of the Covid pandemic for a power-projection onto vulnerable economies, markets, and even states. The case of Italy, as a BRI member country, witnessed Chinese assistance with PPE supplies at the same time when EU leadership was found severely lacking. This raises the possibility for potentially increased indebtedness to China for western powers as a direct result of the Covid pandemic, brought about by the role China has played in international relations. The Chinese debt- diplomacy witnessed across the BRI member states in recent years has taken a new form in the wake of the economic destruction imposed on the world by China and its cover-up of the true nature of Covid.

By early 2020 the CCP had deployed a wide array of methods to delay the global response to Covid and, with it, the inevitable accusations labelled at Beijing for its early cover-up and the co-opting witnessed within the WHO. Indeed, even borrowing methods straight from fellow authoritarian- Capitalist Russia’s toolkit, including misinformation campaigns aimed at denouncing the west’s accusations and even blaming the US for the origins of Covid.

The means by which China have sought to levy great economic and diplomatic power over the last decade have directly resulted in the CCP’s culpability over the current global crisis surrounding the Covid pandemic. Misinformation, in conjunction with a long-term manipulation of weak and failing international organisations, in addition to the recently witnessed hardening of governance and normative values in a weaponised battle of narratives. These are all the actions of a great state power intent on changing the rules-based liberal order, into one which suits its own authoritarian system of governance, and one which shows no empathy for the suffering and hardships caused across the globe as a direct result of a lack of centralised transparency and accountability.

This evidence is an examination of what Covid has revealed about China’s approach to international relations, and its broader strategic vision going forwards. It seeks to highlight the dangers of dependence upon China economically, myopic in nature, and in particular the geopolitical risks associated with Chinese investment, particularly into the UK’s digital infrastructure. This normalisation of Chinese relations has led to short- term planning considerations from UK strategists, who have consistently failed to appreciate the very real harm to British interests which a continuation of the status-quo will cause. This has been demonstrated most recently with the Integrated Review, which called for increased Chinese trade and direct investment, yet still identified China has the number one threat to the UK’s economic security.

The UK must now see this as a watershed moment in its relations with an increasingly authoritarian regime. No longer viewed through the lofty western naivety of a ‘Golden Era’, whereby a desire for Chinese investment into key UK tech and digital industries was myopically envisaged with little blowback. Now, in the wake of the Coronavirus pandemic, and the very real long-term effects to civil society which this will cause for a generation, the UK government must readdress as a matter of urgency its strategy with the CCP. This evidence will conclude with a range of policy recommendations for the UK government to review and reassess its relations with China, in order to reaffirm the national interest going forwards.

The myth of the so-called ‘Golden Era’

1. In what ways has UK policy to China changed between the premierships of David Cameron, Theresa May and Boris Johnson?

The starting point for the recent UK approach to China should be viewed from the strategy employed by Prime Minister David Cameron (2010-16) and his Conservative government, and more specifically, from the October 2015 UK state visit by President Xi. It was at the conclusion of this visit that both the UK and Chinese governments heralded a new ‘Golden Era’ in bilateral relations2. This new era for relations was firmly characterised by increased levels of Chinese foreign investment into UK tech industries, increased bilateral trade, and a heavier reliance on cheaply manufactured, imported Chinese goods. The founding document for this new era is the government’s UK-China Joint Statement 2015 in the aftermath of the state visit to London.

It describes how the visit provided an ‘historic opportunity’ for UK-China relations, and that the two countries will commit to building a ‘global comprehensive strategic partnership’ for the 21st Century, ushering in this new ‘golden era’ featuring ‘enduring, inclusive and win-win cooperation’3. In reality, this document was the blueprint for increased Chinese investment into UK industries at a time when the government

2 https://www.gov.uk/government/news/uk-china-joint-statement-2015 3 Ibid. knew it would need heavy foreign investment to stimulate the economy. This would become even more pertinent post-Brexit referendum the following year. This is encapsulated by commenting how the ‘vast size and potential of China’s economy will continue to drive strong growth for years to come’4.

