Is Brexit a Blessing for Beijing, or a Blow?

On Thursday, the British public narrowly voted to leave the European Union. China avoided most of the ensuing market turmoil, which saw Hong Kong’s Hang Seng Index dip 5.8% before bouncing halfway back. But the decision’s longer term effects on its economic and political interests remain unclear and disputed. The U.K. has become a useful partner for Chinatoo useful, critics have said—offering it an economic foothold in and spearheading international participation in its Asian Infrastructure Investment Bank in defiance of the . But its departure from Europe leaves the future strategic value of this partnership in doubt.

Foreign Ministry spokesperson Hua Chunying answered a series of questions on the “Brexit” decision at a routine press conference on Friday:

China has taken note of the result of the UK referendum, and respects the choice made by the British people. China always views and develops its relations with the UK and the EU from a strategic and long-term perspective, and supports the development path of Europe’s own choice. We hope that the UK and the EU can reach an early agreement through negotiation. A prosperous and stable Europe is in the interests of all parties. […] We are willing to join hands with the UK to maintain and press ahead with bilateral relations, and make new headway in pragmatic cooperation. [Source]

Hua’s comments offered little insight into Beijing’s strategic hopes and fears regarding , but many others have stepped in to offer their own interpretations. At Bloomberg, Michael Schuman described China as “one big winner” from the decision, while warning that both Britain and Europe risk “losing their best chance to stay relevant in a greatly altered world order.”

Even a fully united Europe – burdened as it is by debt woes, high costs, overbearing bureaucracy and, in some cases, dubious competitiveness – has had a tough time competing and contending with China. Now fractured, the EU can’t help but pose less of a counterweight to China’s rise on the world stage.

[…] As a whole, the EU should in theory wield significant power in pressing Beijing to open its markets and play fair on . Instead, European nations have routinely squandered that advantage by competing with each other for Chinese investment and favors. Shortly after the U.K.’s Cameron fawned over visiting Chinese President Xi Jinping last year, German Chancellor Angela Merkel showed up in Beijing, seeking her own business deals. The opportunities for China to divide and conquer – both to strike better bargains and to undercut complaints about its own market-distorting behavior – will only increase now that Europe’s second-largest economy has gone its own way.

[…] Politically, too, Brexit can only widen China’s scope for action. As China challenges the West’s cherished institutions and ideals, from navigation rights to human rights, the importance of defending those rules and values is rising steadily. A united EU could have presented a serious check to Beijing’s growing assertiveness. We’ve already seen the alternative: When the U.S. expressed concerns last year about China’s plans to set up a rival to the World Bank, the Europeans stumbled over themselves to sign up, undermining any hope of extracting concessions from China’s leaders. [Source]

Jonathan Sullivan, director of the University of Nottingham’s China Policy Institute, tweeted his dissent:

The Wall Street Journal’s Andrew Browne elaborated on China’s loss of a key European partner, writing that “in Chinese eyes, Britain is now diminished”:

Three years ago, when British Prime Minister David Cameron visited China, the nationalist-leaning Global Times newspaper couldn’t resist a dig at the former imperialist power.

The U.K., it scoffed in an editorial, “is no longer any kind of ‘big country’ but merely a country of old Europe suitable for tourism and study.”

For China, Britain has since grown in stature and importance—and its position as a political and economic leader in Europe has been a substantial part of its appeal. Chinese investors, some of them with wider European ambitions, have been drawn to Britain by its relatively uncomplicated tax regime, its financial expertise, deep pools of capital and the ease of doing business in an English-language environment.

[…] Ironically, the board of British bank HSBC recently decided to leave the bank’s headquarters in London, rather than move it to Hong Kong, a vote of confidence in the U.K.’s relative stability at a time when Beijing’s tighter grip clouds Hong Kong’s future.

On Friday, as HSBC shares plunged in Hong Kong on fears over its exposure to the now deeply shaken U.K. economy, the message for Beijing couldn’t have been clearer: Its European partnership is coming unstuck. And Mr. Cameron, the eager proponent of that tie-up, will soon be history too. [Source]

Similarly, from Hannah Beech at TIME:

“The U.K. has stated that it will be the western country that is most open to China,” Xi said in written comments to Reuters [last year]. “This is a visionary and strategic choice that fully meets Britain’s own long-term interest.”

Now, as Britain prepares to exit the after Friday’s historic referendum, that golden relationship looks decidedly tarnished. Cameron, Europe’s China booster, will resign by October. Brexit means that Beijing will lose its strategic access to Europe through Britain. The global market turmoil that followed Friday’s vote sent the Chinese yuan, already propped up by strenuous official intervention, to its lowest point against the dollar in more than five years.

[…] Brexit undermines China’s economic relationship with the E.U. at the precise moment that the Chinese economy is slowing and in search of global partners. Over the past few years, Chinese companies have invested heavily in Britain. Everything from London cabs to Weetabix now survive with help from Chinese investors. These totems of Britannia, though, may lose some of their power when Britain no longer serves as a launching pad for Chinese investment into Europe. Beijing will lose a British ally that had been pushing for completion of an E.U.-China trade deal, as well as for China to gain Market Economy Status—a designation that would shield the world’s second-largest economy from certain E.U. trade tariffs. (Last month, the European parliament, amid protectionist sentiment across the continent, rejected granting market economy status to China, although a further vote is planned for December.) [Source]

And from Josh Horwitz and Heather Timmons at Quartz:

With the UK gone, the EU’s restrictions on China could get a lot tougher. Beijing, and Chinese citizens, view Britain’s departure from the EU as dangerous for that reason. In the run-up to the referendum, party mouthpiece, The Global Times, pointed out the risks of Brexit to the Chinese economy:

The EU is the biggest trading partner of China, while the UK is the one with the highest degree of free trade in the block and it has backed China’s market economy status. London is an important hub of the internationalization of the yuan. A Brexit will undoubtedly cast a shadow on the trade relationship between China and the EU.

