Friday

18th Jan 2019

Opinion

China's high stakes in the British EU referendum

  • Chinese president Xi (l) and British PM Cameron (l) witness the signing of trade and investment agreements by their ministers Gao Hucheng and Justine Greening in London in October 2015 (Photo: Crown copyright)

During its final hectic days, the British EU referendum debate has come to be dominated by party politics and soul-searching after the murder of Labour parliamentarian Jo Cox. As Britain is caught up in its domestic woes, interest in what the world thinks about the prospects of a Brexit has taken a back seat again.

The media stir Barack Obama caused during his April state visit to the UK when he let it be known that he is no fan of a Brexit seems like a distant memory.

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Outside of Whitehall there is also hardly any recollection of Chinese president Xi Jinping expressing discontent with the British EU referendum during his visit to the UK in late October 2015.

However, China remains concerned about the prospect of Britain finding itself outside the EU.

In recent months, high-ranking Chinese officials have repeatedly expressed their government’s worries about the prospect of a British EU exit.

Beijing’s diplomatic campaign constitutes an unusual departure from the Chinese foreign policy principle of not interfering with the domestic matters of other countries. It shows how much Chinese investors in Britain worry about access to the single market and how much Beijing fears losing the UK as an advocate in Brussels.

Prime destination for investments

Over the past 15 years, the UK has become the prime destination for Chinese investments in Europe.

Total greenfield and mergers and acquisitions transactions since 2000 amount to €15.1 billion, making up for about 25 percent of Chinese investment into all 28 EU member states.

But uncertainty about the future of Britain’s relations with the rest of Europe now calls the value of these investments into question.

A post-Brexit scenario that entails the loss of unrestricted access to the EU’s single market would align poorly with the business plans of many Chinese-owned companies operating in the UK.

A recent analysis of UK-based companies set up by emerging market investors since 2003 suggests that access to the single market was a key reason for Chinese investors to establish business operations in Britain.

Out of 508 companies surveyed, almost half of them Chinese-owned, more than 58 percent specified continental Europe as the actual market for the goods and services they sell, compared with 33 per cent who cited the UK market.

One of China’s richest citizens and owner of various UK-based businesses, Wang Jianlin, warned that a Brexit could prompt Chinese businesses to abandon their UK operations.

This may be an empty threat since relocating companies to continental Europe would be a costly venture. But many Chinese investors will think twice about setting up new operations in the UK as long as access to EU markets remains in limbo.

Strategic partner in the EU

Apart from concerns over China’s investments in Britain, Beijing’s political leadership fears the deterioration of the strategic value of its relationship with London. Over the past two years, Beijing has increasingly relied on London as an advocate for its interests within the EU.

The conservative government has placed specific priority on the expansion of trade and investment relations with China.

Prime minister David Cameron became the first EU head of state and government to publicly push for the conclusion of a free trade deal between Beijing and the EU - much to the dismay of Brussels bureaucrats who considered the statement "premature".

The UK was also the first EU member state to support granting China the status of a full market economy (MES), which would make it more difficult for the EU to impose tariffs on cheap Chinese imports.

Even though the Tory government has recently toned down its support for this move in light of protests from the national steel industry, London continues to block proposals by the European Commission and other EU member states to raise tariffs on Chinese steel imports.

In another first, the UK also led the way in Europe in signing up to China’s Asian Infrastructure Investment Bank, which was perceived in the past as a rival to the World Bank.

In doing so, the British government publicly defied its ally Washington, triggering complaints from within the US administration about London’s "constant accommodation of China."

If the UK were to leave the EU, neither of the other two big member states Germany and France would make for obvious substitutes as advocates of Chinese interests.

Berlin has a track record of criticising China’s human rights situation. Moreover, senior members of the German administration have lately called for an "aggressive position against China" on the MES issue – a stance that was echoed by prominent members of the French government.

Of course, there are also those in Beijing who underline the positive effects that a British departure from the EU would have for China.

Some Chinese experts have suggested that once outside of the EU, the UK may be free to sell arms to China. And some Chinese nationalists like the idea of a Brexit for the sole reason that it would place the UK at loggerheads with China’s perceived arch-rival, the US.

But these voices are clearly in the minority compared to those who fear losing an important partner in Europe.

Jan Gaspers is head of research at the European China Policy Unit at the Mercator Institute for China Studies in Berlin

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