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Opinion: Policy institute Curia looks at the expanding trade relationship between the UK and China on services.
Services growth hidden in the headline decline
The latest Department for Business and Trade snapshot on the UK’s commercial ties with China shows an intriguing paradox. At first glance, the figures appear discouraging. In the twelve months to the first quarter of 2025, total UK exports to China reached £28.8 billion, down by just over twelve per cent compared to the previous year. Goods exports bore the brunt of that decline, falling by more than a quarter and cutting several billion pounds from the balance sheet. Yet hidden in the details is a very different story. Services exports to China grew strongly, rising by 12.1 per cent to reach £13.2 billion. Services now make up almost half of Britain’s exports to China, a proportion that is higher than at any point in the modern trading relationship.
Knowledge and expertise doing the heavy lifting
This shift tells us something important about where commercial ties between the UK and China are actually growing. The City of London, British universities, and professional business services are quietly doing the heavy lifting at a time when shipments of cars, machinery and manufactured goods are under pressure. It is easy to miss this dynamic when the headline message is that overall trade has fallen. In reality, a rebalancing is taking place. Britain is increasingly exporting knowledge, expertise, and institutional services, even as the flow of physical goods faces structural challenges.
Why services are resilient
The rise of services is not an accident. It reflects deep comparative advantages. The UK has long specialised in sectors that are not dependent on container ports or physical supply chains: financial services, law and regulatory advice, consultancy, education, cultural and creative industries. These sectors travel across borders digitally or through human capital. They are less vulnerable to tariffs, customs frictions, or shipping disruption. While the Red Sea crisis of 2023 underlined the fragility of goods supply routes, services trade carried on with little interruption. The resilience of services helps explain why Britain’s exports to China in this area have grown even in the face of economic headwinds.
Chinese demand also plays a role. As China’s economy matures, the appetite for high quality education, advanced legal and business expertise, and sophisticated financial products has expanded. Britain is well positioned to provide these. The continuing demand from Chinese students for UK university places, for example, remains a cornerstone of bilateral engagement. Likewise, British banks, insurance firms and consultancies have carved niches that Chinese clients continue to value. The result is a flow of revenue that is both more stable and more strategically significant than the export of cars or consumer goods.
Rebalancing the trade relationship
This shift carries several implications. First, it means that the UK’s economic relationship with China is being rebalanced. For years, the public narrative has focused on goods such as vehicles, heavy machinery, and pharmaceuticals. Now, with services accounting for nearly half of all exports, policymakers must recognise that Britain’s real strengths lie elsewhere. This calls for a rethinking of trade diplomacy. Instead of pursuing broad agreements that centre on manufactured exports, Britain should target areas where growth is already visible and likely to continue.
Second, the rise of services helps to mitigate, though not erase, the chronic trade deficit. Britain still runs a goods deficit with China of more than £50 billion. Against that, the services balance shows a surplus of nearly £10 billion. While modest in scale, the surplus offers a foundation that could be built upon. If services exports continue to grow at double-digit rates, they could play a meaningful role in softening the overall imbalance.
Third, services exports are tied to high value employment at home. A financial services contract with a Chinese client draws upon analysts in London, compliance specialists in Edinburgh, digital infrastructure spread across the UK, and supporting professional networks. A Chinese student at a British university sustains local economies, research ecosystems, and skilled employment. The benefits spread beyond the contract or transaction itself. In this sense, strengthening services exports directly supports Britain’s domestic prosperity.
Barriers and risks
There are challenges to confront. Market access in China remains tightly managed. Financial services, data driven industries, legal advice, and education all operate under layers of regulation, licensing requirements, and political oversight. British firms must often partner with local entities and navigate complex approval processes. Concentration risks are also apparent.
Much of the services trade is driven by a relatively small number of sectors and institutions. If Chinese regulators suddenly changed their stance on foreign universities or fintech companies, the impact would be disproportionately felt.
Geopolitics adds another layer of complexity. The UK is aligned with allies who are increasingly wary of strategic dependence on China. Technology transfer, data protection, and national security concerns complicate the picture. Expanding services trade with China will inevitably raise questions about resilience and strategic autonomy. Policymakers will need to strike a careful balance, ensuring that growth in this area does not expose Britain to undue vulnerability.
Investment trends also deserve attention. British foreign direct investment stock in China has fallen sharply, falling to £8.9 billion at the end of 2023.
