China and Brexit – the end of the golden age?
By Suwatchai Songwanich, CEO Bangkok Bank (China)
China has reacted cautiously to the Brexit vote. This is not surprising as it is anxious to maintain good
relations with both the EU and Britain. Moreover, for China, Brexit raises complex issues which will take
time to assess.
China’s caution was reflected in comments by Premier Li Keqiang at the Global Economic Forum last
week. While acknowledging that the Brexit vote had increased uncertainty around the world, he said, “we
would like to see a united, stable EU, and a stable, prosperous Britain.”
On the downside, if Britain exits, China will lose an important ally in its relationship with the EU. And
China, like other countries, has been caught up in the market turmoil that followed the vote, with the yuan
falling to a five-year low early last week. Longer term, however China will be hurt by a weaker pound, as it
will make China’s exports to Britain less competitive. Another threat to Chinese exports would be an
economic downturn in Britain and Europe, as the EU is China’s biggest trading partner.
However, China’s relationship with the EU has not been an easy one. China hasn’t been able to even
begin negotiating a free-trade agreement with EU and trade restrictions have been increasing. In May the
European Parliament voted to deny market economy status (MES) for China, a move which was
condemned by China's former chief negotiator for the WTO Long Yongtu as “protectionist and antiglobalisation.” Meanwhile 56 out of 73 of the EU's current anti-dumping cases involve a Chinese product.
Understandably, many Chinese perceive the EU as having a negative attitude towards them and this was
reflected in a poll by Global Times prior to the British vote in which 72 percent of netizens supported the
leave campaign.
Brexit means China will at least have an opportunity to negotiate a bilateral trade agreement with Britain,
which is one of China’s most important markets in the EU.
China also has the chance to promote alternative economic and trade relationships. Within a few days of
the Brexit vote, Pakistan and India had signed MOUs to join the Shanghai Cooperation Organisation
(SCO), a security alliance between China, Russian and four other central Asia countries. Meanwhile
there are talks between Russia and China about linking the SCO, the Eurasian Economic Union (EAEU),
China’s Belt and Road initiative, and expanding membership to other countries and groups such as
ASEAN. The disarray in the EU is also likely to cause a delay in the introduction of the Transatlantic
Trade and Investment Partnership (TTIP), a trade and investment block which would exclude China.
Prior to the British vote the warming in relations between China and Britain was described by the leaders
of both countries as a new golden age. So, will Brexit bring the end of this “golden age?” We shall have to
wait and see.
For more columns in this series please visit www.bangkokbank.com