Brexit shadow looms large over China’s exports to Europe

A potential trade barrier between the UK and the European Union (EU) after the Brexit, is casting a shadow over China’s exports to its biggest trade partner, analysts said.

“Chinese companies have been using Britain, a country that was highly supportive to free trade and investment, as a spring board to the vast but heavily regulated EU market. Brexit has cast doubts on the outlook,” the official Xinhua News Agency said in a recent article.

Currently, the UK accounts for about 2.6 per cent of China’s exports, while the European Union’s share is about 13 per cent.

“Britain’s departure from the EU would be a costly economic and political blow to China, something that is worrying Beijing” Ivan Lidarev, a scholar with King’s College London, said in a recent article published in The National Interest.

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An important reason is the British government has lobbied the EU to grant China favourable treatment including recognition of its market economy status, which would help reduce trade barriers including anti-dumping duties imposed on Chinese goods.

“While we believe China is well placed to withstand the near-term pressures of “Brexit”, rising protectionism is a structural threat to China’s exports,” analysts from Macquarie Hong Kong said in a research note on Wednesday.

Economists with China International Capital Corporation (CICC) said after the Brexit, under a baseline scenario, the growth in China’s exports to the EU would drop by 5 to 6 percentage points and China’s overall export growth would fall by 1 percentage point, dragging down China’s GDP growth by 0.2 percentage points.

On the other hand, some scholars said the Brexit impact is limited and can be offset.

“China has never put all bets on Britain when it comes to national strategy in Europe. Markets like Dublin or Brussels are also considered attractive with liberal economy and will buffer the possible headwind,” said Jianyong Zhang, an independent international affairs commentator based in Beijing.