GEORGE Osborne was in good form when I quizzed him in the Treasury Committee last week. The Chancellor’s impish sense of humour was on open display – normally a sign he feels relaxed. And why not? China’s President Xi Jinping had just toasted Osborne’s very own pet Northern Powerhouse project in a Manchester pub. Not to mention President Xi opening the Beijing chequebook to fund a raft of infrastructure projects in the UK.

Why is Beijing seemingly dancing to the Tory Government’s tune? Seeking clues, I watched Xi close up at his (very short) speech to MPs and peers, in the Royal Chamber, the largest room in the Palace of Westminster. An impassive Xi seemed underwhelmed – the Great Hall of the People in Beijing would swallow a dozen Royal Chambers.

Until now the Chinese have been quite deliberately snubbing Tory overtures for closer Sino-British ties. This was President Xi’s first state visit to the UK but he’s already been to Ireland, Belgium and Holland, and of course, France and Germany. In fact, it’s a decade since a Chinese head of state deigned to darken our doors. Why? Because the Chinese recoil at any suggestion foreigners are interfering in their internal affairs – especially the country that stole Hong Kong and forced the odious opium trade on its population.

According to the Beijing Review, the weekly voice of the regime, relations with the UK “took a nosedive in May 2012 when David Cameron insisted on meeting the Dalai Lama in spite of China’s objections.” Here is not the place to explore the wider Tibet issue. Suffice to say, from the Chinese perspective, Tibet is not only an integral part of the state but a key security issue given the wider jihadist threat in its western provinces. There is certainly a civil rights issue regarding Beijing’s treatment of its Tibetan minority. But China perceives British politicians as meddling naïvely or (worse) displaying a “long-existed superiority mentality” of white westerners to Asians, as argued by the Beijing Review.

Basically, the Chinese regime (and people) want the respect of being treated as equals. As a Scot, it’s a point of view I understand. Did President Xi get that respect last week? Certainly, Cameron and Osborne backtracked on raising the Tibet issue and arrested a few protesting Chinese dissidents to boot. But that was an easy call. Cameron’s original opportunist stance on Tibetan human rights was really about de-toxifying the Tory brand. Now the Tories are happy to cast Tibet aside because they need Chinese money.

Pledged to eliminate the deficit, Chancellor Osborne’s not-so-cunning plan involves persuading the Chinese to invest where the Tory Government won’t – in energy and high speed rail. Of course, with interest rates at near zero, and a normal return on infrastructure investments of between 12 and 15 per cent, one might ask why the Chancellor does not just get on with the job himself. Answer: Tory free market ideology and the myth of “balancing the books”.

The paradox is the next generation of public utilities in the UK are being built by French and Chinese state companies, and funded by French, Japanese and (now) Chinese state borrowing. With the proposed new atomic power station at Hinkley Point to cost an absurd £24bn, only state banks can come up with the cash. In order to maintain the polite fiction that public sector involvement is bad in principle, our George is handing over huge chunks of the economy to Chinese ownership.

For camouflage, Osborne and Cameron are claiming that the diplomatic “opening” to China following President Xi’s visit will unlock £30bn in trade deals for the UK. But we’ve already missed the boat on trade expansion with Beijing because the Chinese economy has started slowing – Jaguar Land Rover sales to China fell 32 per cent in the second quarter.

THIS is not just a blip. China’s economy grew fast over the last 20 years fuelled by cheap credit and cheap labour. Now wages costs and prices are rising, production capacity is saturated, and share prices are tumbling. President Xi is desperate for a solution. Enter Xi’s big idea: A new “Silk Road” connecting China and Europe, first unveiled in late 2013. Down this road will flow a new generation of high-value Chinese-designed exports.

Why target Europe? Because Africa is too poor and the Americans have a habit of blocking Chinese investment on security grounds.

The wily Xi – whose character was developed in rural exile during Mao’s Cultural Revolution – intends to spend $1 trillion of his government’s money to build the Silk Road. Chinese companies are being pushed to invest overseas in infrastructure and intellectual property to anchor local economies to the new Silk Road Chinese supply chain. The deal agreed, made by Cameron and Osborne, involves two key technologies the Chinese are already practised in – high speed rail and nuclear power. In return for China funding the construction of the French-owned nuclear facility at Hinkley Point, Britain will allow Chinese companies to build their own reactor at Bradwell, in Derbyshire. China can then showcase its reactor technology in the West, while being subsidised for producing the electricity by the British taxpayer.

In other words, David and George have just signed up to making the UK a branch of the Chinese economy. Fair dos, as the British establishment spent the past 300 years trying to do the reverse. Of course, George Osborne is not daft. He wants something in return for handing over chunks of Britain’s industrial market to Beijing. As usual, that something concerns the City of London. The City wants to become a nexus for Chinese finance capital while Beijing sees London as the perfect (i.e. politically neutral) launch pad for turning the yuan into a global trading and investment currency – a key component of the Silk Road strategy. Subtext: Osborne’s Northern Powerhouse will eventually be sold out to accommodate the City re-inventing itself as China’s financial window to the West.

APB, a Chinese construction giant with very close links to the Community Party, is already at work developing a spectacular 4.7 million sq ft site at the Royal Albert Docks, in London’s East End. Nicknamed Little China, it will play host to Chinese and other banks servicing the New Silk Road, employ as many as 20,000 workers and doubtless drive the capital’s property prices to even more dizzying heights.

Other nations are driving a harder bargain with the Chinese. In the last few years, five big Chinese cities have established direct-rail freight services to Germany, passing through Russia. That helps China reduce costs in competing with the rest of Asia. But it also helps reduce Russia’s diplomatic isolation. Above all, it deepens China’s industrial ties with Germany, which President Xi sees as his real source of technological support in creating what he refers to as a 4.0 version of capitalism in China. But then Germany is investing in technology that China dearly wants.

I’m a fan of China and the Chinese. Whatever reservations I have about the Silk Road project, I just wish the British Government had the same strategic vision instead of its Micawber approach to capital investment and pathetic need to do everything on the cheap.