UK-China Economic and Financial Dialogue

Statement

19:44:00

My Lords, with the leave of the House, I will repeat the Statement given in the other place by my right honourable friend the Chancellor of the Exchequer. The Statement is as follows: “Growth is the No. 1 mission of this Labour Government. To grow the economy, we need to help Great British businesses export around the world, including to China. As the second biggest economy in the world and our fourth-largest trading partner, not engaging is simply not an option. That is why I led a delegation, including the Governor of the Bank of England, the chief executive of the Financial Conduct Authority and representatives of some of Britain’s largest financial services firms, including HSBC, Standard Chartered and Schroders, at the 2025 UK-China economic and financial dialogue—the first of its kind since 2019. This dialogue has delivered a set of tangible benefits to ensure that British firms have greater access to the Chinese market, while safeguarding our national security—the first duty of any Government. In China, I met outstanding British companies, such as Brompton, Jaguar Land Rover and AstraZeneca, that will benefit from the steps that we have agreed. We have worked to lift market access barriers across a range of goods and services, particularly in the agri-food sector. On financial services, we have successfully secured new licences and quota allocations for UK firms to improve operating access in China. We agreed to co-operate further, including by renewing our shared commitment to the UK-China Stock Connect scheme, first launched in 2019, deepening our co-operation on wealth management through a UK-China wealth connect scheme and progressing initiatives on pensions and sustainable finance, delivering significant benefits for UK firms and the City of London. I am pleased that China agreed to issue its first ever overseas sovereign green bond in London during 2025, underlining the UK’s position as a global capital for high-quality sustainable finance. The UK is a global leader in financial services. There are significant opportunities to expand our presence in new markets. The tangible outcomes that we have delivered this week will help to deliver that. These steps are part of a wider programme to make substantive progress in improving arrangements for UK exporters and investors. This is reflected in new agreements on vaccine approvals, fertiliser, whisky labelling, legal services, automotives and accountancy, which set us on course for this dialogue to unlock £1 billion of value for the UK economy. These outcomes, agreed with my counterpart Vice-Premier He Lifeng, represent pragmatic co-operation in action and support secure and resilient growth, because security and growth go hand in hand. This means finding the right way to build a stable and balanced relationship with China in our national interest—one that recognises the importance of co-operation in addressing the global issues that we face, competing where our interests differ, and challenging robustly where that is required. In Beijing and Shanghai, I was clear that while we must co-operate on areas of mutual interest, we will confidently challenge on areas where we disagree. I expressed our country’s real economic and trade concerns to the Chinese, including trade imbalances and economic security, and I raised concerns about Russia’s illegal war in Ukraine, human rights, and the restrictions on rights and freedoms in Hong Kong, including the case of Jimmy Lai and the completely unjustified sanctions against British parliamentarians. A key outcome of this dialogue is that we have secured China’s commitment to improve existing channels, so that we can openly discuss sensitive issues and the ways in which they impact our economy, because if we do not engage with China, we cannot raise our real concerns. This dialogue is just one part of our engagement with trading partners right across the world. Since becoming Chancellor, I have travelled to New York, Washington, Toronto and Brussels to build our global economic relationships, while my right honourable friend the Business Secretary has travelled to the Gulf to boost trade and investment, and my right honourable friend the Foreign Secretary is engaging with partners all over the world to deliver growth that benefits people across the United Kingdom. We must continue to go further and faster in driving economic growth to make working people better off. That is why, yesterday, the Prime Minister launched our AI opportunities action plan to throw the full weight of government behind artificial intelligence in the UK, revolutionising our public services and making our economy more productive. It is why next week I will be meeting business leaders, investors and entrepreneurs at the World Economic Forum meeting in Davos to make the case that the UK is one of the best places in the world to invest. In the coming weeks, I will be setting out further details of our plans to kick-start growth in the economy after 14 years of failure from the party opposite”.

