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THE PANGOAL REPORT
Apr 17, 2019
“One Belt One Road” and the Opportunities It Could Bring to the UK
“One Belt One Road” and the Opportunities It Could Bring to the UK

Yu Xiong, Academic Committee Member

of the Pangoal Institution

Jiamin Liang, doctor of Newcastle Business School

of Northumbria University



In recent years, China-UK relationship remains “Golden”. As the first Europe member who joined the Asian Infrastructure Investment Bank (AIIB), Britain is trying to strengthen China-UK cooperation among all the aspects to evolve the “Golden Era”. Since Britain officially triggered Article 50 on March 29, 2016, Britain must find replacement markets in order to overcome the possible economic and political barriers after the Completion of the entire process, which makes China an essential partner in the background. This report offers the discussions and suggestions in the China-UK cooperation under the implementation of two policies – One Belt One Road (OBOR) and Northern Powerhouse. This report also discusses the strategic background, the actual process, the uncertainties for China-UK OBOR collaboration and the potential opportunities.

Introduction

Background

Since the 2008 economic crisis, China has become one of two major engines of global economic recovery together with US. In fact, the nation has enjoyed 30 years of growing economic strength in an increasingly stable surrounding environment. As a consequence of its rapid post-recession growth, however, China has gradually begun experiencing such problems as excess capacity and excess foreign exchange assets, which have pushed its economic model into a ‘bottleneck’ requiring urgent action. To this end, on a September 3, 2013, visit to Kazakhstan’s Nazarbayev University, President Xi Jinping proposed the building of a ‘Silk Road Economic Zone’, which could help to release excess capacity, promote capital outflow, and internationalize the RMB. In a subsequent congressional speech in Indonesia during October that same year, the president unveiled his additional plan for a ‘21st Century Maritime Silk Road’. Hence, in March 2015, China’s National Development and Reform Commission, Ministry of Foreign Affairs, and Ministry of Commerce officially announced the vision and actions for the ‘Joint Building of a Silk Road Economic Belt and 21st Century Maritime Silk Road’ with State Council authorization. For convenience, the name of this initiative is commonly shortened to ‘One Belt, One Road’ or OBOR.


This new strategic concept of OBOR, designed to leverage transnational economic regions, is founded on both historical and cultural considerations, as well as current conditions. Aimed primarily at building an efficient regional platform for collaboration, the concept is rooted in the establishment of a modern Silk Road across a network of countries with which China will form close economic partnerships. The currently planned route passes through Central Asia, Southeast Asia, South Asia, West Asia and parts of Europe, encompassing a total population of about 4.4 billion and a total economy of about $21 trillion, mostly in emerging economies and developing countries. Once implemented, OBOR will not only solve the excess capacity problem, promote China’s industrial transformation, and further develop its western region but will also serve as a bilateral mechanism of mutual benefits shared by the community of participating countries. The initiative will address the reciprocal interests of this community through a series of effective programs to promote economic development and provide a broader equal market and investment platform.


Geographical Scope

The original Silk Road, so named by German traveler, geographer and scientist Baron von Richthofen (5 May 1833 – 6 October 1905), was a centuries old trade route connecting East and West. China’s modern silk road concept aims to achieve comprehensive and complete integration using both land and sea trade connections, embodied in OBOR by the Silk Road Economic Belt and the 21st Century Maritime Silk Road. The economic belt, whose core area will be China’s western part, will build a logistics chain, the Eurasian Continental Bridge, by establishing a national economic corridor of multiple connections across the emerging economies of Mongolia, Russia, Central Asia, and Southeast Asia, all the way to Western Europe. The main Chinese provinces involved will be XinJiang, QingHai, GanSu, ShanXi, NingXia, ChongQing, SiChuan, GuangXi, YunNan and NeiMengGu. The maritime route, whose core area will be FuJian with involvement by JiangSu, ZheJiang, FuJian, GuangDong, HaiNan and ShanDong, will connect the three continents of Europe, Asia and Africa.


the route of One Belt One Road (The Daily Star, 2014)


Strategic Implications

The principles underlying OBOR are an insistence on harmonious and inclusive relationships, respect for all the different modes employed by the different participating countries and adherence to market operation practices, each of which has distinct creative advantages compared to other multilateral free trade agreements. These advantages are highlighted below through a comparison with the Trans-Pacific Partnership (TPP):


Whereas TPP aims to enhance economic growth by reducing tariff barriers and lowering non-tariff barriers, OBOR’s goal is to create a healthy, sustainable environment by establishing an effective logistics chain through infrastructure construction.


