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Brits should be under no illusions about the agile approach needed to navigate a China relationship

Chinese President Xi Jinping (R) shakes hand with British Prime Minister Theresa May (L) before their meeting at the West Lake State House on September 5, 2016 in Hangzhou, China.
Etienne Oliveau | Getty Images
Chinese President Xi Jinping (R) shakes hand with British Prime Minister Theresa May (L) before their meeting at the West Lake State House on September 5, 2016 in Hangzhou, China.

The annual Rugby Sevens tournament in Hong Kong sees fans in its raucous South Stand dress up in wildly imaginative costumes to celebrate the beloved British sporting export.

The local South China Morning Post newspaper then selects the most striking costumes to glorify in its next day write-up. Last weekend, among the funky chickens, the singing leprechauns and the grooving Tyrannosaurus rexes, it was four Brits dressed up as the proposed brick "wall" between the U.S. and Mexico who secured that honor.

That a political costume most captured the editor's imagination is rather fitting given geopolitics' current grip on dictating the direction of global economic developments and financial markets.

Being in Hong Kong and exposed to ubiquitous evidence of the extensive historical links between the now-Chinese territory and its British former rulers gave me pause to consider the future relationship between China and the U.K. – one both upended and given a greater imperative by Brexit.

Following the extravagant enthusiasm of the ex-Prime Minister David Cameron and his government's approach towards China, incumbent Theresa May has, true to style, outstretched a more tentative hand to the single party state, as exemplified by decisions such as the one to review and then impose tighter security conditions on the £18 billion ($22.3 billion) Hinkley Point nuclear project in southwest England.

Nonetheless, May and her fellow ministers, including Trade Secretary Liam Fox who made a two-day trip to China and Hong Kong last October to bang the gong for global free trade, have made no bones of the fact they consider the potential for trade deals with non-European behemoths such as China and India, a critical post-Brexit "opportunity".

And yes, there is a unquestionably a tremendous opportunity to be chased as the Chinese government seeks to structurally re-engineer its economy, stoke demand amongst its 1.4 billion people and deploy its extensive foreign exchange reserves into global projects.

Dan Kitwood | Getty Images

However, the British should be under no illusions about the clear-sighted and agile approach needed to navigate the relationship, not least because having soon lost the negotiating might (for all its arguable drawbacks) of the European Union, the U.K. starts from a clear position of weakness.

From a political standpoint, British protagonists must stand firm on articulating and maintaining positions which match our values despite potentially increased pressure from China to side with it in high profile controversies such as ownership claims in the South China Sea, the lack of democracy in Hong Kong's governorship election and whether Beijing deserves market economy status.

From a corporate point of view, the U.K. must protect its companies from the vicissitudes of Chinese investment trends – after an aggressive spree from 2014 to 2016, outbound M&A (mergers and acquisitions) from China dropped by a precipitous 86 percent last quarter after (another) government clampdown on capital exports. It must also pay close attention to how high levels of Chinese (and indeed all foreign) investment may be altering the shape and direction of certain industries – needless to say, most importantly those with salient national security concerns.

Economically speaking, while China's 6 to 7 percent pace of growth still dwarfs that of the U.K. and its closest allies, the growing claims from experts that such growth is rapidly slowing, alongside calls for caution over an increasingly worrisome credit backdrop, urge circumspection in Britain's reliance on the Middle Kingdom's growth story.

The potential for a mutually beneficial development of relations along multiple dimensions between the U.K. and China can certainly be a bright side of Brexit but the path towards it must be pursued with extreme care.

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