With its largest advocate officially out, Beijing will now face more even pressure to liberalize its economy, lest it risk losing access to its most important trade partner. [Source]

Global Times’ Ai Jun, meanwhile, emphasized political over economic concerns, particularly the E.U.’s notional role as a counterweight to the U.S.:

Chinese elites are more anxious over political consequences. London breaking up with the EU will inevitably accelerate the latter’s disintegration, European political civilization might face a breakdown, which will strike a heavy blow to both Britain and the EU’s global status as well as to their international influence.

A multipolar world requires more powers, which are independent of the US, to participate in international governance. The EU is supposed to be one of them.

But the leverage of a divided Europe is bound to be limited. That’s why China wishes to see a united and strong EU, which is able to regain its former glory and influence in the days to come, rather than a fragile one weakened by Brexit. [Source]

Fu Jing, deputy chief of China Daily’s European bureau, was more optimistic:

In a nutshell, Friday’s outcome may bring instability to the European Union, at least in the medium term. The international community should prepare countermeasures to cope with such a scenario.

This is reality.

However, people should rest assured that, no matter whether the UK is in or out of the European Union, it will not make a massive difference to the union. It has its borders, its currency and its other advantages.

Right now, the international community should have confidence in the European Union and encourage it. It is a great peace project, even if it does need significant reform. [Source]

In terms of geopolitical balance, while it may be a diminished partner to China, the U.K. is also likely to become a less potent and more distracted American ally. From Matt Spetalnick and Arshad Mohammed at Reuters:

Ivo Daalder, a former U.S. ambassador to NATO and the president of the Chicago Council on Global Affairs, said Britain’s ability to press its views and policy preferences with its European allies and within NATO, where it provided strong political backing to the United States, will be diminished.

[…] Phil Gordon, a former senior foreign policy adviser to Obama, expressed concern that Europe will become inwardly focused on Britain’s departure and independence movements on the continent, leaving the United States to shoulder more of the international burden.

[…] Adding to U.S. concerns is the threat by Scottish nationalists to mount a new referendum on independence for Scotland, where nearly two-thirds of voters voted to stay in the EU.

The break-up of the would raise questions whether it should retain its veto in the United Nations Security Council, where it has been a mostly reliable supporter of U.S. initiatives. [Source]

Scottish (or Northern Irish) separation from the U.K. would be delicate news in China, given its sensitivities about “separatism” in Tibet, Xinjiang, Hong Kong, and Taiwan. When Scotland last voted on independence in 2014, a leaked directive warned that “the media must not hype or comment on the Scottish referendum. All websites must take care to control content on interactive platforms.”

While Britain may now become less useful to China, a commentary highlighted by The New York Times’ referendum liveblog suggested that China will only become more important to Britain:

An article posted on the website of People’s Daily, China’s most important official newspaper, said the British vote could indirectly unsettle China’s economy in the short term but was unlikely to leave deep, lasting damage and could encourage more financial cooperation between the countries.

“Owing to the shock to confidence in capital markets, it may have some impact in the short term,” said the article by Bian Yongzu, an economist at Renmin University in Beijing.

“But in the medium term, Brexit will not have much impact on Chinese-European trade,” Mr. Bian wrote. “The Chinese market may become more attractive to investors, because of the instability in European markets. As well, because Britain will experience a bigger short-term shock from Brexit, it will become even more committed to cooperating with China, especially in finance, and this would be a plus for China.” [Source]

At The Diplomat, Kerry Brown explored the difficulties that Britain will face in extending any “golden relationship” with China:

It will take years, if not decades to work out the implications of the victory for leave on June 23. But Chinese policymakers will probably reach two conclusions. First, in their strategic thinking, the U.K. will figure as a far less important partner than it has hitherto. This will be even truer if Scotland and Northern Ireland successfully pursue their own independence demands, because at that point England and Wales will be smaller economies, and smaller forces, in a world of tough opponents. To compound this, China has no soft sentiments toward Britain. It regards the U.K. as formerly an arch-colonialist, and one of the chief architects of China’s century of humiliation. Beijing will certainly place Britain in a far lower rank in its partnership list, perhaps with a dose of schadenfreude.

[…] There are scenarios where this could still end up well. With strong, visionary, intelligent leadership, Britain could place itself at the heart of a new set of relationships, working in different ways and without the alleged bureaucratic constraints that Brussels imposed. But such leadership is hard to see in the current ranks of politicians in Britain. And they would need to quickly build up a familiarity with China (and a whole group of other new markets) as well as an ability to negotiate and work with Chinese partners that they have never had before. [Source]

At ChinaFile, meanwhile, MERICS’ Mikko Huotari and Jan Gaspers examine the state of the continent’s readiness to effectively deal with China:

China’s growing economic presence in Europe has not only made relations with Beijing much more tangible for Europeans. It also creates greater potential for conflict, not only over economic issues but also about security-related matters. The stakes are high and a range of strategic issues currently on the table have the potential to shape the nature of European-China relations for years to come. […]

[…] It would be fatal if European naval-gazing in light of the British E.U.-exit that is now underway prevented Europe from pursuing its interests vis-à-vis China. Member states (and E.U. institutions) must step up their game on promoting joint European monitoring of and information sharing on China as well as greater transparency on national dealings with China among member states. A key role of Brussels will also be to smarten up on damage control when interests within the E.U. collide. [Source]