Brexit: The View From China

British-Chinese Relations
China's premier, Li Keqiang, right, meets with Britain's chancellor of the exchequer, George Osborne, at the Zhongnanhai Leadership Compound on September 21 in Beijing. Brexit has taken China by surprise. Lintao Zhang/Pool/Getty Images

Chairman Mao would have approved with his trademark perspective: "Look the world is being turned upside down." Today's Chinese rulers facing the confusion and uncertainty that has followed the Brexit decision would not take quite such an iconoclastic view, and they, like so many others, were taken aback by the decision.

Official reactions have looked for continuity and a prosperous and stable Europe in the aftermath of the vote. Premier Li Keqiang commented on the increased uncertainties in the global economy caused by the decision and reiterated China's call for a stable and prosperous Europe and Britain. So far that does not appear to be happening.

There must be a certain sense of triumphant glee at the convulsions in Britain and Europe. In the hard-nosed world of realist geopolitics, which the Chinese like to see themselves as inhabiting, the long term suggests a weakening of European global influence, as Europe will be even more preoccupied with its own internal troubles. More narrowly, for China's own political interests, Europe is not going to be in a mood to take a tough line with China in the near future.

Economically, the short-term direct impact on China has been low. But any unexpected blow to global confidence is not good news for China at a time when its own economic difficulties are becoming more apparent. Instability and volatility in global markets are at the very least unsettling for China, and it will be some time before the full ramifications of Brexit reveal themselves.

In Europe itself, China has lost the powerful voice for the liberal free trade order that Britain provided. Even as its own steel industry shuddered from the impact of cheap foreign imports, Britain apparently argued against EU sanctions on Chinese steel dumping. Britain is now a lame, if not a dead, duck as far as the formulation of European trade policy is concerned. The reshaped Europe is likely to be more protectionist in both trade and investment policy. This is not good news for China. China's search to be granted Market Economy Status by the EU will not be helped by these new distractions.

Chinese investors face a series of new decisions. Britain has been one of the principal beneficiaries of Chinese investment in Europe. In addition to the favourable regulatory environment, Britain sold itself as a bridge to Europe. Now the bridge is no longer there and the Chinese will need to decide whether and to what extent to relocate. The adjustment may not prove that costly, and there may well be indirect benefits as Britain seeks to provide a more attractive business environment as the competition between Britain and Europe for Chinese business becomes more overt.

China may also need to recalibrate the path to the internationalization of its currency, the renminbi. It had built up a strong relationship with the city of London to this end, but if the influence of London as a financial center is weakened in the future, China will need to look for support elsewhere.

While all this may be seen by some in China as a "quarrel in a faraway country", there are uncomfortable political echoes. Splitism, in the sense of smaller parts breaking away from a larger whole, is one of the dirtiest words in the Chinese political vocabulary. Taiwan's decision to introduce a Referendum Law in 2003 provoked a furious reaction from China. fearing that it was an enabler for some future move towards formal independence. China's leaders would prefer that its people neither dwell on nor consider such behaviors. Nor will they be any easier with the deeper malaise, of which Brexit was just one phenomenon, among people dissatisfied with the inequalities and problems of globalization, from which China is far from immune. Instability can take many forms, and few of them are comforting to today's Chinese leaders.

Brexit was not what China expected, and almost certainly not what it wanted. The full consequences of it will still take some time in revealing themselves. China can and will adapt to them. European leaders will be as keen as the Chinese to preserve the economic relationship, but the terms will change. This will open up both challenges and opportunities for China. After all, a less-potent Europe, and perhaps a distracted U.S., could be of long-term benefit to China's global and particularly its East Asian ambitions.

Roderic Wye is an associate fellow for the Asia Programme at Chatham House.