China is ready to take advantage of a divided Europe and weakened UK after Brexit.
In contrast with gloomy assessments from Japan amongst others, China sees Brexit as a source of major opportunities for China’s economy and international standing, according to a new report from ECFR.
China and Brexit: What's in it for us? - a special issue of ECFR’s China Analysis series - looks at the first published Chinese commentaries in the wake of the Brexit shock. While there are nods to concerns around increased uncertainty and the potential loss of the UK as a gateway for EU investment, Chinese authors are markedly more upbeat than their east Asian neighbours in terms of their prospects after Brexit.
Chinese authors seem to concur with the view of Brexit supporters that a more independent UK will be better able to agree a mutually beneficial free trade deal with China – a prospect officially confirmed as a possibility by China’s Ministry of Commerce. While such a trade deal would have intrinsic economic benefits – with Chinese expectations that Britain will remain a large economy even after Brexit - it would also likely increase the attention Britain gives to China more broadly, which is where the real benefits are seen.
UK dependence on China
According to Chinese sources, such a deal would make the UK more dependent on China and therefore more likely to advocate for China’s interests in international fora. Li Xiaopeng argues that this dependence will lead Britain to promote renminbi internationalisation “even more”, while Zhao Hongwei sees post-Brexit UK as “the leading voice” supporting China’s ongoing bid for market economy status (MES). The possibility of the UK lifting an embargo against arms exports to China is another area where Britain’s new-found independence from Europe – and dependence on China – could bear fruit for Asia’s largest military actor.
A divided Europe is seen as an additional opportunity for China. Chinese scholars expect that Brexit will weaken the EU’s position on its own values, leading to a softer European posture on Chinese human rights abuses. Economic competition between the UK and EU for Chinese investment is also seen as likely to lead to better terms for Chinese companies. London’s recent delay of the £18 billion Hinkley Point C nuclear power plant out of concerns about China’s 30 percent stake in the highly sensitive nuclear project is viewed as an exception in this sense.
Francois Godement, director of ECFR’s Asia and China programme, explains the divergence in views between Japan and China in terms of the characteristics of their respective investments in the UK: “Japan has major greenfield investments in the manufacturing sector with significant physical assets. The pound’s immediate decline is a blow to their balance sheets, because of higher procurement costs to the UK subsidiaries. China’s investments, on the other hand, have been mostly in finance and real estate and could conceivably move with far less damage.”
In other words, it is not that China anticipates less economic damage to Britain as a result of Brexit, but rather that it sees itself better placed to take advantage of the UK and Europe’s resulting weakness.