- The UK and China are cautiously re-engaging, focusing on pragmatic areas like finance, green energy, and trade. The UK aims to leverage opportunities in financial services, green finance, and specific exports.
- Bilateral trade has seen a decline, but targeted investments in sectors such as real estate, technology, and infrastructure are notable. The UK’s strong financial sector and China’s demand for sustainable solutions create mutual growth prospects.
- Economic relations will evolve with incremental gains in trade, investment, and sustainability initiatives. UK firms are expected to benefit from increased market access, especially in agriculture, financial services, and green technologies, although regulatory hurdles remain.
After years of strained ties, the UK and China are cautiously re-engaging, driven by economic pragmatism rather than political alignment. The visit of UK chancellor of the exchequer, Rachel Reeves, to China from January 11th to 13th marked a measured step in this process. Co-hosting the UK-China Economic and Financial Dialogue with Chinese vice-premier He Lifeng, Reeves sought to expand bilateral cooperation in areas of mutual interest, particularly in finance and trade.
For the UK, deeper engagement with China offers economic opportunities at a time of slow domestic growth. The Labour government, in power since July 2024, is keen to stabilise relations and secure practical gains for British businesses. China, meanwhile, is broadening its outreach to Western economies amid shifting geopolitical dynamics, including expected tensions with the US under Donald Trump’s second presidency.
While political friction—particularly over human rights, Hong Kong, and security concerns—will prevent a full-scale revival of relations, both sides see value in targeted cooperation. The UK is well positioned to attract Chinese investment, particularly in financial services and green finance, while trade agreements in food and agriculture signal a pragmatic willingness to expand commercial ties. However, structural barriers in China’s market, including regulatory opacity and capital restrictions, will limit the economic benefits of this renewed engagement.
The outlook for UK-China economic relations is one of cautious expansion, with a focus on incremental and commercially viable opportunities rather than broad strategic alignment.
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China-UK bilateral trade
Trade relations between China and the UK have been significant, reflecting both the growing global interconnectedness and the complexities within their bilateral economic ties. The total trade between the two nations for the four quarters ending in Q3 2024 amounted to £89.0 billion, marking a decrease of 13.0 percent or £13.3 billion from the previous year. This drop reflects various global and domestic challenges, including geopolitical tensions and economic slowdowns.
UK exports to China
In the same period, UK exports to China totalled £32.0 billion, a decline of 17.4 percent compared to the previous year. Of these exports, £19.9 billion (62.1%) were goods and £12.1 billion (37.9 percent) were services. Notably, the export of goods to China saw a sharp decrease of 27.3 percent, amounting to £7.5 billion less than the previous year. On the other hand, UK exports of services grew by 6.3 percent, increasing by £715 million.
The most significant UK goods exports to China included cars (£4.7 billion), unspecified goods (£3.9 billion), and crude oil (£1.5 billion). However, the data also shows a significant decrease in the value of certain exports, such as unspecified goods (down by 57 percent) and crude oil (down by 52 percent). In contrast, mechanical power generators saw an increase of 7.8 percent, indicating a shift in demand for specific high-value products.
UK imports from China
UK imports from China were valued at £57.0 billion, representing a decrease of 10.3 percent compared to the previous year. Of these imports, £53.9 billion (94.5 percent) were goods, and £3.1 billion (5.5 percent) were services. Similar to exports, the import of goods fell, with the largest drops observed in miscellaneous electrical goods and telecoms equipment. Notably, the UK’s imports of cars (£4.3 billion) and other manufactured goods (£4.5 billion) were still significant, although they experienced declines of 12.6 percent and 11.7 percent, respectively.
Trade balance
The UK continued to report a trade deficit with China of £25.0 billion in the four quarters to the end of Q3 2024, slightly larger than the £24.8 billion deficit the previous year. This trade imbalance is primarily driven by the high volume of goods imported from China, particularly in sectors like electronics and consumer goods. However, the UK reported a trade surplus of £9.0 billion in services, an improvement over the previous year’s surplus of £8.3 billion. This surplus highlights the growing importance of the services sector, with financial services, travel, and business services making up the bulk of UK service exports.