What marks this memorandum out is the degree to which it places bilateral trade and direct Chinese investment above all other concerns. Indeed, there are several overtures towards increasing good governance practice, accountability and transparency, and a fair and open mutual understanding of each other’s national interests;

“enhance political trust based on equality and mutual respect and, in that spirit, recognise the importance each side attaches to its own political system, development path, core interests and major concerns”.

Regrettably, this just hasn’t been the case over the last five years. The CCP have consistently sought to undermine and circumnavigate both UK values and those of the liberal world order. Its aggressive and expansionist polices across the South China Sea (SCS), threatening friendly nations and global trade patterns, runs wholly contrary to the above statement promising mutual respect among national interests5. In addition to Beijing’s militarism in the SCS6, at home it has sought to supress the civil liberties and democracy movements in both Taiwan and Hong Kong7, in addition to the mass concentration camps in Xinjiang in a punishing and arbitrary repression of the Muslim Uighur minority8. The CCP under Xi’s premiership have consistently bucked the expected normative behaviour regarding governance and human rights expected of a great state power which has been treated like, and at times openly welcomed the notion of, becoming a responsible stake-holder in the global order.

Xi’s state visit in 2015 had set the conditions for the UK-China relationship to be one dominated by trade and investment, with little in the way of mutual cooperation on other matters central to the UK’s national interests, particularly regional security in the SCS and the erosion of political freedoms in Hong Kong and Taiwan. Once the economic tone had been set for the ‘golden ‘era’, it was liberally pedalled

4 Ibid. 5 https://henryjacksonsociety.org/publications/the-south-china-sea-why-it-matters-to-global-britain/ 6 https://nationalinterest.org/feature/what-china-could-expect-global-britain-29067 7 https://www.telegraph.co.uk/politics/2019/06/10/time-britain-find-spine-finally-start-standing-china/ 8 https://bitterwinter.org/high-tech-repression-of-the-uyghurs/ by senior Conservative ministers. Former Chancellor George Osbourne proclaimed in 2013 that both the UK and China had ‘much in common’, advocating an increased engagement with the CCP pretty much on its own terms. This wider UK government position at this time sought short term economic gain by essentially giving up on collective western efforts to get Beijing to abide by the rules-based global economy, not to mention its record on human rights abuses.

To highlight the impact of the now parochial and economically focused relationship, the immediate period after the announcement of the ‘golden era’ saw a rise in both direct Chinese investments into UK business and overall bilateral trade. In 2017 Chinese investment into the UK totalled £20bn, almost triple on 2016, which was double that of 20159. In 2016, total UK-China trade was worth £59.1bn. Running a trade deficit of £25.5bn, UK imports from China were £42.3bn, whereas UK exports to China were worth £16.8bn10. In a further sign of the one-sided relationship the UK was China's 20th largest source of imports, and its 10th largest market for exports.

By 2018 UK imports and exports to China had both steadily risen; importing £46.2bn worth of Chinese goods and services, whilst exporting £19.4bn11. Again, there was a significant trade deficit of approximately £26.8bn, an increase of £1.3bn since 2016. The inflated economic expectations, certainly from the UK perspective, of the so-called ‘golden era’ hindered a proper assessment of the political threats China may pose to the UK; threats made possible precisely through the insatiable appetite in London for increased Chinese investments into UK industry.

As part of the ‘golden era’ approach to UK-China relations, the UK government have actively encouraged increasing levels of direct Chinese investment into key UK tech, digital, and national energy infrastructure projects. This direct Chinese investment into UK infrastructure has complemented the Chinese position of ensuring the significant trade deficit in the PRC’s favour whilst maintaining the UK’s dependence on Chinese exports, at a detriment to the UK manufacturing base. The months January – August 2019 saw £6.7bn of direct Chinese investment into the UK economy, already higher than the £4.9bn for the whole of 201812. Tighter EU controls and checks on overseas direct investment

9 https://www.aei.org/china-global-investment-tracker/ 10 https://www.bbc.co.uk/news/uk-42821084 11https://wits.worldbank.org/CountryProfile/en/Country/CHN/Year/2018/TradeFlow/EXPIMP/Partner/GBR/Pr oduct/All-Groups were responsible for lower levels of Chinese investment in 2018, but China is still demonstrably aggressively pursuing significant influence within multiple UK industries; namely tech and digital infrastructure.