19:49:00

My Lords, I thank the Minister for repeating the Statement. Instead of focusing only on the economic difficulties, I thought I would start by welcoming the improvement in the terms of our exports to China, which helps, in a small way, to redress the huge imbalance in trade that we have with China. The Chancellor has announced £600 million-worth of opportunities secured in Beijing. She states that barriers that restrict our exports to China in the agricultural sector—that would be pork and poultry, vaccines and fertilisers—will be lifted in an attempt to boost trade. I recall exporting chickens’ feet to China when I worked in the food industry. Will the Minister explain what exactly the real change is here? Similarly, on financial services, can the Minister explain the improvements apparently being made? The green bond is welcome—I remember helping to launch other green bonds at the Stock Exchange—but can we have more chapter and verse on the other financial services gains? I mean gains to UK plc as opposed just to China—concrete changes that are not just warm words from bankers and legal firms, who obviously find the market difficult. We need to know more about the tangible benefits that the Minister outlined. More broadly, of course, we are very concerned about the deterioration in the economic position back here at home in terms of debt, interest, rates of inflation and economic growth. In the Chancellor’s absence, the value of the pound plummeted and government borrowing costs rose to a 27-year high. Let us consider growth. The Government inherited the fastest-growing economy in the G7, yet growth is now non-existent, and that means less money for public services. The Government are rightly exploring some obvious opportunities for growth: planning reform, the use of AI and improvement in skills. However, the fact is that businesses are vital to growth, and they have been dealt a triple whammy of costs. The recent Budget broke election promises, introduced significant tax hikes and has been detrimental to British businesses and business confidence more broadly. Frankly, confidence is tanking, as many surveys and announcements show. This, combined with an increase in borrowing by an extra £30 billion a year, has inevitably caused international markets to question the future of the UK economy. Instead of looking forward, there is much talk on the Benches opposite about the mythical black hole, but much of this is of the Government’s own making: over £8 billion on a public energy company, over £7 billion on a National Wealth Fund and nearly £10 billion of taxpayers’ money on public sector pay settlements without—this is so important—any requirement for a productivity return, at the very moment when it is right to extract one. While many on the Government Benches may point to an international trend of rising borrowing costs, it should be noted that the gap between our bond yields and those of similar economies is growing. We now find ourselves in a position in which the UK’s long-term borrowing costs have risen to the highest level in nearly 30 years, and the pound has been at a 14-month low. Can the Minister tell the House how the Government intend to address and restore stability in international markets? The increase in our borrowing costs is believed to have added roughly £12 billion to the UK’s annual spending in debt interest; that is 100 times what the Chancellor claims she accrued from her trip to Beijing. This £12 billion could have covered the costs of the winter fuel payment cut for eight and a half years or funded 300,000 nurses. According to the OBR forecast, two-thirds of the money raised from the Government’s jobs tax will have to be used to finance additional debt interest. As a consequence of the Chancellor’s policies, borrowing by the final year of the forecast will be doubled. I repeat the question I posed to the Minister earlier today and encourage him to be more forthcoming. Will the Government do a U-turn on the spending increases that the Chancellor promised in the Budget? Will they borrow more or will they increase taxes further? One of these will have to give if the OBR’s update in March determines that the Chancellor is in breach of her own fiscal rules. I am afraid that it is working people who will pay the price of the unfortunate decisions made by this Government in their Budget.

My Lords, we must not allow anxiety about America under Trump and Musk, particularly on tariffs and climate change, to drive us into an unhealthy economic relationship with China. China is, of course, an economic powerhouse and our fourth-biggest trading partner, and there is more trade to be had, especially in financial services, to benefit both parties—but China is a very mixed blessing. It remains a cyber threat. Without greater transparency and safeguards, it is a potential threat to the integrity of our national security. It does not challenge the Russian invasion of Ukraine. It does not share our commitment to human rights and to democracy in Taiwan and Hong Kong. The imprisonment of Jimmy Lai is both a tragedy and a warning that our values are not respected. We on these Benches wish that the Chancellor had held firm and refused to go to China unless Jimmy Lai is released. China is a country that exploits weakness. In light of these concerns, will the Government strengthen foreign direct investment screening and cyber defences, including increased data transparency requirements? Will they cease research co-operation on technology with China, its companies and researchers if adequate reciprocity and transparency cannot be achieved? Will they enact Magnitsky legislation to hold Hong Kong and Chinese officials responsible following gross breaches of human rights in Hong Kong and Xinjiang province? Given the recent discovery of Chinese spying across several senior levels of the British establishment, do the Government agree that China should be placed in the enhanced tier for the foreign influence registration scheme?