Whereas TPP is a partnership of only 12 countries (Australia, Brunei, Canada, the U.S., Chile, Japan, Malaysia, Mexico, Vietnam, New Zealand, Peru and Singapore), with the U.S. set to leave on 23 January 2017, OBOR will strive to maximize the effective use of resource allocation by encouraging the participation of all countries in (but not limited to) the geographic area of the ancient Silk Road.


Because the TPP focuses primarily on the implementation of labour and environmental standards, the setting up of new global trade standards, and the protection of intellectual property, plus a few features to achieve regional (Donnan, 2015), its new trade market will be similar to the EU. It will thus undermine the competitive advantage of emerging economies, most of which have not signed on to TPP. The TPP has been made even more unstable by the U.S. intention to quit it. OBOR, in contrast, because it is more practical and offers substantial infrastructure support to emerging economies, will create a healthy and stable global market rather than a limited regional agreement.


Although many researchers have pointed to a likelihood that, based on previous experience, the U.S. may eventually negotiate to rejoin the TPP, public trust in both the TPP and the U.S., as well as expectations of TPP effectiveness, has declined since the U.S. decision to leave. Hence, OBOR, as a stable and open mechanism, is likely to become an effective key engine to global economic growth.


OBOR can serve as an effective platform for relieving such overcapacity and laying the groundwork for the industrial transition. In particular, the initiative has the following goals:


(a) Implementing OBOR will solve several of China’s current economic problems, including the need, propounded by numerous economists and researchers, to transform its industrial and economic structure from the current investment-led economic growth model to a domestic consumption-driven economy and a stage of innovation-led growth(Canton, 2015, Woetzel& Cheng, 2012, Zhang, 2014). China has already shown its determination to make this transition by establishing a series of policy measures to enhance self-dependent innovation capabilities and facilitate the economic transition of a shift from extensive to intensive growth (embodied in the State Council’s 2015 Opinions on Several Policies and Measures for Vigorously Advancing Popular Entrepreneurship and Innovation). This transition will involve the reining in of the tendency to overcapacity in some traditional industries and reform of the industry structure from manufacturing to service.


bTo better promote RMB internationalization. For years, a frequent trade surplus has led to excess foreign exchange reserves, leading to constant increases in RMB prices and an undue influence over foreign trade policy. Although China still occupies first place by owning 30% of the foreign exchange reserves globally, the only way to ensure the safety of these reserves is to speed up the process of RMB internationalization. To this end, in 2013, an Asian Infrastructure Investment Bank (AIIB) was proposed that was officially established in 2015. RMB internationalization has been further supported by BRICS’ founding of the New Development Bank (NDB) and China’s setting up of RMB offshore Clearing Banks (Huang, 2016). Not only will OBOR inevitably turn China into a net capital exporter, but its implementation will be greatly facilitated by the more open liberalization of the capital market and the hedging of exchange rate risks during the implementation process (Zhang, 2014).


cTo better safeguard national security. Because China relies heavily on imported resources such as oil and gas, it must search for a constant and stable importation mode. Western Asia and AESAN are rich in energy resources, with the former being China’s largest provider of crude oil (State Council Information Office PRC, 2017). By implementing OBOR, China can build a long-term stable partnership with AESAN and the emerging economies of West Asia, achieving a win-win situation through highly matched needs. This cooperation could also lead to better development of the marine economy and ensure safety on the seas for ASEAN countries.


Progress and Status

Since the OBOR concept was first proposed in 2013, China has been actively promoting strategies for its actual implementation and has already achieved the following substantial breakthroughs:


· According to RDCY data, by June 30, 2016, China had signed a free trade agreement (FTA) with 11 countries and a bilateral investment treaty (BIT) with 56 countries and had issued joint statements about OBOR.


