Europe needs swagger

UK courts China as US suffers ‘identity crisis’

The U.S. may have got a visit first, but Chinese President Xi Jinping's trip to the U.K. this week will likely be a good deal more harmonious—and potentially, lucrative.

All eyes will be on the value of trade deals signed during the four-day visit. The sum to beat is £14 billion — the value of international trade and investment deals signed when Xi's second-in-command, Premier Li Keqiang, visited last year.

Chinese 100 yuan (RMB) bank notes being counted at a bank in Huaibei, in eastern China's Anhui province.
STR | AFP | Getty Images

European nations are competing to court trade and investment from China, particularly as Beijing slowly opens its financial markets to foreign investors and internationalizes the renminbi.

However, the U.K.'s status as a prominent financial hub means it is leading the way, with London the biggest foreign exchange market in the world and the largest renminbi trading center outside of Asia.

"China is very important to the rest of Europe… but I don't see the FX center switching from London to Frankfurt or Paris," Richard Holmes, the Europe CEO of Standard Chartered Bank, told journalists at a briefing on Wednesday ahead of Xi's visit to the U.K.

Notably, the U.K. was the first group-of-seven (G-7) country to establish a currency swap line with China and the first to issue a renminbi-denominated sovereign bond. It is also expected to soon be the first country in the world from which China launches an offshore remninbi-denominated bond.

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While the U.K.-China currency swap was followed by similar bilateral deals with Switzerland and the European Union in 2013, and Canada in 2014, no deal was launched with the U.S.

Furthermore, relations between Beijing and Washington remain comparatively cool, with a marked difference in U.K. and U.S. rhetoric on China.

While U.S. President Barack Obama and President Xi agreed to "constructively manage our differences" when the latter visited the White House in September, the U.K. Chancellor of the Exchequer George Osborne proclaimed a "golden decade for the U.K.-China relationship" during a trip to Beijing in the same month.

"The U.S. is struggling with the notion that China is going to overtake it as the world's biggest economy… It is suffering an identity crisis," Holmes said on Wednesday.

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The U.S.'s ambivalence was highlighted earlier this year when European countries led by the U.K. and Switzerland rushed to join the China-backed Asian Infrastructure Investment Bank, while the U.S. refused to participate.

Officially, Washington's stance stemmed from concerns about the fledgling organization's standards of governance and its environmental and societal safeguards. Unofficially, U.S. officials were thought to be worried about sacrificing clout in Asia to China, as well as piqued by criticism of slow reforms and an imbalance of power in the International Monetary Fund and the World Bank.

Holmes said the U.S.'s refusal to join seemed "a bit churlish"—but perhaps the real question is whether the U.S. can afford not to play ball with China.

Despite five years of economic slowdown and the recent burst of sharp market volatility, Standard Chartered still forecasts the China will average economic growth of 6.8 percent between 2010 and 2020.

The bank — which launched in 1853 to handle trade flows between the U.K. and China — also sees the remninbi becoming the second-most traded currency in the world behind the U.S. dollar, trumping the euro, sterling and the .

Apart from the expertise of banks like Standard Chartered, the U.K. may have another charm to woo China — the personal interest of the Chancellor of the Exchequer.

"George has a genuine passion for China," Holmes told journalists on Wednesday. "His wife speaks Mandarin, his kid is learning Mandarin, he backpacked there as a student… he seems to have a personal and emotional connection with China."

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— By CNBC's Katy Barnato. Follow her on Twitter @KatyBarnato.