This was evidenced early in the ‘golden era’ period by the UK’s willingness in 2015 to accept a 33.5% stake in the Hinckley Point C powerplant in Somerset, by the state-owned China General Nuclear Power Group (CGN). The deal, worth £6bn of Chinese investment13, was orchestrated by then- Chancellor George Osborne in an apparent move to establish a string of CGN controlled power plants across the UK14, and announced by David Cameron during Xi’s state visit. Needless to say, allowing an authoritarian regime, branded by the EU Commission as a ‘systemic rival’15, even minority control of a key UK energy infrastructure plant (Hinckley Point C will account for approximately 7% of Britain’s power by 202516) is absolutely not in the national interest. This was validated in 2019 when the US Department of Commerce effectively blacklisted CGN from dealing with US firms, after it emerged that the company, along with three of its subsidiaries “engaged in or enabled efforts to acquire advanced US nuclear technology and material for diversion to military uses in China”17. CGN were determined to “pose a significant risk of being or becoming involved in activities contrary to the national security or foreign policy interests” of the US18.

The Conservative strategy of a ‘golden era’ with China developed further with Boris Johnson’s government from 2019. In July last year Boris Johnson said his government will be very "pro-China", voicing support for the BRI and promising to keep Britain "the most open economy in Europe" for Chinese investments19. This has been represented more broadly within UK infrastructure projects. Even throughout the current Covid crisis, there have been recent developments regarding the potential for significant Chinese investment and control into the recently approved High Speed 2 rail link in the UK. Despite no "concrete commitments" having been made regarding Chinese investment, Boris Johnson had approved the HS2

12 https://www.openaccessgovernment.org/chinese-foreign-investment/80965/ 13 https://www.bbc.co.uk/news/business-34587650 14 https://www.theguardian.com/environment/2015/sep/21/george-osborne-chinese-nuclear-power-station- bradwell-essex 15 https://www.politico.eu/article/eu-slams-china-as-systemic-rival-as-trade-tension-rises/ 16 https://www.theguardian.com/uk-news/2019/sep/25/hinkley-point-nuclear-plant-to-run-29m-over-budget 17 https://www.energylivenews.com/2019/08/16/us-blacklists-chinese-nuclear-firm-involved-in-hinkley-point- c-project/ 18 Ibid. 19 https://www.scmp.com/news/china/diplomacy/article/3019884/pro-china-boris-johnson-enthusiastic- about-belt-and-road-plan scheme in early February 202020. In the light of this, the UK and China have held "preliminary discussions" over giving Beijing's state-owned railway firm, the China Railway Construction Corporation (CRCC), a role in building the high-speed rail line, who claim they can build HS2 much quicker and at a reduced timeframe than current government predictions21 . This comes despite warnings from MP Tom Tugendhat, the chair of the Commons Foreign Affairs Select Committee, that allowing the CRCC a role in HS2 would be “extremely questionable”22.

Perhaps the most damaging of all to UK interests with regards to the ‘golden era’ is the behind the doors influence which Huawei have exerted onto the government regarding its role in the UK’s 5G development. Though confined to periphery or ‘non-intelligent’ parts of the network, the Beijing-controlled firm will still be in charge of antennas, routers, switches, and products at the consumer end including Wi-Fi boxes. In a report released March 2019, the HCSEC Oversight Board, tasked with overseeing the Huawei centre in Banbury, noted that it “continued to identify concerning issues in Huawei’s approach to software development, bringing significantly increased risk to UK operators, which requires ongoing management and mitigation”. The report continues that they can only give “limited assurance that the long-term security risks can be managed in the Huawei equipment currently deployed to the UK”23.

