In his first major foreign policy speech, Prime Minister Rishi Sunak told his audience that the country had to "evolve" its approach to China.
While he said that the "golden era" of UK-Chinese relations was over, he said it was wrong to "rely on simplistic Cold War rhetoric".
"We recognise China poses a systemic challenge to our values and interests, a challenge that grows more acute as it moves towards even greater authoritarianism," Mr Sunak said.
In the speech at the annual Lord Mayor's Banquet in London's Guildhall, Mr Sunak reiterated Government criticism of the arrest of a BBC journalist covering Covid protests in China.
He said: "Instead of listening to their people's protests, the Chinese government has chosen to crack down further, including by assaulting a BBC journalist."
But Mr Sunak also warned that the UK "cannot simply ignore China's significance in world affairs – to global economic stability or issues like climate change".
He said that with allies, the UK will "manage this sharpening competition, including with diplomacy and engagement".
"We can't depend on Cold War arguments"
Mr Sunak said: "Russia is challenging the fundamental principles of the UN Charter. China is consciously competing for global influence using all the levers of state power.
"In the face of these challenges, short-termism or wishful thinking will not suffice. We can't depend on Cold War arguments or approaches, or mere sentimentality about our past."
Describing the need for an "evolutionary leap" in British strategy, he said it would require "being stronger in defending our values and the openness on which our prosperity depends".
"It means delivering a stronger economy at home, as the foundation of our strength abroad. And it means standing up to our competitors, not with grand rhetoric but with robust pragmatism," he went on.
"We will do all this not only through our diplomatic expertise, science and technology leadership, and investment in defence and security but by dramatically increasing the quality and depth of our partnerships with like-minded allies around the world."
The Prime Minister's speech came as the Government updated the Integrated Review of defence and foreign policy after Chancellor Jeremy Hunt confirmed in his autumn statement that the defence budget will remain at least 2% of GDP.
Prime Minister Rishi Sunak has offered a vision of "robust pragmatism" in standing up to global competitors like China, as he signalled an "evolutionary leap" in British foreign policy.
Mr Sunak indicated to international dignitaries and business leaders that he would set a fresh direction for the UK's place in the world, after the premierships of Boris Johnson and Liz Truss.
Mr Johnson and Ms Truss were seen as taking more combative approaches with allies such as the French president Emmanuel Macron but, in his speech, Mr Sunak balanced his thinking on China and Russia with a promise of better relations with Europe amid the ongoing war in Ukraine.
His speech immediately received criticism, with Tory MP and former party leader Sir Iain Duncan Smith likening some of Mr Sunak's language on China as close to "appeasement".
Speaking to Channel 4 News before Mr Sunak's speech, Sir Iain pointed to the treatment of BBC cameraman Edward Lawrence, who the broadcaster said was "arrested and handcuffed" while covering demonstrations in China against Covid restrictions, and then "beaten and kicked" by police.
"On the very day we see all of that, the Government comes out with its robust pragmatism, which I think to most people out there means kind of anything you want it to mean, and that sounds to me like getting pretty close to appeasement."
Shadow foreign secretary David Lammy called the speech "as thin as gruel".
"All it shows is that once again the Conservative Government is flip-flopping its rhetoric on China," the Labour MP said.
"The Government urgently needs to publish its long-promised China strategy as well as its update to the Integrated Review that is already out of date."
Security minister Tom Tugendhat, when pressed on whether the Government might consider new sanctions on China amid a wave of protests there, said: "I very much hope that the Foreign Office is watching very closely and is going to take action on this because the Foreign Office has got a responsibility to supervise what’s going on within China."