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FEATURE STORY: What Brexit Means for China
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What Brexit Means for China

By Tracy Hall

BT 201608 040 01 Feature story brexit 1462470589PAaIn June we witnessed the historical decision being made by citizens of the United Kingdom to part ways with the undemocratic bureaucracy-ridden economic black hole that is the European Union. Vote to leave the EU came about in spite of uncertainties and potential problems that the world's fifth largest economy is likely to face. As is always the case when huge political change occurs in a major global power, big ripples are felt in the financial world.

Following the referendum we saw stock markets around the world take big hits, the pound plummet to a 31-year low and Britain's credit rating get slashed. While share prices and sterling have now started to recover, there are still plenty of pessimists who are saying that Brexit will be disastrous for the global economy in the coming months and years. Are they right to be fearful, or is an independent Britain going to be good for business?

As soon as the Brexit vote was announced the media turned their attention to the rest of the world's reactions - particularly the French, Germans, Americans and the Chinese. It hardly came as a surprise that Britain's European neighbours were not very pleased with the result. Likewise supporters of the Obama administration, most of whom had previously been very candid about their support for the 'remain' campaign, were disappointed by the news. Rather than seeing Britain's new found freedom allowing new opportunities to arise, they fear that UK's isolation from the rest of Europe will weaken their economy, which will in turn have a big knock out effect in their own countries.

BT 201608 040 06 Feature story hlChinese on the other hand seem to have mixed feelings about Brexit and they have thus far taken a more pragmatic and level-headed approach. Given the staggering amounts trade that China does with the EU and that Britain is the number one European destination for Chinese investment, Brexit matters a lot to them. In the run up to the referendum President Xi Jinping and his team made no secret of their preference for a continuation of status quo. During his state visit to UK last year, the Chinese Foreign Ministry paraphrased a statement from him saying "China hopes to see a prosperous Europe and a united EU, and hopes Britain, as an important member of the EU, can play an even more positive and constructive role in promoting development of China-EU ties". But now that the long awaited divorce has now happened the Chinese leadership is tasked with evaluating and crafting a new relationship with a more independent United Kingdom.

BT 201608 040 04 Feature story brexitThere will certainly be some differences of opinion and long drawn out negotiations between China and the UK over the coming years. As of now we are still not exactly sure what kind of legislative framework we are going to see overshadowing the British business community when the Brexit process comes to a close, so it is hard for Chinese or anyone else to know how to formulate business and investment strategies. The truth though is that although Brexit brings uncertainty for Chinese business leaders, investors and policymakers, it also opens up a lot of great opportunities. In the last few years both nations have worked very hard to forge a strong bilateral relationship, working together on issues ranging from trade and investment to environmental protection and national security. Some commentators have termed this a 'golden era' for Sino-British relations. Regardless of UK's decision to leave the European Union neither sides are going to risk jeopardising this highly important strategic partnership.

The most obvious upside of Brexit for China and other Asian economies is that leaving the EU will free Britain up to forge trade deals. As a member of the European Union Britain was not just unable to make its own trade deals but also had to rely on incompetent European bureaucrats to negotiate for them. This has left them without important trade agreements with China, America, Japan, India, Australia, Canada and all the other economic powerhouses of the world because the EU have thus far failed miserably in all their attempts to negotiate deals. Now thanks to the Brexit vote it looks like this is going to change.

BT 201608 040 05 Feature story hlIn recent weeks key figures from China and the UK have said that the likelihood of major deals being reached in the near future is now highly likely. Xing Houyuan, an official at the state-backed Chinese Academy of International Trade and Economic Cooperation, said that China's efforts were being frustrated by the EU. But now that Britain has left, 'situation in Western Europe will push China and the UK to make a trade treaty,' he told the China Daily newspaper.

British trade minister Lord Price, a former boss of Waitrose, is currently in Hong Kong where he said they are "very optimistic" about future trade deals with "new trading markets in the East". Moreover, China's Commerce Ministry spokesman Shen Danyang also gave a positive outlook, telling China Daily that Brexit will 'create more chances in different fields for new investment'. The announcements came on the day that Britain posted its best manufacturing figures in five years.

eu 1473958One of the key questions though is how important China sees an independent Britain in comparison to the EU. People who backed the campaign to remain have argued that leaving the European Union will make Britain much less appealing. They say that rather than countries like China seeing UK as a special strategic access point into the wider Europe, as they have in the past, they will divert their time and resources to Germany and France. On the whole though, as far as Chinese businesses are concerned, the UK already has a lot of advantages over the EU and in future it will have even more.

In fact the European Union has given China some major headaches. Some members of the European Commission want tighter trade restrictions on China. European lawmakers voted in May to deny China "market economy" status, a designation that would make it more difficult to place tariffs on Chinese goods. China was supposed to receive the designation after its entrance into the WTO in 2001. The EU has also been trying to increase tariffs on China's super cheap state-supported steel, whose overproduction has upended global markets. The UK has been blocking these measures since 2014, the Independent reported citing EU Council documents.

Without doubt the ability to completely regulate their economy by themselves means that the British government will have the freedom to act in the interest of their other global trading partners, not just other European countries. Hopefully when the initial panic wears off we will see some common sense policymaking prevail that will lead to a more prosperous, outward-looking and business-friendly United Kingdom. This will make it an even more attractive and more powerful partner for China. And of course in a more general sense the global economy will benefit considerably from a stronger Britain.


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