Brexit: The View from Zhonghanhai

Although the official view from the Chinese leadership expressed disappointment that the UK has voted to leave the European Union there are reasons to believe the Chinese leadership will not be completely heartbroken by this development.

Divide and rule: China prefers to develop bilateral ties with individual countries as it gives them an advantage due to their economic strength and the ability to play countries off each other. Much easier to deal with Germany or the UK individually, rather than the EU as a whole.

As an advert for democracy: As the fallout from Brexit begins it can be easily depicted as chaos, squabbling and a sure slide into recession, all the result of a democratic vote. The inference in the Chinese media will be clear; democracy equals chaos and the Chinese way is best. The Trump surge in the US has also helped to frame this narrative.

While the pound was crashing and markets and governments were focused on Brexit the Chinese quietly took the opportunity to devalue the RMB to give the sagging economy a much needed boost.

On the negative side China may have to find another doorway into Europe if the UK’s access to the single market is closed, there have already been reports of Chinese investors in London getting cold feet due to the uncertainty now involved. From the British point of view there will be concern about Chinese investment in the proposed Hinkley point power station, but also worries that prolonged uncertainty will frighten off potential and existing investors.

The U.K is a key voice within the EU in wanting to give China market economy status (and thus giving it greater leeway in trade negotiations), with this voice lost, the push for this recognition will lose momentum. The U.K. was also becoming rather belatedly a closer ally of China, moves like being the first European country to join the AIIB (against US wishes), showed the UK government making an effort to impress the Chinese leadership. Of course a UK outside of the EU may redouble its efforts to build ties with China, but for now little is certain when it comes to the UK’s foreign policy.



Categories: Geo-Economics, Kula Ring Trade Blog

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