My Lords, I am grateful to the noble Baronesses, Lady Neville-Rolfe and Lady Kramer, for their questions and contributions. I am grateful to the noble Baroness, Lady Neville-Rolfe, for her initial welcome for the improvements in the trading relationship and the consequences they will have. As both noble Baronesses will know, delivering economic growth is this Government’s number one mission. It is central to raising living standards, creating wealth and opportunity, and delivering well-funded public services. While the OECD forecasts that our economy will grow faster than those of Germany, Italy, France and Japan over the next three years, the latest growth figures show the scale of the challenge we face. The Government are therefore determined to go further and faster in driving economic growth and making working people better off, including by supporting British businesses to export around the world. I do not think that the noble Baroness, Lady Kramer, was suggesting this but, in this context, it is clearly not an option simply to ignore China, the second-biggest economy in the world and our fourth-largest trading partner. The Government will work with China on trade, investment and climate change while safeguarding our values and security. While our G7 partners invested heavily in dialogue with China in recent years, the UK fell behind due to the inconsistency in approach of the previous Government. In addition to hampering our ability to deliver growth for the UK, this approach of disengagement also risked leaving the UK out of critical conversations on issues vital to the UK’s national security. In contrast, the UK-China economic and financial dialogue represents a decisive first step to restarting substantive engagement on important economic issues. The noble Baroness, Lady Neville-Rolfe, asked specifically about financial services outcomes. The Government have successfully secured new licences and quota allocations for UK firms to improve operating access in China. We have progressed initiatives on pensions and sustainable finance, delivering significant benefits for UK firms and the City of London. Additionally, China has agreed to issue its first overseas sovereign green bond in London during 2025, underlining the UK’s position as a global capital for high-quality, sustainable finance. Importantly, the UK and China also signed new agreements on vaccine approvals, fertiliser, whisky labelling, legal services, automotives and accountancy, which sets us on course for this dialogue to unlock £1 billion of value for the UK economy. The noble Baroness, Lady Neville-Rolfe, slightly questioned the value of the £600 million that has been secured, but £600 million is a lot of money and delivers significant benefits for the UK, with new agreements in several important areas. Of course, we accept that there is still more progress to be made; we must keep the momentum going forward, particularly in green finance. The Government would also like to see the UK and China further enhancing co-operation on capital market connectivity, wealth management and pensions. The noble Baroness, Lady Kramer, spoke extensively about security and the role of human rights, and obviously security and growth go hand in hand. That means finding the right way to build a stable and balanced relationship with China that is in our national interest—one that recognises the importance of co-operation and addressing the global issues we face, competing where interests differ and challenging robustly whenever that is required. That is why, on her visit, the Chancellor expressed the UK’s real economic and trade concerns to the Chinese, including trade imbalances and economic security. She also raised Russia’s illegal war in Ukraine, human rights and the restrictions on rights and freedoms in Hong Kong, as the noble Baroness quite rightly raised, including the case of Jimmy Lai, and the completely unjustified sanctions against British parliamentarians. Importantly, the UK also secured China’s commitment to improve existing channels so that we can openly discuss these sensitive issues and the ways in which they impact our economy. If we do not engage with China, we cannot raise these very real concerns. The noble Baroness, Lady Kramer, raised a number of security concerns and asked about security risks. National security is at the heart of everything the Government do. Our engagement with China is pragmatic and necessary to support the UK on global interests. We must speak often and candidly across areas of contention as well as areas where co-operation is in the UK’s national interest. We firmly recognise that the UK and China will not and do not always agree. The Chancellor’s visit was a platform for respectful and consistent future relations with China, one where we can be frank and open on areas where we disagree, protect our values and security interests and find opportunities for safe trade and investment. The noble Baroness also asked about putting China on the enhanced security tier. I am not going to get ahead of any announcements and speculate which countries might be specified on the enhanced tier at this stage, nor would I comment on matters of national security, but, as I have said, work is under way to identify which foreign powers will be placed on the enhanced tier. That will be based on a robust security and intelligence analysis. The noble Baroness also asked whether the Chancellor challenged her Chinese counterparts on human rights. I can confirm that yes, of course, the Chancellor raised human rights. In all our engagements with the Chinese Government, we continue to challenge them robustly on human rights violations and continue to raise our concerns at the highest levels of the Chinese Government. The noble Baroness, Lady Neville-Rolfe, asked about growth. The Government intend to build a platform for a stable long-term economic relationship with China that works squarely in our national interest. That is essential to our growth strategy. But, of course, our engagement with China is just one part of the action we are taking to drive growth. Internationally, we are engaging with key partners around the world, and that is why the Chancellor has travelled to New York, Washington, Toronto and Brussels to build global economic relationships since taking office. Domestically, only yesterday the Prime Minister launched an AI Opportunities Action Plan. Next week, the Chancellor will be meeting business, investors and entrepreneurs at the World Economic Forum in Davos, and in the coming weeks she will be setting out further details of our plans to kick-start growth in the economy. I was surprised that the noble Baroness, Lady Neville-Rolfe, raised my favourite issue of the £22 billion black hole. I am happy to say that she is mistaken in her analysis of the composition of that black hole. She knows full well exactly the number the previous Government left behind. She is also mistaken in saying that we have made no productivity requirements in the Budget. We set out a 2% productivity requirement for every department, unlike the previous Government who had done no such thing. The noble Baroness also asked about the fiscal rules. It is absolutely clear that we will meet the fiscal rules. They are non-negotiable. It is interesting that the noble Baroness repeated the party opposite’s opposition to every one of the tough and difficult decisions we have taken to repair the public finances and repair that £22 billion black hole in the public finances. I notice she did not speak out against what we are spending that money on but did against raising that money, which is exactly why we ended up with a £22 billion black hole in the first place. She asked about the action we will take. She should have no doubt that we will take the tough action necessary to ensure that we meet our fiscal rules. In conclusion, establishing a stable and balanced relationship with China—our fourth-largest trading partnership—is clearly in the UK’s national interest. The Government will, of course, continue to take a consistent approach, co-operating to address the global issues we face, competing where our interests differ and challenging robustly whenever that is required. The Chancellor’s visit last week shows how pragmatic collaboration can deliver tangible outcomes that support secure and resilient growth. That is why the Government will go further and faster to drive economic growth to make working people better off, including by supporting British businesses to export around the world.