· Under OBOR, China has tendered 38 large scale transportation infrastructure projects related to partnerships with 26 countries and over 3,000 contracted projects. It has also seen more than 40 major energy projects put into operation involving 19 countries. In the area of telecommunication network construction, China Telecom has actively engaged in OBOR by building its Global Information High Speed Rail, involving 116 operators and 97 equipment manufacturers, with 30 countries having opened a total of 52 TD-LTE commercial networks, and a further 83 networks deployed in 55 countries.


· In terms of foreign trade, under OBOR, China has constructed 52 economic and trade cooperation zones in 18 countries, 13 of them assessed at $15.6 billion total investment. According to data collected since OBOR implementation in June 2016, the total amount of China’s goods trade with countries along the OBOR routes reached $3.1 trillion, accounting for 26% of its total foreign trade. During the same period, China's total investment in OBOR reached $51.1 billion, accounting for 12% of total foreign direct investment. Between June 2013 and June 2016, China also signed $9.41 billion worth of outsourcing service contracts with OBOR countries, a 33.5% increase over 2013.


· As regards construction funding, as of January 2015, China has already set up RMB clearing banks in seven countries in the OBOR network (hereafter, OBOR countries), since when the total amount of its cross-border RMB settlement has been more than 2.63 trillion yuan (Phoenix Finance, 2015). On April 21,2016, the NDB announced a first batch of $811 million loan projects, and on June 25 the same year, AIIB approved a $509 million loan for four initial projects.


In his opening speech at the May 14, 2017, Belt and Road Forum for International Cooperation (BRFIC) in Beijing, Xi Jinping promoted the forum as an international event at which participating countries could share the fruits of mutually beneficial cooperation. He also described it as an important platform for strengthening international cooperation and docking with each other's development strategy. After the meeting, the International Cooperation Summit published a summary of the forum results on its official web site that included a series of cooperation consensuses, important initiatives, and pragmatic outcomes. Although this summary covers a total of 76 major items and 270 specific results, it classifies them into five main categories: policy communication, facilities unicom, trade flow, capital intermediation, and cultural communication. British Prime Minister’s Special Envoy and Minister of Finance Hammond attended the forum and brought Premier Li Keqiang a letter signed by British Prime Minister Teresa May. Hammond said that Britain is committed to developing a comprehensive strategic partnership between itself and China, and is willing to maintain high-level exchanges between the two countries to further strengthen bilateral trade and investment cooperation and close communication and coordination in international affairs. Li Keqiang replied that China is willing to consolidate mutual trust with the British; implement cooperation on nuclear power, finance, and other key areas; create new cooperation highlights; and raise China-UK relations and cooperation to a new level.


UK Public Attitudes to OBOR

The prevailing attitude of the UK public to OBOR is soundly positive, with the UK becoming the first major Western country to join the Asian Infrastructure Investment Bank (AIIB) on March 12, 2015. The UK, therefore, faced with predictions about the world economic situation and the urgent need to recover from economic recession, has ignored U.S. attempts to keep Western countries from partnership with China because of wariness “about a trend toward constant accommodation of China, which is not the best way to engage a rising power”. The UK has also been working to build and strengthen an active constant cooperation with China on a number of aspects and has proposed combining OBOR with its own Northern Powerhouse project. By doing so, it would be leveraging the present ‘golden era of relations’ with China to seek deeper and profound opportunities between the two countries.


China’s response has also been positive and passionate, meaning that the dialogue at all levels in various fields has greatly promoted China-UK cooperation. The success of such practical cooperation has in turn engendered a more in-depth and positive dialogue, thereby creating a healthy and stable atmosphere. In fact, according to James Sassoon, chairman of the China-Britain Business Council (CBBC) and Conservative member of the House of Lords, Britain’s contribution to OBOR, rather than being limited to law and financial services, may well be extended into long-term cooperation in third-country markets as well as a range of other industries, including manufacturing, agriculture, food processing, technology and education, health care and retail and logistics.


