What the Chinese Spy Scandal Reveals about UK Resolve

It is easy to get caught up in the finger-pointing and intrigue now consuming Westminster over the collapse of the prosecution of two alleged Chinese spies. The case has all the hallmarks of a Le Carrė novel – covert infiltration of the halls of power, sensitive information being passed to foreign handlers, and even a suitcase full of cash.

But the more revealing story is not about legal technicalities over threat designations or the extraordinary public brawl between the government, the Crown Prosecution Service and the head of MI5. On a deeper level, the failed prosecution has exposed how the UK is struggling to manage a dual imperative: to stay secure in the face of Chinese espionage and interference while remaining economically engaged with the world’s second-largest economy.

A Trial of Resolve

If the collapse of the prosecution was intended to appease China – perhaps ahead of a senior diplomatic visit – it is more likely to be interpreted as weakness than restraint. The episode demonstrates that the UK’s will to enforce its own rules remains vulnerable to commercial sensitivities. To the British public, this looks like bureaucratic dysfunction, to the Chinese intelligence services, it looks like an opportunity.

These perceptions matter. China’s foreign and intelligence policy is broadly built around testing where resistance is weak and pulling back where it is strong. When the political costs of espionage or coercion appear low, Beijing presses its advantage. When resistance is credible, it recalibrates. As the research by RUSI Senior Associate Fellow Matthew Redhead observes, ‘China’s preference is to operate like “running water, flowing into the vulnerabilities and openings left by opponents”.’

China expects espionage and influence operations to be a normal part of global politics. At home, it maintains one of the world’s most sophisticated internal intelligence states; abroad, it assumes that others will do the same. When its operations are exposed, the outrage expressed is often performative – a ritualistic display of indignation designed to intimidate rivals and project strength. The real test is whether the target stands firm.

Too often, Western democracies misread this dynamic, treating China’s staged fury as a genuine escalation rather than a managed performance. The result is overcorrection. Fear of triggering Beijing’s ire can reduce the enforcement of espionage laws or mute political language, as appears to have happened in the UK case. Yet such caution carries its own risks. It signals that intimidation works, undermining deterrence in the grey zone of state threats, where countries compete through shadowy cyber intrusions, disinformation and covert influence.

The Australian Example

Australia offers an instructive counterpoint. Canberra has faced decades of Chinese interference, political donation scandals and economic coercion. Yet unlike the UK, Australia has turned its exposure into experience. Over the past ten years, Australia has overhauled its foreign-interference laws, strengthening its ability to prosecute covert activity in the face of escalating threats.

Admittedly, legal reform alone does not guarantee success, Australia has managed only one conviction under its foreign interference laws to date, but it has created a level of institutional certainty. This predictability is itself a form of deterrence – adversaries know the rules and their enforcement should, in theory, no longer depend on the political mood.

Yet even the most robust legal framework has its limits. Covert influence operations are inherently difficult to prove to a legal standard and the threat of prosecution is unlikely to deter state actors like China, which view interference operations as integral to their foreign policy. Australia’s real test came not in the courtroom, but in the marketplace.

In 2017 and 2018, relations between Canberra and Beijing deteriorated sharply after Australia publicly attributed malicious cyber activity to China and became the first country to ban Huawei. When Australia’s Prime Minister called for an inquiry into the origins of COVID-19 in early 2020, China retaliated with an unprecedented campaign of economic coercion.

Within weeks, China had blocked or heavily restricted around $20 billion worth of Australian exports in key sectors such as beef, wine, lobster, barely and coal. The punitive intent was clear. As a Chinese Foreign Ministry spokesmen said at the time: ‘We will not allow any country to reap benefits from doing business with China while groundlessly accusing and smearing China, and undermining its core interests based on ideology’.

China’s logic behind the measures was understandable. At the time, roughly 40% of Australia’s total exports went to China. Economic pain seemed inevitable and political pressure on the Australian government from affected industries was immediate and intense. Yet what distinguished Australia’s response was not the absence of cost, but the presence of resolve.

Canberra refused to make policy concessions on the issues that triggered the dispute – Huawei’s exclusion from 5G networks, calls for pandemic transparency and tighter foreign-investment screening. Instead, it worked with Australian industry to diversify markets, absorb losses, and endure three years of pressure until Beijing began reversing its tariffs.

Diplomacy played an important role, as did China’s dependence on Australian iron ore and liquefied natural gas. But a decisive element was the political steadfastness behind Canberra’s choices and its engagement with the private sector to build a shared sense of mission on economic security objectives. Economic punishment did not buy political submission and that lesson, once internalised, becomes a deterrent in its own right.

Credibility as Leverage

By mid-2023, trade between the two countries had largely normalised. Prime Minister Anthony Albanese’s visit to Beijing later that year, the first by an Australian leader in seven years, signalled a pragmatic reset. The Australian experience demonstrates that security resolve and economic engagement are not mutually exclusive, in fact, they can be mutually reinforcing. States that defend their sovereignty credibly often find themselves better positioned to trade. China’s leaders dislike being defied, but they understand consistency and strength.

The lesson is not that confrontation guarantees respect, but that it can be earnt by credibility under pressure. This is why the collapse of the UK prosecution matters beyond domestic political infighting. It has revealed not only a procedural flaw but also a strategic hesitation – a reluctance to risk short-term diplomatic discomfort for long-term credibility. Contrast that with Australia’s readiness to absorb economic blows to defend its sovereignty. The distinction between de-escalation and deterrence is not lost on Beijing.

A New Age of Interdependence

Both the UK and Australia face the same dilemma: deep economic dependence on China alongside growing strategic distrust of its ambitions. Yet dependence need not mean weakness. Australia’s resource exports remain indispensable to China’s industrial base, giving Canberra quiet leverage even amid competition. Britain’s exposure is different, concentrated in education, finance and technology, but the principle still applies.

Australia’s experience also shows that the UK should not assume Chinese pressure will end when a particular dispute subsides. With the lifting of tariffs, China’s overt economic coercion has shifted into implied threats of future retaliation, military posturing in Australia’s near waters, and the exploitation of political, diplomatic and commercial vulnerabilities. There is no friction-free status quo.

The task for the UK is to manage strategic interdependence on its own terms, which will require institutional resilience, legal clarity, and a willingness to accept diplomatic and economic tension. With another test looming – whether to approve China’s proposed ‘mega-embassy’ in London – the UK urgently needs to decide what kind of relationship it wants with China in this new age of geopolitical instability. The collapse of a single spy case need not define the government’s resolve but, if the lesson goes unheeded, it just might.

© RUSI, 2025.

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