The reality of allowing Huawei even periphery roles in the UK’s 5G network seems to not have considered the fact that the 2017 National Intelligence Law requires Chinese companies to cooperate with China’s intelligence agencies both at home and abroad. The very real impact of what Huawei and the PRC can have upon UK digital infrastructure is demonstrated daily by Huawei’s implicit implication in the Uighur concentration camps, and the widespread use of AI in the mass surveillance of the Xinjiang population. The UK government’s Huawei decision has also caused significant disturbance and distrust between the UK’s closest intelligence-sharing partners, the so-called ‘Five Eyes’ community, and in particular the US24. This was highlighted in February 2020 when Mick Mulvaney, the acting chief of staff to President Trump, warned British officials of a "direct and dramatic impact" on intelligence

20 https://www.bbc.co.uk/news/business-51512831 21 Ibid. 22 https://www.theguardian.com/uk-news/2020/feb/14/uk-holds-preliminary-discussions-with-china-over- building-hs2 23https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/790270 /HCSEC_OversightBoardReport-2019.pdf 24 https://www.telegraph.co.uk/politics/2020/03/04/uk-risks-plunging-five-eyes-alliance-crisis/ sharing with the US following the UK decision25. The US sentiment was echoed by in the same month by Mike Pence, the US vice president, who warned that the Huawei decision could jeopardise a post-Brexit trade deal with the US, saying that it "remains a real issue between our two countries"26.

In a positive move which should be encouraged, a group of senior Conservative MPs including Iain Duncan Smith, David Davis and Owen Paterson, have been formed to urge the government to change its approach. The MPs have called for "high-risk" vendors to be ruled out. Mr Duncan Smith stated how: "The UK needs to stand shoulder to shoulder with its allies. China is not an ally... nor are they a friend on security. For the past two decades, we have cosied up to China in a way that is becoming an embarrassment.27". Chinese diplomats have threatened economic retaliation against Germany and Denmark if they exclude Huawei in their 5G networks, whilst Liu Xiaoming, China's Ambassador, has openly stated that future investment could be at risk.

China’s strategic approach

1. What are the implications of China’s pursuit of major international strategic initiatives (such as the Belt and Road Initiative) for the UK’s foreign, development and security interests? 2. How and in what ways does China use its economic strength as a foreign policy tool? How should the UK respond to this approach?

The Belt and Road Initiative (BRI) fundamentally promotes Chinese-led alternative financial institutions, and is a prime exemplar of Beijing’s strategy for changing or reinterpreting (parts of) the international order by integrating it. BRI is marketed as an initiative which ‘is in line with the purposes and principles of the UN [United Nations] charter’, and has goals that are congruent with the UN sustainable development goals of 203028.

25 https://www.telegraph.co.uk/politics/2020/02/19/huawei-decision-will-have-dramatic-impact-us-ability- share-security/ 26 https://www.telegraph.co.uk/politics/2020/02/19/huawei-decision-will-have-dramatic-impact-us-ability- share-security/ 27 https://www.telegraph.co.uk/politics/2020/02/07/senior-tories-form-group-dubbed-wolverines-oppose- huawei-call/ 28 Ministry of Foreign Affairs and Ministry of Commerce of the People’s Republic of China, “Vision and Actions on Jointly Building.” Chinese official rhetoric associates BRI with promoting global economic development and cooperation. This is the part about BRI which portrays China as supporting and integrating the international order. Yet BRI is also highly Sino-centric, seeking to diffuse alternative norms and practices.

Beijing’s strategy is one that simultaneously supports and integrates the international order whilst also changing parts of that order which do not match its normative preferences. Where other scholars have argued either that China is a revisionist (typically an offensive realist perspective) or a status quo power which does not seek to alternate the existing order, in fact China is doing both at the same time, and BRI demonstrates how this works. BRI is an example of not only Beijing’s capacity to generate new norms (in international development, mainly) but also its ability to socialise and subsequently persuade other actors to internalise China’s alternatives.

