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What are the Effect of Brexit on China?

On the 23rd of June, 2016, 8000 kms from Beijing, England voted to leave the EU. The repercussions of the vote have been felt internationally, as governments assess the effect on their economies. In China the immediate effect was limited and comparatively the Yuan remained stable. Yet, the future is very uncertain.

China’s Springboard

Though only 2.5% of China’s exports are to the UK, the UK has been a useful springboard for China in gaining access to European markets and many Chinese companies have investments in the UK. An economically successful UK is helpful in China’s continued expansion, but not essential. Europe, excluding the UK, accounts for 13% of China’s exports and it is likely that China will now see Germany as its springboard into Europe.

Brexit and China

The Importance of Tariffs

He Weiwen, from China’s ministry of commerce, noted, ‘The European Union (without the presence of Britain) is likely to adopt a more protectionist approach when dealing with China.’ Chinese companies, that have branches and headquarters in the UK, were able, under the old agreement, to enjoy tariff-free access to the wider European market. Under the new agreement, which is yet to be set up, it is probable that China’s access to Europe will involve negotiating tariffs.

Competition in Europe

A strong, unified Europe can work against Chinese interests. To a certain extent, at the moment, China has a trade agreement with Europe as one entity, tariffs and barriers are in place and there is little scope to generate competition between European countries. Britain’s exit from Europe signals change is afoot; both Sweden and Denmark have announced they are considering a similar move to Britain’s. China will be able to create a separate trade agreement with the UK from the one it has with Europe, thereby creating a competitive market in Europe for its exports. Swexit and Dexit and more separate trade agreements might soon follow.

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An Isolated UK

Following the vote Hua Chunying, a spokesperson for the Chinese foreign ministry, said, ‘A prosperous Europe is in the interests of all parties and China is willing to keep co-operating with Britain and is fully confident in China-EU ties.’ Immediately, China made it clear that it recognised the new plan of attack. It could take advantage of Britain’s newfound isolation, yet its future seems more bound with Europe than Britain.

Alliances Old and New

As China has expanded in recent years, Europe and the USA have formed an alliance to limit China’s influence, in the same way they limited Russia’s influence in the cold war. This was easier to do than it was with Russia because the European Union became a unified body but harder because of the relative size of China’s population and economy. With Britain’s exit from Europe, the alliance between the USA and Europe has weakened, because the USA’s ties with the UK are also stronger than they are with other European countries.

Brexit and China

The Depreciation of Currency

The immediate consequence of Brexit was the depreciation in value of the pound and the euro. Such a depreciation may increase the price of foreign goods, and decrease the capacity of Brits and Europeans to spend in general, which will eventually have a detrimental effect on Chinese exports. At the end of this year there are plans to grant China market economy status in Europe, which would drastically lower the price of Chinese products in Europe. With Britain in Europe, it was likely the agreement would have gone ahead smoothly, because of the links between Chinese companies and the UK, but without Britain as China’s ally in Europe, it seems more likely that China will not be granted the hoped for status.

Investment Opportunities

Another point of relevance is that, in the economic turmoil created by Brexit, there will undoubtedly be the opportunity for Chinese firms to invest, not only in the UK, but in Europe. As the pound and the euro depreciate in value, there will be some bargains on the market for Chinese investors. Chinese investors have shown an interest in real estate in developed English speaking countries with strong education systems. Australia has been the target in recent years but attention may now shift to the UK. Juwai.com, which is a leading platform for Chinese investors seeking foreign properties, reports that the interest of Chinese investors in UK properties doubled in the week following Brexit.

The Price of Eggs in China

The 23rd of June, 2016 may be the date that historians look back upon as an important landmark in world history. Many in the UK voted to leave Europe because they were tired of non-Brits (Muslims and Eastern Europeans mostly) committing crimes in the UK and then Strasburg telling the Home Office it couldn’t deport them when their sentences finished due to human rights violations. They were not thinking about the price of eggs in China. Seeing the big picture is essential in predicting economic change.

The Price of Eggs in China

The 23rd of June, 2016 may be the date that historians look back upon as an important landmark in world history. Many in the UK voted to leave Europe because they were tired of non-Brits (Muslims and Eastern Europeans mostly) committing crimes in the UK and then Strasburg telling the Home Office it couldn’t deport them when their sentences finished due to human rights violations. They were not thinking about the price of eggs in China. Seeing the big picture is essential in predicting economic change.

The vote on the 23rd June affects us all. Please share this article on social media.

What are the Effect of Brexit on China?
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