Even Theresa May, who before becoming Prime Minister questioned George Osborne's enthusiasm for China, has changed her attitude significantly on assuming the premiership and embarking on Brexit and has recognized the benefits that cooperation with China could bring to the UK. In a recent interview, for example, she asserted that the change in UK Prime Minister would not affect the ‘golden age’ of China-UK relations. Likewise, in her other interviews, Teresa May specifically pointed out and expressed gratitude that China had invested far more in the UK than any European country. She has thus confirmed her attendance at the OBOR forum in May.


OBOR as the New Platform of China-UK Industrial Cooperation

There is no doubt that China needs to find a developed country as its long-term partner to accelerate RMB internationalization, encourage self-innovation and speed up the transition of its economy. The UK, as China’s largest investment destination in Europe, has already entered a golden relationship era with China through rapid economic and trade cooperation. There are two important reasons for China to show enthusiasm for this relation: the perfect match of industry demands between the two countries and China’s wish to open the gate of cooperation with other European countries through its relationship with the UK. If the UK becomes a member of the AIIB, it will greatly accelerate RMB internationalization, which will also be affected by Brexit but partly in the form of greater opportunities.


Whatever the Brexit outcome, China-UK cooperation will remain essential and unchangeable given the series of reports already released by the British government to achieve a comprehensive analysis and discuss potential approaches to this cooperation. Given the unique advantages of each nation, as well as the existing forms of cooperation, China-UK cooperation will create greater opportunities and bring greater benefits by strengthening the existing bilateral cooperation and seeking out new cooperation opportunities in third countries.


Northern Powerhouse

Strategic Background

Northern Powerhouse is a national industrial strategy, put forward in 2014 by former Chancellor George Osborne and supported by Theresa May, which aims to boost economic growth in the North of England by promoting administrative reform and infrastructure construction and attracting investment in science and technology.  The overall aim is to make ‘a second London’ of major cities in the three Northern regions covered: North East England (Northumberland, County Durham, Tyne and Wear and the Tees Valley), North West England (Cheshire, Cumbria, Greater Manchester, Lancashire and Merseyside, and Yorkshire and the Humber (most of Yorkshire, North Lincolnshire and North East Lincolnshire). Eight of the key cities in this area are already members of the Core Cities Group formed in 1995: Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle, Nottingham, Sheffield.


Strategy Implementation

To fund its goal of encouraging, developing and promoting economic growth while also improving transportation, the Northern Powerhouse initiative draws on two financial resources: government funding and private investment. As regards the first, on November 23, 2016, the UK government published the Northern Powerhouse Strategy policy paper, which details the extent of government support for the project and the four major aspects this support will cover; namely, connectivity, skills, enterprise and innovation, and trade and investment. In promoting these areas, the government will engage with such local partners as local authorities, local enterprise partnerships (LEP), and local businesses.


To promote private investment, the UK government-owned British Business Bank, together with LEPs, has established the Northern Powerhouse Investment Fund (NPIF), which will provide up to £400m for micro, business and equity financing. Officially launched in Manchester on February 22, 2017, the fund will be operated by LEPs and growth hubs, together with local accountants, fund managers and banks, with the goal of assisting SMEs at all stages of their development. In addition to financing from the UK government, the fund also receives support from the European Regional Development Fund (ERDF) and the European Investment Bank (EIB), which still could not confirm how much influence Brexit would have on their funding plan.


In addition to funds for economic development, the British government is committed to allocating £150 billion for health care in the northern regionover the next four years, as well as £45 billion for upgrading university education facilities, £13 billion for building a northern rail transport hub, and £2.7 billion for constructing northeast highways between cities. It will also allot £50 billion for constructing the High Speed 2 (HS2) railway linking Birmingham (as the Northern centre) with London, the East Midlands, Leeds and Manchester. Other investments include £200 million for the Manchester New Materials Institute; £130 million for the Warrington Computer Research and Development Centre; £78 million for the Manchester factory, theatre and exhibition centre; and £20 million for the Newcastle Aged Medical Research Centre. The first pilot city for the gradual decentralization of power will be Manchester, which will become the first city not in the London area to be managed by a directly elected mayor. The first mayoral election will be held in 2017, after which the mayor will take control of billions of pounds of public funds with great freedom to use them for city construction and development.


