David Cameron Didn’t Just Sell Out to China

When it was announced earlier this week that former British Prime Minister David Cameron had accepted a leadership role in a new $1 billion U.K. investment fund intended to back China’s Belt and Road Initiative, many were quick to point out that a certain pattern was being repeated. Former Prime Minister Tony Blair had famously demanded more than $6 million a year to advise dictators in Kazakhstan and elsewhere. Across the channel, former German Chancellor Gerhard Schröder had shown an even greater gusto in promoting Russian energy interests across Europe as chairman of the shareholders’ committee of Gazprom’s first Nord Stream pipeline.

Cameron’s situation, however, is importantly different. Unlike Blair or Schroeder, he is entering a project likely to serve his own country’s national interest.

The case against Cameron isn’t difficult to make. No one would object if he became the head of an international financial institution like the World Bank or the European Investment Bank, but many in the West feel that those institutions are ours, so to speak — controlled by and serving Western interests. The Belt and Road Initiative is formally a similar endeavor, a set of still inchoate goals and procedures created to further development and trade along an arc of some 70 countries. The obvious difference is that Belt and Road is a project created by the Chinese authorities, and in practice — the Belt and Road is now more than four years old — it has revealed itself to be rather uncompromisingly aligned with an aggressive interpretation of Chinese interests.

Meanwhile, the question of whether the former U.K. prime minister has become an agent of influence for Chinese interests could not be more current. From Australia to New Zealand, Central and Eastern Europe, and even the United States, recent weeks have been fertile with news about China’s growing control over foreign politicians — many still in office. For the Chinese government, the idea of enrolling the former leader of the country most responsible for their own nation’s miseries in the late 19th century and early 20th century — what the Chinese still call the “century of national humiliation” — would certainly be attractive.

But there is another easily overlooked half of the story. According to what has been made public so far, the new fund that Cameron is joining will be a joint endeavor by private financial institutions in both China and Britain. There are no indications that investment will flow from China to Britain, but rather than the two countries will take a shared role in investing in some of the regions prioritized by Belt and Road.

It’s impossible to know whether these considerations weighed in Cameron’s decision. One can only hope they did. To be placed on display by Chinese state bodies is not attractive. But to participate in an initiative meant to open Belt and Road to new participants and new goals is something different — a tempting but appropriate job for a former British prime minister.

As the Belt and Road initiative gains speed, China is increasingly finding that it cannot provide the required financial resources on its own. The numbers involved in financing Belt and Road start at $1 trillion and go all the way to $8 trillion. To attempt to fill these needs at home — using Chinese banks — at a time when its economy is slowing down and its banks are saddled with bad loans would expose China to unmanageable risks. Other institutions are already involved and were even created for that purpose but will do little to fill the financing gap.

The Asian Infrastructure Investment Bank, for instance, has so far invested less than $2 billion on Belt and Road projects — a significant sum but nowhere near the value needed, and in fact just twice what the new U.K. fund is supposed to marshal. Therefore, it is essential for China to gain access to global financial markets to complement its domestic resources. No other financial hub could do this better than London.

On the British side, there is obvious interest in strengthening economic relations with China. This was the case before Brexit, when countries like Germany and even France were seemingly moving ahead of the United Kingdom in building those links. Now, with Brexit on the horizon, growing trade and financial flows between China and the U.K. would help the latter hedge against the risks of exiting Europe’s single market without any safety net for financial services access.

Interestingly, these considerations are being made at a time when economic relations between the European Union and China risk entering a strained period. Germany in particular has become vocal about the risks that China could pose to its ambitions of becoming a leader in the digital transformation of industry. Chinese industrial policy is zooming in on the same space that Germany wants to occupy: self-driving cars, robotics, and AI.

The German and Chinese economies will be increasingly at loggerheads, simply because they are competing for the same economic space. The risks for the U.K. posed by China’s rise are considerably lower than for other major European economies, as the U.K.’s focus on services is more complementary than competitive with the Chinese economy.

As pointed out above, the most immediate and obvious way to develop new links between the two countries is to make London the global point of access for Belt and Road financing. China would be able to access global financial markets at a time when this has become essential for the success of the initiative. At the same time, the U.K. could hope to leapfrog the EU in building a deep economic relationship with a country about to become the largest economy in the world.

It’s true that China continues to limit access to its financial services market, with cross-border lending and offshore bond issuance facing numerous legal and political limitations. The EU has spent years in continued but fruitless efforts to change this. Those familiar with the reasons for China’s financial protectionism understand that they are less immediately connected to economic and industrial policy goals than to political imperatives. The determinant of whether a sector of the Chinese economy is open to foreign entities has always been whether state-owned enterprises are already operating in the area (for example, there is no ban on car-hailing services like Uber).

The Belt and Road Initiative is a high political priority for the Chinese government, so this may be the best way to frame wider discussions about financial market access. If the question of opening the Chinese financial services market is a political one, any country seeking to engage it needs to address it as such. There is enormous potential to make progress through dialogue between public and private stakeholders, provided motivations on both sides are properly understood. The new fund headed by Cameron is an example of just that.

Alternatively, if existing legal constraints are left in place and London’s contribution to Belt and Road financing is conducted through a dedicated fund or funds — siblings to the $40 billion Chinese Silk Road Fund and thus eventually a much more ambitious project than what is now being envisioned — this would still constitute a major breakthrough. The U.K. would have equal management powers in the new funds, bringing it close to becoming a junior partner in the most significant geopolitical initiative of the next 50 years.

The incentive for China is clear, as the U.K. brings enormous expertise in risk diversification and securitization to the institutional framework serving the Belt and Road Initiative. But Britain’s interests are equally clear. Entering the Belt and Road geopolitical space and swerving it in new and more promising directions is arguably the greatest challenge facing the West today. Here’s hoping that the U.K. will be up to it.