Supporting continuity in the current order is one necessary step for advancing alternatives to parts of the system that are not satisfactory. In other words, for China to be accepted as a producer of norms, it must be perceived as a responsible international power, and integrating the existing international order is a pre-requisite for being perceived as a responsible power. It is indeed through assimilating existing norms that China can gain the legitimacy it needs to become a successful agenda- setting actor and persuade/attract other actors to integrate its norms and values. The utility of contributing to existing norms and institutions is that the legitimacy gained from participating in international affairs as a responsible actor facilitates Beijing’s strategy of introducing alternative norms which will be accepted by other developing states.

Chinese foreign policy is following two strategies simultaneously: actively supporting the international order to gain experience and legitimacy as a responsible power, and promoting Chinese-centred initiatives primarily in developing countries but elsewhere as well. These two parallel strategies echo Beijing’s dual performance: as a developing country and as a major power, both at once.

Chinese foreign policy is uniquely positioned to shift between two distinct roles: the role of a great power which portrays itself as a new type of great power, and another which draws on the lingering domestic (under)development issues to identify with developing nations as their peer. A practical example of this distinctive dual performance of China is instantiated in the Belt and Road Initiative. A massive global development initiative such as the BRI has impacts on the international order.

What exactly can we infer from this? In part, the answer is that China, via the BRI, is engaging in a dialectic relationship with the international order composed of both defending the existing order and seeking to change it at the same time. A China-centred norm is that development and economic growth are the foundation to achieving peace and security. This view differs from the neoliberal order that takes governance practices and democratisation as necessary conditions for the success of international development and security. In dealing with BRI member states, the issuing of loans, grants and infrastructure projects, China seeks no pre-conditions or favourable governance models, as the West does. This hinders the neoliberal order’s ability and agency to further democratise developing states, promoting human rights, civil liberties and personal freedoms; all of which are under threat in China and which the CCP does not seek itself to promote using the BRI as a pre-cursor to shaping global governance models and furthering human rights etc.

BRI is projecting a Sino-centred global order whose norms and values are diffused through people-to-people exchanges, trade and technology transfers, and one in which directly challenges the neoliberal order which champions democratisation and human rights as a precursor to development and security. President Xi told a major forum held in Beijing in May 2017 that; ‘mutual learning will replace clashes, and coexistence will replace a sense of superiority’29, adding that the BRI will help build ‘a new era of harmony and trade’.30 This can be viewed as a defining moment when China became a norm maker.

The role that the BRI has in Chinese strategy has been exposed by the Covid pandemic to have several concerning issues at play. These issues have been illuminated by the role of the debt diplomacy which China manipulates in constituent BRI member states, and the question of debt relief for these developing nations, in light of the economic situation due to the ongoing Covid emergency. In April 2020, the Group of 20 nations, which include China, announced it would freeze all debt payments for the world's poorest countries until the end of the year. The deal is open to the world’s least-developed states, as defined by the World Bank and the UN, as long as they are current in their debt service payments to the World Bank and the IMF.31 However, Song Wei, a Chinese Commerce Ministry

29 Xinhua, ‘Full text of President Xi Jingping’s speech at opening of Belt and Road Forum’, 14 May 2017. 30 Rani Sankar Bosu, ‘BRI will bring China and ASEAN closer’, China.org.cn, 22 May 2017. official, wrote in the Global Times that preferential loans from the Export- Import Bank of China are "not applicable for debt relief". The Export- Import Bank of China is the BRI’s major investor, financing more than 1,800 projects worth at least US$149 billion.32 This demonstrates how China continues to prioritise bilateral relations with weaker states over multilateral dialogue and international cooperation, whereby the prospect of a zero-sum outcome is much diminished. In addition, it displays how China is willing to continue to utilise debt diplomacy in order to achieve its strategic goals.

