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China weighs up Brexit losses and opportunities

BEIJING — Just eight months ago, Chinese President Xi Jinping was snapping selfies with soccer stars in Manchester, dining at Buckingham Palace and drinking beer in an English pub as he and Prime Minister David Cameron heralded in a “golden era” of relations, establishing the United Kingdom as China’s “best partner in the West”.

British Premier David Cameron welcoming Chinese President Xi Jinping (right) to 10 Downing Street last year. With the Brexit vote and Mr Cameron on the way out, Mr Xi has to reassess his EU strategy. Photo: Reuters

British Premier David Cameron welcoming Chinese President Xi Jinping (right) to 10 Downing Street last year. With the Brexit vote and Mr Cameron on the way out, Mr Xi has to reassess his EU strategy. Photo: Reuters

BEIJING — Just eight months ago, Chinese President Xi Jinping was snapping selfies with soccer stars in Manchester, dining at Buckingham Palace and drinking beer in an English pub as he and Prime Minister David Cameron heralded in a “golden era” of relations, establishing the United Kingdom as China’s “best partner in the West”.

Mr Xi quoted Shakespeare and stressed Britain’s “positive role” in deepening China’s ties with the European Union.

Now, Mr Cameron is on the way out, Britain has voted to exit the EU and Mr Xi is being forced to reassess his strategy for the 28-member bloc, China’s second-biggest trading partner. The UK has been a key advocate for China in Europe, from building trade-and-financial links to supporting initiatives such as the Asian Infrastructure Investment Bank. Beijing’s leaders were counting on the UK’s backing later this year when the bloc decides whether to grant China market-economy status.

“One major reason why China attaches great importance to its relations with the UK is to leverage EU policy via the UK,” said Mr Xie Tao, a professor of political science at Beijing Foreign Studies University. London’s value as a “bridgehead” to Europe has been lost with Brexit, said Prof Xie, leaving China to turn to Germany.

Moreover, last Thursday’s referendum introduced new uncertainty to the global status quo, shocking financial markets and adding new pressure on China’s slowing economy. Avoiding a hard landing is central to maintaining the Communist Party’s own reputation as sound economic stewards.

Premier Li Keqiang, the highest-ranking Chinese leader to comment on the vote, said on Monday the decision had “further increased the uncertainty in the global economy”.

“We would like to see a united, stable EU, and a stable, prosperous Britain,” said Mr Li to a World Economic Forum gathering in Tianjin.

In his first post-referendum address to Parliament on Monday, Mr Cameron called on the next government to seek the “strongest possible economic links”, not only with Europe, but “with our close friends in North America, the Commonwealth and important partners like India and China”.

In the longer term,the UK’s exit could bring opportunities, as well as risks. A UK facing marginalisation in Europe could be more eager to boost ties with China, a vital source of trade and financial business. The country — a key market for British cars, drugs and machinery — represents 4.4 per cent of the UK’s exports, about three times as much as a decade ago.

“Brexit might end up as a blessing in disguise for China,” said Mr Ruan Zongze, vice-president of China Institute of International Studies, a policy research group run by China’s Ministry of Foreign Affairs. “It looks like a bad situation on the surface, but there are opportunities that can be discovered and played up, as long as there’s effort on both sides.”

Mr Michael Schuman, a journalist based in Beijing and author of Confucius: And the World He Created, wrote in a commentary this week that Brexit is almost certainly in China’s economic and political interests.

“Even a 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,” he said.

“Now fractured, the EU can’t help but pose less of a counterweight to China’s rise on the world stage.”

However, a more conservative UK could turn instead to the US, and strengthen their old alliance. The nationalistic undercurrents to the Brexit debate could grow louder, leading the UK to pull back from the free-market orthodoxy that has favoured greater ties with China.

“If a more conservative leader takes over, the successor may ditch the UK’s current China strategy and move back toward its ‘special relationship’ with the US,” said Mr Zhang Baohui, director of the Center for Asian Pacific Studies at Lingnan University in Hong Kong. “A weakened EU, which may see more defections after the British vote, is not in China’s grand strategic interests.”

Mr Cameron spent four years overcoming the diplomatic fallout from his 2012 meeting with the exiled Tibetan spiritual leader Dalai Lama, which led to a freeze in communications with Beijing. He sought greater economic links, including the award of a nuclear plant deal to Chinese companies, and invested in personal ties with Mr Xi, epitomised by the fish-and-chips dinner they shared near Mr Cameron’s countryside estate in October.

Mr Xi pledged more than £40 billion (S$72.3 billion) of investments during his visit, including ChinaGeneral Nuclear Power’s £6 billion contribution to building the Hinkley station in south-west England.

“The UK, as an important member of the EU, can play an even more positive and constructive role in promoting the deepening development of China-EU ties,” said Mr Xi at the time.

There is also the prospect that the Brexit result emboldens populist, protectionist forces elsewhere in the West, challenging a global trade system that has fuelled China’s economic rise at the expense of manufacturing jobs in developed economies.

“China is a likely loser geo-economically because the prospects for a more open global trade and investment environment are weakened,” said Dr William Overholt, a senior fellow at Harvard University’s Asia Center. “The localist, protectionist forces are strengthening everywhere, and Brexit makes it clear that they are capable of successfully confronting the globalising elite.”

The UK was the first European country to sign up for the China-led Asian Infrastructure Investment Bank, a move that annoyed Washington but was quickly followed by Germany, France, Italy and others.

London now handles the bulk of the EU’s yuan trading, and became the world’s second-largest yuan clearing house worldwide after Hong Kong.

“On the whole, China would have preferred for their own self interest for the UK to stay in the EU,” said Professor Kerry Brown,director of the Lau China Institute at King’s College, London, and a former UK diplomat in Beijing.

“In the end, I think that China will work to its advantage with whatever outcome eventually emerges.” AGENCIES

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