Starmer is under severe pressure to cave into China, say experts (Image: Getty)
Sir Keir Starmer has been issued a stark warning that Britain is at risk of falling into a Chinese debt trap because of its dependence on borrowing from Beijing.
Leading economists and politicians have raised the alarm over hundreds of billions of pounds in UK debt owned by overseas investors.
Fears are mounting that this reliance will allow China to meddle in British affairs and strong-arm the Government as it is caught in an ever-tighter vice of unaffordable spending and interest payments. The news emerges after a report on the latest China spying bombshell could spell Keir Starmer’s doom.
Warnings follow spy case collapse
The stark warnings emerged after prosecutors claimed they dropped charges against two suspected Chinese spies after Labour refused to brand Beijing a security threat, reports The Telegraph.
The Government will face fresh pressure over its stance on China on Monday, with the Conservatives threatening to force a debate in the Commons to force ministers to answer questions.
Former security minister Tom Tugendhat said he will use the occasion to accuse the Government of “selling out” to Beijing, while Alicia Kearns, who worked with one of the suspected spies, will ask who made the decision not to call China a threat.
Powell advised on spy case
For the first time on Sunday, Labour admitted that Jonathan Powell, Sir Keir’s national security adviser, had advised on matters surrounding the spy case.
Conservative leader Kemi Badenoch wrote to Sir Keir on Sunday night to demand “clarity and honesty” over the fiasco, saying: “It seems that you and your ministers have been too weak to stand up to Beijing on a crucial matter of national security.
“Your Government is now on its fourth different story about this scandal. It leaves a strong impression that your Government undermined Britain’s national security because you are too weak to do anything other than appease China.”
Read more: Kemi Badenoch demands Keir Starmer appears before MPs over China spy scandal
Read more: GB News halted as Boris Johnson reacts to Starmer’s most humiliating blow yet
Foreign investors own 30pc of UK debt
Foreign investors are increasingly depended upon by Britain for its £3tn national debt. About 30pc of UK borrowing is drawn overseas, including from sovereign lenders. That compares with under a fifth at the turn of the century.
The exact scale of Chinese involvement in the UK’s debt remains unclear because the Treasury does not publish figures. The US takes a contrasting approach, publishing a comprehensive list, which shows China pulling away from American debt as Donald Trump has ratcheted up trade hostilities.
Last week The Telegraph revealed that the Treasury lobbied to suppress the publication of a government report into spying by Beijing earlier this year. Concerns about Beijing’s economic clout have been stoked by the revelation.
China could manipulate UK warns analyst
China could use its ownership of debt to manipulate the UK, veteran bond analyst Edward Yardeni, who coined the term “bond vigilantes” for the way debt markets are able to change the policies of indebted states, warned.
Mr Yardeni said: “The Chinese are presumably capable of using their ownership of UK bonds to make it clear that they’re not happy with the UK’s policies towards China.”
Examples where China has been accused of lending money to indebted countries to gain control of strategic assets when they cannot repay were highlighted by him.
Mr Yardeni said: “We have, over the past couple of years, seen accusations that the Chinese are using their leverage over emerging economies that they’ve lent money to actually acquire ports and mines that they’ve helped to build.”
Sri Lanka forced to hand over port
Sri Lanka was forced to hand China a controlling stake in a major port after the country ran out of cash, he pointed to.
“A country is more vulnerable when you’ve got fiscal excesses,” he said.
Senior ministers including Rachel Reeves, the Chancellor, have been prompted by Labour’s “growth mission” to court cash from Beijing. Chinese direct investments in British businesses and projects, which stood at £3.7bn at the end of 2023, appear to be rebounding after years of tensions and falling investment under the Conservatives.
Boris Johnson comments on Starmer and the China scandal
Beijing demands approval for exports
Beijing announced on Thursday that its approval was required for any company, anywhere in the world, to export products made using Chinese minerals or battery technology, prompting the warnings.
The Chinese Communist Party intended to “weaponise the dependence of other countries”, Luke de Pulford, the head of the Inter-Parliamentary Alliance on China, said it was a sign.
He added: “Despite repeated warnings, the government walked into the trap.”
Ms Kearns said: “If we don’t wake up and get serious, we will be totally dependent on China, and be subject to the direction of the Chinese commerce ministry.”
Borrowing costs hit 27-year high
Britain’s borrowing costs recently hit a 27-year high, prompting such concerns to emerge, piling further pressure on Rachel Reeves as she seeks to balance the books ahead of next month’s Budget.
The City of London harbours many who are wary of publicly criticising China following the suspension in 2019 of Paul Donovan, a UBS economist, for making comments about swine fever in China. A backlash was prompted by his remarks, with one Chinese firm suspending all business with the Swiss lender.
A leading UK-based economist said: “The current vulnerability of the UK’s fiscal position means the Government will be loath to do anything to upset the economic apple-cart, even if it means appeasing potentially hostile foreign actors.”
Chinese firm plans £1.5bn wind turbine factory
Plans to build Britain’s biggest offshore wind turbine factory in Scotland were announced by a Chinese company on Friday in an example of the investment at stake in any diplomatic clash with Beijing.
A major boost to Ed Miliband, the Energy Secretary, will be delivered by the £1.5bn facility proposed by Ming Yang, as he seeks to show how Labour’s race to hit net zero targets can deliver dividends for workers.
Concerns about the prospect of Chinese firms building wind farms for Britain have previously been raised by the Ministry of Defence, arguing that the turbines could be turned into spying sentries for Beijing – and provide a pretext for Chinese engineers to visit the country regularly.
China uses technology to spy (Image: Getty)
Chinese investment in UK firms surges to £90bn
Chinese investment in Britain’s biggest public companies has surged to almost £90bn, The Telegraph revealed earlier this year.
Shares worth hundreds of millions of pounds in UK-listed defence firms including BAE Systems, which plays a significant role in the UK’s Trident nuclear deterrent, as well as engine-maker Rolls-Royce and Babcock, which helps to maintain Britain’s military tanks, are now held by both China’s central bank and its sovereign wealth fund.
The role of China in boosting the UK’s ailing finances has been talked up by Labour, with the Chancellor hailing a £600m agreement with Beijing earlier this year as proof that “pragmatic cooperation” could “boost economic growth”.
Treasury faces scrutiny over spy case
Fresh scrutiny over its role in the spy case is now facing the Treasury following claims that officials were in “cahoots” with Mr Powell in the weeks before its collapse.
Charges of passing intelligence to Beijing were brought against Christopher Cash, who worked for Tory MPs, and Christopher Berry, a teacher, after being arrested in March 2023 before the case was dropped last month.
A source told the Sunday Times: “The accusation was clear that Jonathan Powell in cahoots with the Treasury had been driving through the decision.
“The explicit suggestion was that the case had to be dropped to appease China, otherwise there would be no further investment from Beijing.”
Powell advised on case but not evidence
Mr Powell was advising Downing Street on issues around the spy case, Education Secretary Bridget Phillipson admitted on Sunday, but insisted he was not involved in discussions about the “substance or the evidence” before its collapse.
Criticism of the British Government over the collapse of the spy case has come from Mr Trump’s administration, which is engaged in its own trade war with Beijing.
The White House had warned Sir Keir against allowing a planned Chinese super-embassy to be built in London, it also emerged at the weekend.
Decision on Chinese embassy delayed again
Its long-awaited decision on whether to approve the vast new embassy near the Tower of London is being prepared for announcement by the Government.
An announcement that the Oct 21 deadline will be pushed back again after several delays amid opposition from critics over security concerns is being prepared by officials in the Ministry of Housing, Communities and Local Government.
The Government was contacted for comment.