Funding the majority of the 2.951 BRI-linked projects is the AIIB; a multilateral development bank which seeks to promote and finance infrastructure projects across the Indo-Pacific region. According to an ADB study conducted in 2018, the Indo-Pacific region requires some US$1.7trn a year until 2020 to invest in infrastructure just to support growth; by 2019 that spending was roughly US$900 per year.33 The AIIB, or rather, more accurately, the CCP, seeks to bridge this gap in infrastructure spending. Whereas the US and Japan refused to join the organisation, seeing it as essentially a geopolitical means of fulfilling China’s strategic BRI, the UK did, in addition to France, Germany, Italy, South Korea, Australia and India. In the AIIB, the UK’s US$3,054.7 million subscription gives it 2.9% voting powers; overshadowed by China’s US$29,780.4 million subscription and 26.6% voting powers.34 In this China-led framework, it is difficult to see how the UK’s national interests are fulfilled, with so-far very little evidence of it benefiting UK businesses.

However, rather than act as a multilateral development bank (MBD) along similar lines as the World Bank and the IMF, China expects not just a higher degree of influence in this institution, but over-riding control and veto power in many areas of the bank’s operations. These veto powers include; expanding the operations of the bank; changing the size of the board of directors; changing the structure of the board; appointing or removing the president; suspending a member; terminating the bank and distributing its assets; and amending the Articles. Significantly, these powers include many means by which members could attempt to change or alter structural and governance aspects of the bank, currently weighted in China’s favour. China’s voting power in the AIIB, approximately 26%

31 https://www.reuters.com/article/us-health-coronavirus-g20-statement/g20-countries-agree-debt-freeze- for-worlds-poorest-countries-idUSKCN21X29A 32 https://www.straitstimes.com/opinion/china-lent-billions-to-poor-countries-they-cant-pay-it-back 33 https://www.ifre.com/story/1502657/ifr-asia-asian-development-bank-roundtable-2018-part-1-9gvr3fdg1g 34 https://henryjacksonsociety.org/wp-content/uploads/2019/04/HJS-Infrastructure-Ideas-and-Strategy-in- Indo-Pacific-web.pdf which overrides a 75% majority vote, is significantly larger than the United States’ 15.02 percent voting share in the World Bank and Japan’s 12.84 per cent voting share in the ADB. In particular, China has more control over the appointment of the President of the AIIB than the US has in the World Bank and Japan in the ADB.35

In addition to the control and veto power which China has over the AIIB, superseding every other member state, there are important concerns regarding the bank’s internal governance arrangements, and whether these provide acceptable checks on Beijing’s power. Similar to other MDBs, the AIIB has a three-layer governance structure involving a Board of Governors, a 12-member Board of Directors and management. The most distinguishing aspect, is the concerning absence of a fulltime, resident board of directors. In contrast to the AIIB, the World Bank and IMF were established with full-time, resident executive boards, which act as a political check on every decision. Most of the subsequent multilateral institutions have followed the Bretton Woods model with full-time boards. Prospective members of the AIIB who had doubts over its governance arrangements and feared it would largely be a vehicle for promoting China’s interests would have supported a fulltime resident board for the same reasons the US insisted on full time boards in the World Bank and IMF, namely to be a political check on every decision taken.

Despite the rhetoric from the AIIB’s former Chinese Financial Ministry President Jin Liqun, proclaiming environmental concerns will be first and foremost amongst policy considerations regarding the AIIB’s projects, this has already proven to be untrue. AT the 2017 annual meeting Jin stated that the AIIB “will not consider any proposals if we are concerned about their environmental and reputational impact”, and proudly proclaimed that “there are no coal projects in our pipeline”.36 However, a report by Bank Information Center Europe and Inclusive Development International in 2018 revealed that the AIIB backed the IFC Emerging Asia Fund (EAF), which subsequently bought equity in Shwe Taung Cement for an expansion of a cement plant in Myanmar. The investment increased production significantly, as well as more than double the output from a coal mine that supplies the plant exclusively. The EAF also invests in Singapore’s Summit Power International, which operates 13 power plants in Bangladesh, all of them run on fossil fuels, with no renewable energy

35 Callaghan, M. and Hubbard, P., 2016. The Asian infrastructure investment bank: Multilateralism on the silk road. China Economic Journal, 9(2), pp.116-139.

