How Brexit turned from a lost EU-bridge to a big opportunity for China

14/12/2018

With UK decision to leave the EU, China lost its favorite “gateway” to the European market. But while Brexit creates a mature market free from constraints, brand-new windows of opportunity open for Chinese investors

 

With $ 53 billion in exports from China to the UK and more than $ 20 billion in exports from the UK to China in 2016, Great Britain is the fourth largest import partner and the eight largest export partner of the Dragon.

Since 1999, trade and investments between the two countries have increased steadily. Moreover, in the last few years, the diplomatic relations between London and Beijing have intensified so much so that the time that goes from 2015 – when President Xi Jinping visited the British capital – has been defined the “golden age” of the relationship whose trade reached a record $ 89 billion in 2017, a 15% increase from 2016.

In 2016, the British decision to exit the EU has led to a process of rewriting of international ties, therefore British Foreign Minister Jeremy Hunt recently visited Beijing to discuss relations between the two countries within the Brexit process.

The exit is a matter of importance for the Middle Kingdom, especially for Chinese companies as Britain has always been one of the principal beneficiaries of Chinese investment in the Community. In fact, from 2006 to 2016, the PRC invested more than $ 114 billion in Europe, whose $ 26 billion were addressed to the British market, compared to the “only” $ 20 billion addressed to Germany.

 

Brexit - London Chinatown - cifnews

© Unsplash. Lanterns in Chinatown, London. In the late XVIII century, Chinese sailors settled in London where now stands the Chinatown district. The popularity of London’s Chinatown has grown since then to the present day thanks to Chinese entrepreneurs that invested in over 100 businesses in the area.

 

PRC investors always looked at London as their “gateway” to Europe where they have established and expanded their businesses benefiting from the EU favorable regulatory environment. Now the bridge is no longer there and the Chinese will need to record new deals with the country as a completely new partner.

 

In recent years, in the UK more than 30 among the best-performing Chinese companies yielded a total of $ 11 billion in revenue and employed over 20,000 people.

 

Both China and the United States have gained a new potential business partner away from EU constraints and it is no coincidence that both Beijing and Washington move at the same time to forge ties with London.

In order to attract British best deals, although the US can rely on the historical Atlantic relationship, Beijing can count on Chinese funds. Since the beginning of 2016, under Xi Jinping leadership, Beijing has invested more than $ 14 billion in the UK. Therefore, Jeremy Hunt, the new head of diplomacy in London, has chosen China for his first international visit. Hunt flew to Beijing to discuss with his Chinese counterpart, Wang Yi, on a future free trade pact between the two countries.

The aim is to transform the English capital into the financial terminal of the New Silk Road. Britain’s will to join the Belt and Road Initiative would link countries across Africa, Asia, and Europe through trade and infrastructures. The two markets, in fact, would be directly connected by a new rail service, which would carry goods across seven countries between London and the Chinese manufacturing city of Yiwu.

Moreover, the BRI is not the only reason China is so interested in strengthen ties with London. The UK is also home to many technological industries in which the Dragon wants to invest in as part of its national hi-tech challenge, the Made in China 2025 plan.

 

Brexit - yiwu - zhejiang - cultural square - cifnews

© Archina.com. Yiwu Cultural Square, Zhejiang. After being included in the urban planning of Zhejiang Province, Yiwu has begun to take concrete steps to become an international metropolis and the Yiwu Cultural Center is seen as an opportunity to publicly declare its openness to the international society.

 

Nevertheless, doing business with the post-Brexit Great Britain before official Brexit deals is not easy for China, according to Jianwei Xu, a senior economist for China Natixis. “It’s not going to be as easy as people may think because, after Brexit, the UK will have to go through a lot of procedures to sign any contracts, to sign any trade deals with a third country. First, it needs to settle its Brexit deal. Before that, it cannot even discuss multilateral tariff schemes,” says Xu.

In February, British Prime Minister Theresa May already visited China to start talks about post-Brexit agreements with Xi Jinping at the Diaoyutai State Guest House. The future of Britain outside the European Union and the Belt and Road infrastructure development initiative for the Euro-Asian connection were the central topics of the meeting.

