Members of the Business Committee of the House of Commons criticized the British government for failing to fulfill its promise to adopt a consistent policy approach towards China, and instead "stepped" in decision-making.
The committee said in its report that the decision-making process has been characterized by "inconsistency" and that the move is exacerbating national security risks.
The committee called on cabinet ministers to stop the transfer of sensitive data to China, provide clear rules for companies to trade with the superpower and ban the import of products made with forced labour.
The Department of Business disagreed with the report's conclusions, adding: "Our approach to China is consistent and we will co-operate where we can and challenge where we must."
"We have built our bilateral relationship on a more stable, more balanced and longer-term basis, based on a clear-eyed assessment of opportunities and risks.
"Our trade strategy clearly states that we will seize every opportunity to promote economic growth while never compromising on national security issues, and our increased engagement with China also allows us to directly raise concerns when problems arise."
Former prime minister Sir Keir Starmer had sought closer ties with China, arguing Britain could not afford to ignore the economic opportunities while insisting it should not mean compromising national security.
However, some MPs concerned about China's alleged espionage activities in the UK have criticized efforts to build bilateral ties.
A review of relations between the two countries was completed last year, but the government said the document contained confidential information and has not yet been released in its entirety.
Shi Jixian's successor, Andy Burnham, has yet to clarify his stance on UK-China relations.
The House of Commons Business, Innovation, Science and Trade Committee said in a report that successive governments had "failed to convince the public" that they had taken "adequate measures to safeguard the UK's national security and economic resilience".
Lawmakers said the government's unpredictable approach and lack of clear guidance hampered companies' ability to trade with China.
The committee recommended the establishment of "red zones" and "green zones" to clearly define which areas of trade and investment would be encouraged and which areas would be "off limits".
The committee said the government should insist on fair trade with China and recommended that tariff measures be formulated in advance to be implemented if China continues to subsidize domestic industries or fails to provide "full reciprocity" market access.
In terms of protecting sensitive technology and data, the report points out that the use of Internet-enabled technology equipment in critical national infrastructure should be prohibited.
The committee said that "low-cost" connected technology equipment made in China was already widely used in the UK and that in this area the government "put diplomatic politeness ahead of UK national security".
The report also said universities should receive faster advice on research collaborations with Chinese institutions.
Liam Byrne, the ruling Labor Party MP who chairs the committee, said: "British businesses are unable to plan for the future while the government formulates its China policy as it moves forward."
"Ministers promised to provide clarity and consistency. However, what we see is opportunities being missed, risks unmanaged and decisions being delayed until the last minute."
"The UK must shape its relationship with China or risk having it decided for us by Washington or Beijing."
