In coordinated action on 22 March 2021, the EU, US, Canada and the UK imposed sanctions on four Chinese officials accused of complicity in human rights violations in Xinjiang. The Chinese responded by imposing sanctions on a group of MEPs, European academics and think-tanks on 23 March and followed these announcements by imposing retaliatory sanctions on Canadian and US officials.  The speed of the Chinese response indicates Chinese concerns at the coordination between authorities in the US, UK, EU and Canada.

On 30 March, the Chinese authorities turned up the heat, accusing the EU of racism, slavery and colonial era crimes and encouraging Chinese consumers to widen their boycott of Western products – see below.  These increased tensions may delay the ratification of the EU-China Comprehensive Agreement on Investment for some time – if they do not kill it off altogether.

In the US, Secretary of State Blinken has not shied away from using the same language as Trump officials to describe Chinese actions in Xinjiang as genocide in a speech to NATO in late March, calling for western unity in deterring China’s military ambitions.  And in an apparent response to President Biden’s recent speech at the European Council where he noted the importance of tackling China as a ‘shared foreign policy interest’, Secretary Blinken and HRVP Borrell have announced further joint coordination through the EU-US Dialogue on China.

Can the Damaged UK-China Relationship be Compartmentalized?

China imposed sanctions on 10 UK organisations and individuals on 25 March, including MPs and Essex Court Chambers. This list indicates a clear Chinese determination to respond to any organization criticizing its human rights record.  However, the fact that no serving minister or member of the Government was included in the list, indicates a desire not to completely blow up the relationship – a strategy China also appears to have pursued in dealing with the US Administration.

The UK, equally, does not wish to allow the tensions to spill over into issues which are vital for the post-Brexit UK, such as trade (especially given the deep integration of China into the UK’s supply chains) and the mutual exchange of students; or China’s effective and cooperative participation in the UK-hosted COP26, which is crucial to its successful outcome.  This may explain why the UK has, so far, not imposed sanctions on Chinese officials in Hong Kong. Nor (unlike the US) has it described Chinese activity in Xinjiang as genocide – indeed the Government fought a lengthy and ultimately successful rearguard action against moves to include a provision preventing trade deals with countries accused of genocide in its recent Trade Bill.

This dichotomy is reflected in the UK’s recent Integrated Review of Foreign and Defence Policy. China was described as a “systemic competitor” and “the biggest state-based threat to the UK’s economic security”; but also a country with which the UK needed both to pursue “a positive trade and investment relationship” and to cooperate with China on climate change and biodiversity.  

Public & Political Attitudes are Hardening…

However, compartmentalizing an increasingly challenging relationship will be difficult.  Even before the recent sanctions announcement, the space for positive economic and environmental cooperation between the UK and China was already narrowing – the UK-China relationship has been on a downward trend since the high of the Cameron-Osbourne period (see blog). The UK banned Huawei from its 5G networks; the passage of the National Security and Investment Bill (NSI Bill) gives Ministers a greater say in allowing access for overseas investors to a number of sensitive UK markets; and a series of opinion polls clearly show a British public increasingly hostile to and suspicious of China. The UK PM has specifically set UK foreign policy the goal of competing for influence in developing countries with the aim of reducing reduce dependency on China.

In a comment which sums up the hardening of the UK position, Tom Tugendhat, Chair of the UK’s Foreign Affairs Committee (and one of those sanctioned by Beijing) stated: “If you’re thinking of doing business with China, think hard”.

Impact on Companies

A general increase in political tensions creates challenges for firms operating in China. While retailers and manufacturers sourcing products from Xinjiang have received plaudits from the Chinese State and public, they risk having their products blocked by customs officials in the United States and being criticized in the West for their ethical reputation. Some companies, with limited exposure in China, may feel freer to publicly declare where they stand on issues such as forced labour.  Others, perhaps more exposed to the China market, may feel they need to tread a more careful line.

Last month, a number of European and US-based companies became targets for consumer boycotts in China after making statements about labour conditions in Xinjiang or removing Xinjiang cotton from their supply chains. Companies associated with the Winter Olympics next year will need to balance concerns at whether sponsorship will bring the type of publicity sought, against the possible impact in China of reducing support for the Games.

With public policy teams in the US, EU, UK and China, Covington is well-placed to help clients think through their positioning and would welcome the chance to discuss these issues with you.

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Photo of Thomas Reilly Thomas Reilly

Ambassador Thomas Reilly, Covington’s Head of UK Public Policy and a key member of the firm’s Global Problem Solving Group and Brexit Task Force, draws on over 20 years of diplomatic and commercial roles to advise clients on their strategic business objectives.

Ambassador…

Ambassador Thomas Reilly, Covington’s Head of UK Public Policy and a key member of the firm’s Global Problem Solving Group and Brexit Task Force, draws on over 20 years of diplomatic and commercial roles to advise clients on their strategic business objectives.

Ambassador Reilly was most recently British Ambassador to Morocco between 2017 and 2020, and prior to this, the Senior Advisor on International Government Relations & Regulatory Affairs and Head of Government Relations at Royal Dutch Shell between 2012 and 2017. His former roles with the Foreign and Commonwealth Office included British Ambassador Morocco & Mauritania (2017-2018), Deputy Head of Mission at the British Embassy in Egypt (2010-2012), Deputy Head of the Climate Change & Energy Department (2007-2009), and Deputy Head of the Counter Terrorism Department (2005-2007). He has lived or worked in a number of countries including Jordan, Kuwait, Yemen, Libya, Iraq, Saudi Arabia, Bahrain, and Argentina.

At Covington, Ambassador Reilly works closely with our global team of lawyers and investigators as well as over 100 former diplomats and senior government officials, with significant depth of experience in dealing with the types of complex problems that involve both legal and governmental institutions.

Ambassador Reilly started his career as a solicitor specialising in EU and commercial law but no longer practices as a solicitor.