The soft power aspect of this dependency is a problem, but the bigger problem is that it has made UK universities dependent on a fundamentally unsustainable revenue stream. Chinese students come to study in the UK because British universities are perceived as better than Chinese universities, and that reputation rubs off on the students' own prospects when they return home.
But, that effect can only really last a couple of generations at most: the students go home, a proportion of them become (well-trained) academics, and the Chinese universities that those academics work at become competitive with the foreign universities. A similar thing happened with the "plate glass" universities of the 1960s UK; initially those were bootstrapped with Oxbridge academics, but within 30 years they were standing on their own feet.
As far as I can see, current UK universities have no plan to replace the revenue that will be inevitably lost when the Chinese universities also begin to stand up on their own feet.
But, that effect can only really last a couple of generations at most: the students go home, a proportion of them become (well-trained) academics, and the Chinese universities that those academics work at become competitive with the foreign universities. A similar thing happened with the "plate glass" universities of the 1960s UK; initially those were bootstrapped with Oxbridge academics, but within 30 years they were standing on their own feet.
As far as I can see, current UK universities have no plan to replace the revenue that will be inevitably lost when the Chinese universities also begin to stand up on their own feet.