36 https://www.aiib.org/en/news-events/media-center/news/index.html visible in the pipeline.37 With a view to the previously mentioned concerns regarding a lack of internal checks and balances on decisions, a permanent resident executive board at the AIIB could have intervened on this matter, ensuring that the AIIB commits to its promises held regarding not investing into fossil fuels. This is merely one instance in governance oversight, only 18 months after the operationalisation of the AIIB in late 2015.

What Beijing has done with the AIIB is not so much create an institution which allows rising economies like China a greater say in MDBs, but to supersede the level of control which the US, Europe and Japan have traditionally exercised in existing international financial institutions. By commanding a veto power which limits member states’ ability to restructure the governance of the AIIB, in particular both the lack of a permanent executive branch to oversee policy oversight and choosing the leadership, the CCP has managed to export its authoritarian model of governance into an international organisation designed to further promote and fulfil Chinese geostrategy. The concern that AIIB funds would be used to pursue Chinese strategic objectives was a majority reason for Australia’s Foreign Minister arguing against Australia’s early participation in the institution.38 Likewise, there has been considerable push-back from both Washington and Tokyo. The western fear that the AIIB will rival the World Bank and IMF in the coming decade is a very possibility. With the lack of accountability in the internal governance structure and the lack of policy oversight both already witnessed at the AIIB, it is evident that far from being a true multilateral institution committed to a common objective, it is in fact a vehicle for China to advance its own unilateral strategic objectives across Eurasia; the BRI.

Conclusions and Recommendations

The recent Integrated Review goes some way in correctly identifying the threat posed by China to the UK’s economic security, and subsequently, its classification as a systemic competitor. However, given the role in which China has on the global stage, and its use of deeply undemocratic means to achieve its long-term strategic desire for hegemony, it must now be more accurately referred to as a ‘strategic threat’. In light of this, the following recommendations are made for the UK government to

37 https://www.re-course.org/wp-content/uploads/2018/06/Moving-beyond-rhetoric-FINAL-0618.pdf 38 Division Over Bank,' The Conversation, October 19, 2014). consider, in order to mitigate against the challenges posed throughout this evidence.

 The UK must seek to work much more closely with its Five Eyes partners regarding any future Chinese investment into the UK economy, and in particular into any aspect of supply chains or national infrastructure – both of which is strongly discouraged in the highest possible tone.  Despite having invested $50m into the AIIB by March 2021, it is for these reasons that the UK government ought to readdress as a matter of urgency its continued commitment to a banking system at the mercy of the Beijing government, and used to facilitate developing nations’ debt diplomacy and increased reliance on a malign CCP.  Furthermore, the UK should begin working in a much more coordinated fashion with democratic allies in the provision of infrastructural aid and spending as a means to challenge China’s growing use of development spending to further entrap poor nations. This includes the UK government recommitting to ensuring 0.7% GDP on ODA spending as soon as is possible. This money should be better prioritised for infrastructure spending, grants and awards for poorer countries attracted to cheap Chinese investment. Attaching conditions designed to prevent the entrenchment of Chinese debt diplomacy should be central to this approach of offering an alternative to Chinese investment.  In addition, as part of this growing engagement with democratic partners across the Indo-Pacific region, the UK should ensure the creation of a proposed ‘D10’. The D10 alliance would include the G7 countries (Japan, Italy, Germany, France, the UK, US, and Canada), in addition to India, South Korea and Australia. This bloc would make up some the world’s largest democracies, plus some of the globe’s leading technology markets, and can develop competing digital infrastructure to that offered by Beijing, and help make global technology standards more robust to Chinese practices also.

Received 24 March 2021