Rishi Sunak has said China poses a systemic challenge to UK values and represents the “biggest state-based threat to our economic security”.

The Prime Minister is attending the G20 summit in Bali with fellow leaders of the world’s major economies, including China’s Xi Jinping.

Britain will consider sending arms to help Taiwan to defend itself in the event of an attack from Beijing, Mr Sunak also said.

China is an indisputable fact of the global economy and we’re not going to be able to resolve shared global challenges without having a dialogue with them

He told reporters travelling with him to Indonesia: “My view is that China poses a systemic challenge to our values and interests and it represents the biggest state-based threat to our economic security.

“I think that view, by the way, is highly aligned with our allies.”

He declined to say whether he intended to officially recategorise China as a “threat,” as his predecessor Liz Truss had pledged to do, signalling a softer stance towards Beijing.

His rhetoric also appears to have mellowed since his unsuccessful Tory leadership campaign in the summer, when he declared China “the biggest-long term threat to Britain”, while also promising to close all 30 of Beijing’s Confucius Institutes in the UK.

The shift drew criticism from former Conservative Party leader Sir Iain Duncan Smith who warned the Prime Minister a “U-turn” would be “completely wrong”.

Ahead of the G20, Mr Sunak said it was “important” the UK defends itself against that, for example through the National Security Investment Act, which allows the Government to block investment in UK companies that might affect the country’s security.

He went on to say: “But I also think that China is an indisputable fact of the global economy and we’re not going to be able to resolve shared global challenges like climate change, or public health, or indeed actually dealing with Russia and Ukraine, without having a dialogue with them.”

Mr Sunak left open the possibility that he could meet Mr Xi, saying ahead of the Bali gathering: “Hopefully I will have a chance to talk to him too.”

China-sceptic Sir Iain told Talk TV: “He said in the summer, categorically, that he considered China to be a systemic threat.

“So what we’re seeing here at the moment, I think, is the beginnings of a step away from his original position…

“It’s time to call them out as what they are, a threat, but I hope he’s not about to do a U-turn, it would be completely wrong.”

Joe Biden held highly anticipated talks with the Chinese leader on Monday, in which the US president objected to Beijing’s “coercive and increasingly aggressive actions” towards Taiwan.

For Mr Sunak, China’s economic clout means it will be necessary to balance trade benefits with caution over Beijing’s political motivations.

The UK and China are deeply divided over human rights, particularly in Hong Kong, and Beijing’s refusal to publicly condemn Russia’s invasion of Ukraine.

Mr Xi has tightened his grip on power with an unprecedented third term in office, something which could embolden him in taking a more assertive stance towards the West and Taiwan.

Ms Truss in the summer said Western allies should learn the lessons from Ukraine and provide greater support for Taiwan.

Asked if he agreed with his predecessor that the UK should send arms to the self-governing island, Mr Sunak said this would be an option considered in a revamp of the review of foreign and defence policy.

He added: “We’re looking at all of these policies as part of our refresh of the integrated review.

“Our policy on Taiwan is obviously there should be no unilateral change to the status and there should be a peaceful resolution to that situation. We stand ready to support Taiwan as we do in standing up to Chinese aggression.”

Taiwan has been self-governing since nationalist forces fled there in 1949 after the communists took control of China.

It is considered to be a rebel province by China, which claims the island as its territory and opposes any engagement by Taiwanese officials with foreign governments.