UK explores multi-billion pound free trade deal with China

Philip Hammond has begun discussions with China on an ambitious free trade deal which could see greater access for major Chinese banks and businesses to the UK economy.

The chancellor told me that despite a short term economic shock to the economy of Britain leaving the European Union, it was now time to explore "new opportunities" across the world.

"What we now need to do is get on with it in a way that minimises the economic impact on the UK economy in the short term and maximises the benefit in the long term," Mr Hammond said, admitting that there had been "global disappointment" about the Brexit vote.

Chinese state media reported earlier in the month that the Chinese Ministry of Commerce wants to do a UK free trade deal.

Mr Hammond has now revealed that Britain is also keen.

More opportunity?

It will be the first time the UK has embarked on such a major project with the second largest economy in the world.

And will raise concerns about cheap manufactured goods entering the UK more easily.

In return for greater access to the UK for its manufactured products and investment, China would reduce barriers to Britain's service industries like banking and insurance as well as UK goods.

That would be an important source of export income for Britain.

"The mood music that I have heard here is very much that this will mean more opportunity for countries like China that are outside the European Union to do business with Britain," Mr Hammond said.

"And as Britain leaves the European Union and is not bound by the rules of the European Union perhaps it will be easier to do deals with Britain in the future."

I asked if that could mean a free trade deal, bilaterally agreed with China which invested over $5bn (£3.8bn) in the UK in 2014.

"Definitely I could see such a thing," Mr Hammond told me at the meeting of G20 finance ministers in Chengdu, China.

"We already have a strategic partnership with China.

"We have hugely increased our trade with China, investment both by British companies into China and by Chinese entities into the UK.

"That's about as far as we can go while we are members of the European Union.

"But once we are out of the European Union then I have no doubt on both sides we will want to cement that relationship into a firmer structure in a bilateral way that's appropriate.

"That's something we will have to explore in the future."

Mr Hammond said it would be "certainly appropriate" to start discussing a new deal over the next "couple of years" and the issue was raised here at Chengdu.

'Not in punishment mode'

What might a deal - which could only come after Britain had officially left the EU - look like?

Senior government sources have told me that officials are looking at New Zealand's free trade agreement with China which took four years to negotiate and came into effect in 2008.

Care would have to be taken over security concerns and the possibility of China "dumping" cheap imports in the UK - for example steel.

As well as a positive reaction from China, Mr Hammond said that he did not believe that the EU was trying to teach the UK a lesson over the Brexit vote by making negotiations over trade difficult.

"I don't think they are in punishment mode," he said.

"This is a meeting of finance ministers and central bank governors and, as you would expect, they are very much focused on the economic challenges and the economic prizes available.

"I have no doubt that everyone would want to see a very close relationship between the UK and the EU going forward because that will be good for the economies of the European Union and the economy of the UK.

"The challenge for us is to make sure that other politicians who are not so narrowly focused on the economic agenda also share that view and recognise that it is important not just for Britain but for Europe as well that we continue working closely together."

The government hopes a final deal for the new Hinkley Point nuclear plant will be ready soon

No project better sums up how investment in major infrastructure projects is now a global issue than Hinkley Point, the £18bn plan for a new nuclear power station in Somerset backed by France's EDF energy company and one of China's main nuclear suppliers.

Mr Hammond said that the government still supported the project, and that a final agreement would be signed "hopefully over the next few days" after an EDF board meeting to agree the details.

At the G20 many countries are now moving into practical mode - the Chancellor campaigned against leaving the EU and China argued against it, but Mr Hammond has clearly signalled that is now a matter for the history books.

The British public have spoken.

The present challenge is seeing how the fifth largest economy in the world can take advantage of that decision, rebuilding a "close" trading relationship with the EU and new economic relationships with countries, like China, which, it should be remembered, has never had a free trade agreement with any EU country.