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The UK Shouldn't Prioritise its Relationship with China Over India

    The UK has now been visited by the Premiers of the two biggest emerging economies in the space of less than a month. Chinese premiere President Xi received a full state banquet, comparing favourably to the more ‘modest’ welcome of President Modi. This, perhaps, reflects the Government’s current attitude towards the two countries.

    China’s phenomenal GDP growth, which has outpaced India’s in all but one year since 1991, certainly makes the UK-China bilateral relationship stronger in some aspects. The UK looked to sign £30bn of deals with China against just £9bn with India from the respective visits. China is also a far larger export market for British industry – UK businesses export four times more to China. 

    Figure 1: China and India Annual Growth since 1991

    Source: Economist

    There is no doubt that India’s economic potential is being held back in a number of areas. The literacy rate is over 95% in China compared to India’s 71%, and access to decent sanitation is 77% in China but less than half of the Indian population benefit from this basic requirement. Despite these setbacks, however, India’s economy is on the up. In its World Economic Outlook Update, the International Monetary Fund estimates that India will outpace China’s GDP growth next year.   

    The UK’s historical and cultural ties with India also provide huge potential for the UK-India bilateral relationship. India is already the third largest source of foreign direct investment (FDI) into the UK and Britain is the largest investor in India, accounting for around 9% of FDI into the country. President Modi’s liberalisation of FDI into India will give British firms further investment opportunities in areas such as the railways, defence and insurance.

    On the flip side, Indian investment in the UK offers potential for domestic job growth. 110,000 people in the UK are already employed by Indian businesses, and India’s keenness to tap into British hi-tech expertise could increase this number over the coming years.  

    Of course, the UK is right in seeking investment from China. China is likely to be world’s largest economy in the not too distant future, so the UK needs to engage if it wants to benefit from this. However, this engagement should not be at the expense of our bilateral relationship with India. The UK needs to tap into future growth opportunities from both India and China. The UK must not fall into the trap of prioritising one relationship over the other. 

    Daniel joined the Centre for Policy Studies as Head of Economic Research in November 2015. He was promoted to Deputy Director in March 2017. Prior to joining the CPS, he worked in research roles for a number of parliamentarians.

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