According to the briefing note made by Civil Engineering Contractors Association (CECA), George Osborne announced that the UK government will use a total of £300 million to support Northern Powerhouse through a series of proposals linked to the Transport for the North (TfN) for Northern Transport Strategy, which covers all transportation in Northern England, including highways, railways and ports. Northern enterprise investment projects will thus cover harbours, airports, railways, marine engineering and organic energy, as well as myriad other fields.


Northern Powerhouse Transportation Investment Blueprint (Department for Transport et al., 2015)


To date, corporations have invested £1.11 billion in the Humber, £1.27 billion in Liverpool, £1.8 billion in Greater Manchester, £232 million in the North East of England, and £800 million in Sheffield. Interestingly, however, some researchers have argued that North East England is more likely than the other regions to be ‘abandoned’, prompting BBC News to make a comparative chart of the exact funding to these three major investment areas:


Region

Total Infrastructure Spending

Number of Projects

Spending/person



North West

£41.4bn

88

£5,771



North East

£5.9bn

27

£2,230



Yorkshire and The

Humber

£9.0bn

29

£1,684


Northern Powerhouse Infrastructure spending


Obviously, there is still much room for investment in North East England’s infrastructure, especially given that although the planned HS2 will link London, Birmingham, the East Midlands, Leeds and Manchester, there is as yet no clear plan for a high-speed railway to link Newcastle, the largest city in the north, with the other cities. The total number of investment projects in North East England is also far lower than for North West England. Hence, although North West England admittedly has a relatively higher number of key cities, the data show a huge potential for additional investment in the North East.


UK Access to OBOR Participation

During President Xi’s 2015 visit to the UK, five main OBOR-related initiatives were proposed: policy coordination, facilities connectivity, unimpeded trade, financial integration and a people-to-people bond. The specific areas and modes of possible UK-China cooperation can be broadly classified into four main types: infrastructure projects, services, cultural industries and marine industries.


As regards key infrastructure construction, the 2016 approval of the Hinkley Point C nuclear power station project together with China’s strong will to back the UK’s HS2 railway project represents a first collaborative step. The challenge now is to deepen this cooperation in the most effective manner possible. For example, to construct its OBOR networks, China must set up financial service platforms in all participating countries and gradually establish a legal security system. However, because of the UK’s leading position in international financing, law, consulting and service industries, most OBOR countries use British and U.S. common law rather than the civil law employed in China. This reality increases China’s need for British support and cooperation in the establishment of the OBOR legal protection system, especially given the magnitude of the potential and space for UK-China cooperation in these fields.


In the area of culture, given Britain’s strong and diverse educational, film and television, and media industries, if China and Britain can implement talent exchange programs, it will promote Chinese innovation in these fields. In particular, OBOR will provide an excellent opportunity for boosting UK-China cooperation in the film, television, and media industries, which to date has been minimal. Increased collaboration in the cultural industries could also improve mutual understanding between the Chinese and British people, which would benefit cooperation in other fields.


Likewise, in establishing its 21st Century Maritime Silk Road, China would benefit from the UK’s world-class expertise in marine sciences and technology research and development; in particular, as regards marine economic development, marine energy use and international shipping rules, all of which China lacks but urgently needs. If China and the UK can strengthen cooperation in these areas, it would greatly benefit construction of the OBOR maritime connections.


The specific modes of cooperation between China and Britain can be divided into three major forms dependent on the different destinations of project implementation .


The first mode relates to UK-based projects such as the China-UK high-speed rail project and UK scientific and technological innovation projects in which Chinese companies are participating directly. These latter include Cocoon Networks’ efforts to set up a technology incubator in London that will be the largest single incubator in the area and the largest innovation centre in Europe. This incubator will also be the first China-funded centre in Europe for nurturing scientific and technological start-up enterprises and facilitating technology transfer.


The second mode refers to China-based science and technology projects for which effective talent exchange is indispensable to successful innovation. China can enhance the overall quality of its local talent by directly importing British science and technology projects and university education projects and localizing British higher education.