20:04:00

My Lords, in welcoming this Statement, can I ask the Minister to elaborate on what bilateral agreements are being discussed on the governance of AI, which is becoming such a critical development globally?

It is a very good question; I am sorry that it is the first question that I do not have an answer to. I will write to the noble Lord on that point.

My Lords, I declare an interest as stated on the register. Following on from the question from my noble friend Lady Neville-Rolfe, UK inflation was 1.7% in September, it was 2.3% in October and it was 2.6% in November, so inflation is going up. UK real GDP growth was revised down to show no growth from July to September. Sterling is falling more than other currencies. That is all UK specific. Please can the Minister give us a rough date by which he will deliver a positive UK growth number?

I commend the noble Earl for his efforts to try to portray the previous Government’s record on the economy as some kind of success, whereas everyone listening both in the Chamber and outside knows that it was 14 years of total catastrophe. He mentioned inflation as if 33 months in a row above the Government’s target was something to be proud of, when we know that it hurt family finances dramatically over that time. He tried to say that the previous Government did well on growth, when we know that growth was one of their biggest failures. They took investment out of the economy at a vital moment with their austerity programme. They reduced GDP by 4% as a result of their Brexit deal, and then the Liz Truss mini-Budget crashed the economy, sending mortgage rates soaring by £300 a month, for which ordinary working people are still paying the price. I really reject the fundamental basis of the noble Earl’s question. He asked about timing. He knows very well that it is very difficult to turn around 14 years of failure. We cannot do that in six months, but we are determined to do it and will do whatever it takes to turn around the British economy.