Sectoral trends and insights
- Goods trade: The UK continues to have a high reliance on imports of consumer goods, machinery, and electronics from China. While there have been decreases in many categories, some sectors like mechanical power generators saw growth.
- Services Trade: Services exports to China saw growth in travel and intellectual property sectors. Financial services remained a steady contributor, although there was a slight decline in other business services.
- Overall impact: The overall decrease in total trade highlights the broader challenges faced by both nations, such as shifting global demand, supply chain disruptions, and international geopolitical uncertainties.
In conclusion, while UK-China trade faces challenges, it remains a cornerstone of the UK’s international trade portfolio, with shifts in both goods and services trade reflecting changing market dynamics and evolving consumer preferences.
China-UK investment flows
Chinese investment in the UK
Major sectors of the UK economy attracting Chinese FDI include:
- Real estate: Chinese investors have significantly contributed to the UK’s real estate market, particularly in London. This includes commercial properties, residential developments, and landmark buildings.
- Technology: China has made investments in the UK’s technology sector, including both start-ups and established companies, particularly in areas like AI, e-commerce, and renewable energy technologies.
- Infrastructure: Chinese firms have invested in infrastructure projects, including transport and energy, with companies like China National Petroleum Corporation and China State Construction Engineering Corporation involved in large-scale projects.
Notable investments and partnerships include:
- UK universities: Chinese investment has also flowed into the UK education sector, with notable partnerships between Chinese firms and leading UK universities. These partnerships often focus on joint research, student exchange programs, and investment in technology-driven innovation.
- Financial institutions: Chinese banks and investors have a strong presence in the UK financial sector, with investments in banking, insurance, and fintech companies. Chinese banks such as the Industrial and Commercial Bank of China (ICBC) and Bank of China have established branches in London, a key financial hub.
UK Investment in China
UK firms have a long-established presence in China, especially in the following fields:
- Finance: The UK has long been a key investor in China’s financial markets, with British financial services firms such as HSBC and Standard Chartered having a significant presence. These firms operate across investment banking, asset management, and insurance.
- Healthcare: British pharmaceutical companies and healthcare firms are well-represented in China, with investments in research and development, manufacturing, and distribution. Companies like AstraZeneca and GlaxoSmithKline have strengthened their positions in China’s rapidly growing healthcare market.
- Consumer goods: British consumer goods companies, particularly in luxury products, have expanded in China. Brands such as Burberry, Rolls-Royce, and Diageo are prominent in the Chinese market, capitalising on growing middle-class demand for premium goods.
Future prospects and opportunities
Green energy and sustainability
China and the UK have a longstanding commitment to green energy collaboration, underpinned by numerous bilateral agreements and investments. As both nations aim to achieve carbon neutrality, the UK’s leadership in offshore wind energy and low-carbon technologies aligns well with China’s growing demand for sustainable solutions.
- Renewable energy: China has been investing in renewable energy solutions globally, and the UK is a key partner in this effort. China has been involved in offshore wind energy projects in the UK, such as the Moray offshore wind project, where Chinese company China Three Gorges (CTG) holds significant stakes. The UK’s expertise in offshore wind technology positions it as a crucial partner for China as it seeks to expand its renewable energy infrastructure.
- Electric vehicles (EVs): The UK has seen Chinese investments in electric vehicle production, including the manufacturing of 2,000 electric buses for the UK market. These collaborations showcase opportunities for the UK to tap into China’s vast EV manufacturing and technology capabilities.
- Carbon-neutral partnerships: Both countries are committed to a green future, with the UK offering its expertise in energy-efficient solutions, clean technologies, and carbon-neutral practices, while China focuses on scaling up renewable energy projects and achieving its dual carbon goals. This partnership creates long-term opportunities for joint ventures, investments, and technological collaborations.
Technology and innovation
China’s rapid advancement in technologies such as artificial intelligence (AI), fintech, biotechnology, and 5G is mirrored by the UK’s strength in innovation and research. The two nations are increasingly collaborating in these fields, with the UK acting as a gateway for Chinese tech companies seeking to expand into European markets.