The third mode concerns projects based in third-party markets in which the UK could cooperate with China on infrastructure, energy use and marine safety while also providing legal advice and financial services. For example, the British Petroleum and Natural Gas Company (BP) has provided consulting services for PetroChina's projects in Iraq and CNOOC's projects in Indonesia, while the UK law office Linklaters has offered legal services for financing China's coal-electricity integration project in Pakistan.


Uncertainties for China-UK OBOR Collaboration

Concerns about China’s Investment Capabilities and Methods

As China’s largest contemporary project – one involving numerous related countries, regions, peoples and markets – OBOR has prompted many questions about China’s capability to successfully operate the project and the methods it will use to accomplish its goals. For example, a 2017 report by Fitch Ratings, one of the U.S.’s Big Three nationally recognized statistical rating organizations (NRSRO), claimed that China’s plan to invest hundreds of millions of dollars in emerging markets may bring benefits for China but may create new asset quality problems. Such loan problems, however, ‘may take a long time to emerge, as China’s policy banks that are most heavily involved in OBOR often offer very generous grace and repayment periods and disclosure is generally poor compared with commercial banks and non-Chinese development banks’.


The suspicions of traditional financial investment banks and rating agencies have also been raised by China’s plan to build harbours, highways and railways in less developed Eurasian and African countries as the first attempt under OBOR to stimulate global economic growth. Fitch Ratings, for example, has claimed that the total cost of OBOR projects will exceed $900 billion, most from policy banks and large commercial banks. One problem with financing is that Chinese banks, unlike experienced international commercial banks and multilateral lenders, find it difficult to identify the most beneficial, quality projects so as to better manage risk. Fitch Ratings also questioned that some counties involved in OBOR have speculation suspects to use investment to relieve and whitewash their tight domestic public financial situation.


These voices of doubt, however, reflect the viewpoints of historically capitalist countries, which still tend to offer China few opportunities to participate in international investment and construction despite its now being ‘the world’s second economic engine’. This reluctance itself creates concerns, even among OBOR countries, about China’s capability to actually execute projects. The traditional economic powers also fail to fully understand – and are suspicious of – China’s goodwill and feeling of responsibility to assist third-world countries and emerging economies develop and succeed economically.


Faced with these questions, China’s only recourse is to prove its own decision-making capacity through regional successes and efficient practical achievements under OBOR. Developing countries involved in OBOR should also show their own determination to develop themselves rather than relying on China’s funds without long-term plans. The economic development, market expansion and increased employment that will occur in these participating nations will be direct proof of OBOR’s significance and China’s foresight as its initiator.


Concerns about China’s Growing Influence

The Counterterrorism Law of the People's Republic of China, issued and enacted on January 2016, codifies the Chinese military’s right to set up bases overseas and thus enables China’s more active participation in military operations abroad. This law is therefore of great significance for OBOR implementation in that projects in unstable areas will inevitably test China's ability to avoid overseas conflicts. In Pakistan, for example, the government has deployed 10,000 soldiers to protect projects in which China has invested, while in Afghanistan, a China-funded copper project is protected by the U.S. military, an arrangement that will eventually become unsustainable. China’s best solution for protecting OBOR projects overseas, therefore, would be to send its own armed forces to furnish protection.


Nevertheless, any overseas military action by China may lead some countries to overestimate OBOR’s political and national security threat. As a result, the ‘China threat theory’ has resurfaced and become the focus of debate and doubts about OBOR’s sstrategic purposes. For instance, in a Financial Times interview, a former US official suggested that the Chinese military may hope to garner political and financial support from OBOR based on claims from senior generals in the People’s Liberation Army that OBOR would be a security investment.


Another OBOR analysis, which examined China’s 21st Century Maritime Silk Road Initiative (MSRI) as a political strategy, questioned China’s ultimate goal in constructing harbours in Sri Lanka, Bangladesh, Pakistan and other countries. The analysts suspected that these harbour projects were intended to provide financing for the build-up of secret overseas warship bases and prepare for the establishment of a ‘string of pearls’ type double-directional naval logistics line in the Indian ocean.