Chinese investment into the UK also dropped, to £3.7 billion. These movements suggest a cooling in investor confidence, influenced by both domestic policy choices and international tensions. For services trade to flourish, investment frameworks must be stabilised. That means pushing for clear protections, transparent regulation, and reliable dispute resolution.
Capitalising on the opportunity
Despite these caveats, the potential is considerable. Britain can position itself as a trusted provider of services that China continues to demand, even as political and economic frictions persist. This would involve targeted trade diplomacy in areas such as green finance, higher education partnerships, intellectual property licensing, and legal and regulatory co-operation. It would also require innovation in support for smaller firms. At present, only large banks, law firms, and universities have the capacity to engage effectively in China. Expanding access to export credits and risk insurance tailored to services could open the market to a broader range of British businesses.
The regional dimension is also significant. Goods exports to China are concentrated in a few parts of the UK, such as the Midlands and South East. Services exports, by contrast, are more diffuse. Universities across the country recruit Chinese students. Professional firms are based not only in London but also in Manchester, Edinburgh, Cardiff, and Belfast. A conscious policy to align regional strengths with the China opportunity could spread benefits more widely.
Looking ahead
Looking ahead, the key indicators will be whether services continue to outpace goods in growth, which sectors account for the expansion, and whether investment flows recover. The regulatory stance in China will be decisive, as will Britain’s own diplomatic posturing. An optimistic scenario would see UK–China services trade expand steadily, acting as a stabilising pillar even if goods trade remains volatile. A pessimistic scenario would involve regulatory clampdowns or geopolitical tensions that curtail access.
Either way, the evidence is clear. A quiet boom in services is underway, reshaping the UK–China trade relationship. For Britain, this is not simply an economic trend but a strategic choice. By recognising and supporting this shift, the UK can harness its comparative strengths, maintain influence in a contested global market, and build a trade portfolio that is more resilient to shocks. Ignoring it would risk clinging to an outdated picture of bilateral commerce that no longer reflects reality.
Final thought
Services are already doing the heavy lifting; with the right policy framework, they could underpin a new phase of Britain’s engagement with China – one that aligns economic interest with resilience and recognises the true shape of twenty-first century trade.
For UK policymakers, the message is threefold. First, the Government needs to acknowledge openly that Britain’s comparative strengths with China lie in services rather than goods. Too often, trade promotion has been framed around manufactured exports, but the evidence shows that the real growth is in financial expertise, higher education, business consulting, and intellectual property. Future trade missions, bilateral dialogues and support packages should be designed with that reality in mind.
Second, the UK should make services exports a core part of its resilience agenda. Goods trade with China remains politically sensitive and vulnerable to disruption. Services, though not immune, offer more stable margins and fewer logistical choke points. By focusing on sectors where Britain has enduring advantages, the Government can soften the impact of volatility in goods markets and reduce the overall exposure of the economy to geopolitical shocks.
Third, there is a need to build the right infrastructure to sustain this under-reported boom. That means strengthening export credit and insurance tools tailored for services firms, especially small and medium sized consultancies, technology specialists, and educational providers that lack the balance sheets of major banks or universities. It means pushing for regulatory dialogues that ensure fairer access for British providers, particularly in financial services, data governance, and education. It means crafting an investment framework that protects UK investors in China while also welcoming sustainable Chinese investment in Britain’s service sectors.
Policymakers should also think regionally. Services exports are not confined to London and the South East. Universities across the UK, legal and professional service hubs in cities such as Manchester, Leeds, Edinburgh and Cardiff, and creative industries in Scotland and the North East all stand to benefit. A coherent China services strategy could be a way to spread prosperity more evenly, aligning with the Government’s wider economic ambition to spread equity.
Finally, ministers must navigate the political and security dimensions with care. Expanding services trade does not mean ignoring strategic risks. Data protection, technology transfer and intellectual property security will all require active management. Parliament, the business community, and regulators should be involved in setting clear red lines, ensuring that deeper commercial engagement does not erode national security.
If policymakers can hold these threads together – recognising where Britain’s strengths lie, embedding resilience, extending support to a broader base of firms, and balancing opportunity with caution – then the current surge in services exports could become more than a statistical curiosity. It could represent the beginning of a durable, strategically balanced, and economically significant phase in UK–China relations.
The alternative is to overlook this quiet boom, focusing only on the decline in goods trade and missing the chance to reshape Britain’s economic engagement on its own terms. At a time when global commerce is shifting, the UK cannot afford to misread where its advantages lie. Services are Britain’s strongest card – and it is time for policymakers to play it with intent.
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