- AI and innovation: Both countries have recognized the potential for AI to reshape industries, from healthcare to manufacturing. With China’s investments in AI infrastructure and the UK’s expertise in research and development, there are abundant opportunities for joint innovation hubs and AI-driven solutions in various sectors.
- Fintech: London has become a leading hub for fintech innovation, which complements China’s rapid adoption of digital finance, including mobile payments and blockchain technologies. The UK-China fintech cooperation enables the exchange of knowledge and access to both markets, fostering cross-border digital payment systems and financial services.
- Biotechnology: China’s investments in the biotech sector offer a chance for the UK to expand its cutting-edge research and biotech companies into one of the world’s largest and most dynamic healthcare markets. With opportunities in drug development, genetic research, and healthcare solutions, collaboration in biotech remains a promising area for growth.
Financial services and RMB internationalisation
London’s position as the world’s leading offshore RMB trading center exemplifies the growing financial ties between China and the UK. Both countries are pushing for further financial integration through innovative initiatives, such as the UK-China Financial Services Summit and the Shanghai-London Stock Connect.
- RMB Trading: London’s dominance in offshore RMB trading makes it the primary location for businesses engaging in China’s internationalization of the Renminbi. This trend is expected to continue as China further opens its financial markets to global investors.
- Investment partnerships: The UK-China financial cooperation has created a pathway for increased market access, with UK-based asset managers gaining better access to Chinese capital markets. Furthermore, Chinese businesses are encouraged to establish a stronger presence in the UK, which is supported by initiatives to streamline market entry for financial services firms from both countries.
Education and cultural exchange
The UK remains a top destination for Chinese students, with over 130,000 student visas issued to Chinese nationals in 2021. As a result, education and cultural exchange continue to be pivotal in strengthening the ties between China and the UK.
- Chinese students in the UK: The UK has surpassed the US as the leading destination for Chinese students, accounting for nearly 42 percent of Chinese students abroad. This trend is likely to continue post-pandemic, as students seek high-quality education and research opportunities in the UK.
- Research and academic collaboration: The UK and China have deepened their academic ties through collaborative research in various fields, including climate change, health sciences, and technology. Such partnerships foster cross-border exchange of knowledge, enhancing the global competitiveness of both nations’ academic institutions.
- Cultural diplomacy: Alongside educational exchanges, cultural diplomacy plays a significant role in strengthening bilateral relations. The growing Chinese student presence in the UK fosters cultural understanding and builds networks for long-term cooperation in business and education.
Outlook for UK-China economic relations in 2025
As 2025 progresses, UK-China economic ties are set to evolve pragmatically, driven by selective cooperation in financial services, trade, and sustainability. While political tensions remain, the recent Economic and Financial Dialogue (EFD) has created a framework for businesses and investors to navigate emerging opportunities.
In financial services, UK firms will benefit from expanded commercial licences, greater access to China’s capital markets, and regulatory cooperation initiatives. China’s issuance of a sovereign green bond in London, along with new sustainability-linked bonds from the Bank of China, reinforces the UK’s position as a key offshore financial hub for Chinese capital. Investors can expect further integration in wealth management and stock market linkages, with feasibility studies already underway.
Trade and investment flows will also see incremental gains. Eased market access for UK agricultural exports—including pork, poultry, and pet food—will support growth in agri-food trade, while new regulatory commitments aim to facilitate UK professional services’ expansion in China. The pharmaceutical sector stands to benefit from China’s potential fast-tracking of RSV vaccine approvals, and broader engagements in healthcare and life sciences could follow.
China’s continued outreach to Western economies, amid global geopolitical shifts and economic pressures, suggests that UK businesses maintaining an independent trade approach—such as avoiding EV tariffs—may gain an edge in attracting Chinese investment. However, regulatory complexities, cautious market liberalisation, and the absence of visa-free travel for UK citizens will temper expectations for a dramatic expansion in bilateral commerce.
Overall, 2025 presents measured but real opportunities for UK firms, particularly in financial services, green finance, and high-value exports. Companies that adapt to China’s evolving regulatory landscape and capitalise on targeted areas of cooperation will be best positioned to benefit from this recalibrated economic engagement.
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