Such continued doubts in the U.S. media about China’s behind the scenes motivation has led some developed countries to hesitate in their participation in OBOR. In Britain also, some voices see conspiracy in OBOR implementation. Franklin Allen, for example, Wharton professor and Executive Director of Imperial College’s Brevan Howard Centre, argued that although OBOR is ‘an economic initiative … along the way China will expand its military bases and so forth. On the sea routes they will develop their military capability and on the land routes, too’.


To counter these over-interpretations and prejudices, China should make full use of the opportunities for China-UK cooperation in the media and culture industry to dissuade the public from such biases. It would also be a good beginning for China to make its voice heard in the EU and U.S. so as to gradually improve unfavorable political attitudes towards China’s development of its maritime power.


Risk for Third-party Markets

According to Nathan Hayes, economist at Timetric's Construction Intelligence Centre, Britain could promote cross-sector cooperation by participating in OBOR sub-projects in the glowing markets along its routes. He also pointed out, however, that most countries along these routes are emerging markets with potential risks. Hence, foreign exchange fluctuation, recession and government activities could all lead to uncertainty and inherent danger for the UK, which should thus spend more time and effort on project management, leading possibly to less-than-estimated China-UK cooperation in third-party markets.


The China-Britain Business Council (CBBC), in its China-Britain Belt and Road Guide 2016 report, also explained that besides being an economic initiative, OBOR is also ‘a major geopolitical one’, meaning that China-UK cooperation in third-party markets must be carefully handled because of the gamut of risks, from legal and financial challenges to political or social instability and regional disputes. Although both China and the UK will face the same risks in such markets, as the less experienced partner, China will need the assistance of fully experienced developed countries like Britain. Hence, identifying a readily available framework that can reduce the potential risks of cooperation in third-party markets will be more pragmatic and rational than reducing the cooperation itself.


Hidden Danger: Tibet issue

One hidden danger for China-UK cooperation is the two nations’ dispute over Tibet, a disagreement that harks back to the seventeenth century and two British invasions of that nation. This sensitive issue led to a bottoming out of China-UK relations in 2013 when David Cameron met with the 14th Dalai Lama, leading to the cancellation or postponement of many investment projects. The British government's current attitude towards the Tibet issue, however, is more prudent, with the Dalai Lama’s 2015 request for a meeting with the Prime Minister being rejected.


Nevertheless, the Dalai Lama and Tibetan separatists have not given up on establishing contact with the British, making Tibet a hidden threat to the future of China-UK relations. Some researchers have even applied the term ‘Dalai Lama effect’ to the Chinese government's policy of reducing national exports to countries or regions that meet with the Dalai Lama. Hence, to avoid damaging China-UK cooperative relations through future contact with Tibetan separatists, the British government must clarify its position on the Tibet issue to prevent any possible controversial actions.


China-UK cooperation: Influence and Opportunities

Influence of Brexit

Since Britain officially triggered Article 50 on March 29, 2016, Brexit and its follow-up effect has been a hot topic internationally. Completion of the entire process within the next two years means that Britain must find replacement markets in order to overcome economic and political barriers. Brexit will inevitably have a deep impact on the global economic structure at a time when the global industrial structure is finally enjoying a slow recovery from the 2008 economic crisis. This crisis caused such damaging problems as heavy debt pressure, tight monetary environments and serious unemployment in many developed countries, thereby changing their role on the world stage. Brexit is now adding more uncertainty, raising investor risk aversion, and shaking the global market. Britain, as one of the world's financial centres, has a far-reaching effect on cross-border credit and offshore finance, so its departure from the EU will inevitably impact the world economy through investment, trade and finance.


In particular, because the British government lacks funds for infrastructure projects, Brexit-induced reductions in future European investment bank loans to UK projects are sure to cause funding problems for the London Crossrail subway upgrade, as well as other major infrastructure projects. On the other hand, Brexit also means that the UK can start its own trade negotiations independent of other EU countries. Nevertheless, there is still no clear answer to the question of whether the UK will continue to benefit from the EU's zero tariff policy.


Britain’s exit from the EU will also be very costly. Not only will the EU charge a substantial exit fee, perhaps as much as

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