China emerges unscathed from Brexit, at least for now, experts say
Markets react mildly to British referendum result
Beijing may brush off limited, short-term turbulence brought about by Britain’s exit from the European Union, Chinese scholars said, but the dynamics of its relationships with London and the bloc may shift in the long run.
While China is using London as a bridgehead to expand the yuan’s global clout, treating Britain as an ideal destination for overseas property and infrastructure investment, and wooing British support for its own international initiatives, they said it was too far away from the centre of the storm to be badly affected by Britain’s exit from the EU.
In the long run, Britain without the EU restrictions might be able to form better ties with China
Chinese markets reacted only mildly to the British referendum that sparked the biggest global financial turmoil since the 2008 crisis – the Shanghai composite stock index lost 1.3 per cent and the onshore yuan exchange rate weakened slightly. In comparison, the Japanese stock market plunged 8 per cent as the yen rallied 5 per cent.
As the world’s second-biggest economy and its largest trader, China was not immune from ripples caused by Brexit, said Sun Lijian, a finance professor at Fudan University in Shanghai, but its capital account controls could provide a buffer to manage the market fallout and Beijing might become more cautious in opening up its domestic market to a stormy world.
Brexit “may also add international pressure to do more in terms of growth and maintaining exchange rate stability, and China is expected to face such pressure at the G20” meeting in Hangzhou, China, in September, Sun said.
China’s zeal for investment in Britain might cool off a bit if the terms of its exit from the EU turned out to be unfriendly to business, said Zhang Ming, a researcher of international investment at the Chinese Academy of Social Sciences.
“China may shift some deals from London to continental European hubs such as Luxembourg or Frankfurt,” Zhang said.
But he said there was no need to worry too much about offshore yuan development in London – a key yuan business hub along with Hong Kong and Singapore.
“The direct impacts from Brexit on China may be limited, and what should really worry China is the following development – will other European countries follow Britain to leave the EU, and how will the British economy perform after the exit?” said Ding Yifan, a senior fellow at the State Council Development Research Centre’s Institute of World Development. “There are more questions than answers for China.”
Ties between Britain and China have been close in recent years. On top of Beijing’s big diplomatic victory in convincing Britain to join the Asian Infrastructure Investment Bank, London’s offshore yuan market is a key venue to promote the international use of yuan, with Britain the first Western country to issue a yuan-denominated sovereign bond. The two countries are also studying a link between the Shanghai and London stock markets.
The British royal family and government rolled out the red carpet for a state visit by President Xi Jinping in October to such a degree that critics labelled it “kowtowing” to Beijing. Xi signed a slew of investment deals, including a £40 billion (HK$426 billion) deal to develop nuclear plants in Britain and hailed a “golden era” in bilateral relations.
Wang Yiwei, a professor of international relations at Renmin University, said Brexit would “damage the faith in European integration”. “The EU is going to be more conservative, continental and self-oriented, and the uncertainties will reduce the EU’s importance to China,” he said. “As for Sino-British relations, in the short term there will be a lot of turbulence. But in the long run, Britain without the EU restrictions might be able to form better ties with China.”
Foreign ministry spokeswoman Hua Chunying said China “respects the choice of British people”.
A European diplomat in Beijing said Brexit was set to weaken the EU’s influence in China.
Chen Fengying, a senior world economy researcher at the China Institute of Contemporary International Relations in Beijing, said: “Brexit is a crack in the Western alliance, and it means the Western sphere is not a whole bloc ... so it’s not necessarily a bad thing for China.”
Additional reporting by Liu Zhen and Wendy Wu