May also met the Chinese Prime Minister Li Keqiang and signed a dozen agreements in areas ranging from trade to finance, to cooperation on the smart cities side and the progress of the “golden age” between the two countries. Moreover, in Wuhan, they announced agreements in the education sector for 700 million dollars.

Chinese willingness to negotiate a trade agreement comes as a relief to Theresa May’s government, which considered such pacts as a priority after the UK formally leaves the EU next year.

 

“What China really wants is a longer-term partnership with the UK that helps it compete with the US as the global standard setter for the next century,” said Tim Clissold, a British expert on investing in China.

 

As the Brexit date of 29 March 2019 draws closer, Britain has tried to reassure Chinese companies that it is fully open for business. However, while Liam Fox – British International Trade Minister – recently said that Britain aims to boost exports to 35% of the gross domestic product after leaving the EU, Zhong Shan – China’s Commerce Minister – responded that he hoped London would use the opportunity of a major import fair in November in Shanghai to expand its exports to China.

 

Brexit - shanghai - import expo - ciie - cifnews

©Reuters. The China International Import Expo was held at the National Exhibition and Convention Center in Shanghai from 5 to 10 November 2018. The UK is one of 12 countries of honor at the expo as a demonstration of China’s desire to further open up its markets and increase trade with the country.

 

As a result of Brexit, China now faces both challenges and opportunities. The British vote to exit EU has made the country lose its attractiveness as a gateway for Chinese investors whose aim was reaching the European market composed of over 500 million consumers.

However, according to the Chinese term for crisis 危机 (Weiji), crisis 危 is synonymous and combined with the character 机 that means opportunity. The European crisis, exacerbated by UK decision, is thus opening windows of opportunity for the PRC to use its policy instruments and diversify its initiatives to pursue immediate economic activities with European partners.

 

©The Independent  2017 saw the official inauguration of the railway line that connects London to Yiwu in 17 days time, beating deadlines and budgets on both sides

 

From Theresa May’s recent visit to the Dragon to the UK’s new appointment of Richard Burn as Trade Commissioner, China and Great Britain are displaying newfound diplomacy. One recent act of cultural diplomacy has turned heads: singer-songwriter Jessie J’s appearance as a contestant on Chinese talent show “I Am a Singer” last year.

A strong commercial relationship with China is essential for the post-Brexit UK, putting the Dragon in the position to negotiate an advantageous bilateral trade agreement with London to take effect once Brexit is completed. In addition, Chinese enterprises could use the experience to learn how to deal with democratic governments’ risks in a free market environment acquiring further know-how in order to become a leading player in world economic affairs.

 

©HunanTV. Last year, op star Jessie J became a musical bridge between Beijing and London

 

April 2017 saw the official inauguration of the railway line that connects London to Yiwu in 17 days time, beating deadlines and budgets on both sides. In October members of the 26th fleet of the Chinese navy were greeted with honors in London. In turn, the British Admiralty promised a similar trip to the largest ports in China in 2018.

For Chinese enterprises, investing in the post-Brexit UK will not only create long-lasting relationships but it will also build a stable brand value for their products. The exposure to an experienced and developed market economy will also allow companies from the PRC to learn practical management skills.

 

Eastern players that will take this chance will thus gain a competitive advantage over other Chinese brands not only in the domestic market but also in the worldwide economy.

 

Chinese tech giants have already started to play. Tencent, Ping An, GSK China, and Lenovo have already signed trade deals with the London-based health technology AI startup Medopad while Theresa May and Alibaba founder, Jack Ma, engaged in a conversation about how to handle cross-border e-commerce after Brexit.

Despite the challenge to lose the Chinese favorite gateway to European Union, it seems that the Dragon is already taking the steps towards the opportunities Brexit offers. However, although China is moving in a supportive direction, as Jianwei Xu explained, it is early for both the PRC and the UK to build agreements without formal official Brexit deals.

Without a doubt, China is a country with which the United Kingdom, despite American reticence, wants to make trade agreements. What remains to be seen is how London-Beijing relations will evolve. Surely the so-called “Golden Era” of the relations between the two countries advocated by Xi Jinping in 2015 has now come alive. The conditions for continuing are more than favorable.

 

MORE ON THIS TOPIC

Leave a Reply

Your email address will not be published. Required fields are marked *