I am not sure I am supposed to speak, but I would just say that there was also something called Covid and an energy crisis and Ukraine. It would be good if the Minister sometimes mentioned those as well as some of the other factors.

I know the noble Baroness is desperate to find any scapegoat or excuse for her party’s total failure on the economy. Of course, there are international factors at play, but perhaps she could tell us why the UK was worse affected than any other country in the G7 and any other European country as a result of those things. It is because their austerity and their Brexit left this country more exposed and we therefore suffered far worse than any other country.

My Lords, this was an important visit. I welcome the Statement and endorse the importance of productive trade deals around the world leading to growth opportunities. I am pleased that the agritrade restrictions have been lifted. The UK has enjoyed a beneficial relationship with Taiwan, especially with regard to its world-leading semiconductor industry. In the visit to China over the weekend, was the position of Taiwan part of the conversations? Can the Minister assure the House regarding continuing trade relationships with Taiwan, against the background of the newly signed CPTPP deal and the pressures across the strait from Chinese challenges?

I am grateful to my noble friend for raising those important trade issues. I can assure him that, having just acceded to the CPTPP trading relationship, we are absolutely committed to continuing that relationship and to building trade relationships in that manner. On Taiwan specifically, we consider the Taiwan issue one that should be settled peacefully by people on both sides of the Taiwan Strait through dialogue, not through any unilateral attempts to change the status quo.

My Lords, in responding to the noble Baroness, Lady Neville-Rolfe, just now, the Minister said that their austerity—referring to the Tory Government’s austerity—has left us worse off. Can the Minister assure me that we will not see further damaging austerity of the kind that has already left us with a terrible level of public health, teetering Civil Service departments that cannot keep up with their responsibilities and local government in crisis? Can he say that we are not going to see more of that from this Government?

I am grateful to the noble Baroness for her question. I cannot remember what the Green Party’s position is on the national insurance increases that we have put in place. I certainly hope that she is not opposing those increases but supporting the extra investment that we are putting into the National Health Service as a result, because that would not be terribly coherent. We are committed to investing in our public services. The Budget we just had, in October, announced £100 billion more of capital investment. I certainly would not describe that as austerity.

Since the Minister came directly at me, I very much invite him to look at the Green Party manifesto from the recent election. It remains our position to raise money from a range of sources to put vastly more investment into the NHS and many other government programmes, particularly through a wealth tax. I invite the Minister to look at it. Since I am on my feet, the question that I was originally going to ask relates to the position of Jimmy Lai, as raised by the noble Baroness, Lady Kramer. Does the Minister agree that the situation of British citizen Jimmy Lai reflects the fact that there is no rule of law in China? In encouraging British businesses to further invest and become involved in China, is there not a significant risk to both their capital and staff where there is no rule of law? I am concerned that the Statement speaks with praise of HSBC and Standard Chartered. I do not know whether the Minister is aware of the situation where those companies have refused to hand over to Hong Kongers—BNO passport-holders who have come to the UK—their own money in pension funds.

I am grateful to the noble Baroness for her follow-up question. I am sure that the Green Party manifesto is a cracking read and I will endeavour to read it, if I have time. I note that she did not say that she was in favour of the national insurance increase, so I take it that she is supporting the investment without supporting the means to raise that investment. The noble Baroness asked specifically about British national Jimmy Lai. His case is a priority for the UK Government. The Chancellor raised this Government’s concerns about the case during her visit to China. The UK has called for the national security law to be repealed and for an end to the prosecution of all individuals charged under it, including Jimmy Lai. We continue to call on the Hong Kong authorities to end their politically motivated prosecution and immediately release Jimmy Lai.

20:12:00

Sitting suspended.