China likely to unveil fresh stimulus as exports to UK and Europe set to cool in post Brexit world, CICC says

China’s exports to Britain and Europe will face headwinds in the post-Brexit world, weighing on the mainland’s economic growth and opening a window for Beijing to inject fresh stimulus to help guard against a slowdown, according to a report by investment bank China International Capital Corporation (CICC).

China’s export growth to the EU would drop by 5 to 6 percentage points and China’s overall export growth would fall by 1 percentage point, CICC said, on the assumption that the European economy would lose 1 percentage point of potential GDP growth because of the shockwaves created by Britain’s stunning exit decision.

That will drag China’s economic growth this year down 0.2 percentage points, as exports account for 20 per cent of total GDP.

In a worst case scenario, the EU’s growth would slow 2 percentage points, which will translate to a more than 5 percentage point impact to China’s exports and GDP, CICC said.

In addition, the sharp appreciation of the yuan against the British pound and the euro since the Brexit result was known on June 24 will add to the downside risks to China’s exports.

In the medium and long term, a reverse in the direction of globalisation will bring more headwinds to China, a beneficiary of globalisation over the last 30 years, especially after it became a member of the World Trade Organization in December 2001, CICC said.