What Does Brexit Mean for China?

Overview

While the UK may themselves negotiate an appealing set of conditions to China, the size of the market is much smaller, with the EU representing 28 different countries currently. Too many different standards might hurt.

Article Highlights

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After the surprising referendum result where UK citizens voted to leave the EU, many questions are starting to be asked. The news was immediately met with crashing markets, including the FTSE 250 dropped by 10% and the pound weakening and falling to its lowest point against the dollar in 30 years. While these consequences have appeared in the short term, mainly due to the reactionary nature of the financial markets, questions about the future economy of the UK and how Britain will perform on the international stage in the future still remain.

However, many believe a new opportunity has risen out of this decision, and it involves the opening up of China’s and the UK’s market to each other. The e-commerce behemoth JD.com believes the UK’s exit from the EU to be a positive outcome for China. Tony Qiu, the head of JD Worldwide said “From a business perspective there will be an immediate impact because the purchase price will be lower as the pound falls in price”.

After launching their new store focusing on importing British brands, a growing market has been created by Chinese citizens who’s rising disposable income has resulted in a demand for imported luxury goods.

While it seems in the present fallout of the result, China has seen a positive short term impact, the long term outlook has not been so clear. Previous years has seen the relationship between the UK and China strengthen. This connection between the two nations was deemed to be a “golden relationship”, with China particularly seeing advantages in having an ally within the EU who will sing their praises. Nevertheless, due to the recent news, it appears this relationship is now on the rocks, and China may find their chances of successfully negotiating market economy status with the EU much harder to achieve. China might want to look for a new close European partner.

With China’s economy being heavily reliant on exports, the EU represents a favourable market to access. However, the Brexit could damage the nation’s manufacturing sector, who will find it harder to get favourable conditions when exporting to the EU if it has to consider several different national standards rather than one European. While the UK may themselves negotiate an appealing set of conditions to China, the size of the market is much smaller, with the EU representing 28 different countries currently. Too many different standards might hurt, even if they are intended to be more favourable, and there is always the thread that they will be less favourable in other countries following Britain’s example.

There is still further uncertainty even about the immediate future. The UKs prime minister, David Cameron, who was a driving force behind developing a strong link between the two nations, has announced he will stand down as leader in the autumn. With a new leader coming in, and a refreshed team working beneath them, experts are unsure of whether or not the UK will look to double-down on their relationship with China, or cut back due to working closely with the USA.

From China’s perspective, the nation was heavily in favour of the UK staying within the EU, with President Xi Jinping releasing a statement in October 2015 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 the deepening development of China-EU ties”.

Summary

The questions that remain in China’s eyes are more focused on global stability, rather than maintaining the relationship that was developing with the UK. If more countries decide to leave the EU, which could be a real possibility with Sweden and Denmark also considering the option, not only will it disrupt the size of the market economy China is trying to gain access too, but it will also disrupt global economy growth. China’s main priority currently is to achieve stability as not to disrupt their growth.

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