Four weeks after the UK’s decision to leave the European Union, much commentary has focused on how Brexit will affect other world economies and UK trade relations. One of the more important areas of this discussion is the UK's future relationship with China.
Now-departed Prime Minister David Cameron and Chancellor George Osborne put great effort into building trade and investment links, and there was a powerful political symbol last year in the official State visit of Chinese President Xi Jinping to London.
Whether this heralded a 'golden era' in the relationship, the UK had shown that it wants to work closely with China.
In building this relationship, the UK government hoped to make China its second biggest trading partner within a decade. For China it was about building ever stronger partnerships with Britain, something it has done since the first opium war in 1839.
Last year’s state visit saw almost £30 billion in trade and investment deals, making it inevitable that Chinese firms would launch a new wave of investment into the UK.
But how does Brexit affect this relationship both politically and economically?
It is unclear now what the exact consequences will be after Brexit. It certainly needs a bit more time to digest in the financial market, which may take years. So far we have seen changes in the markets and on the day after the referendum a dramatic drop in the value of the sterling.
What we haven’t seen yet is the profound impact it creates on the global economy and the broader international political system. It is possible some Chinese investors may hold a 'risk-avoiding' attitude when they consider opportunities in the UK. If the devaluation of sterling deepens, the pressure will increase on the Chinese RMB. Inevitably, it will diminish Chinese overseas investment power.
The Chinese government proposed the One Belt, One Road initiative in 2013 to revitalise the old Silk Road, hoping to generate huge investment opportunities passing through more than 60 countries. Seeing London as a global financial centre and a bridge to the Euro Zone, China’s Central Bank has made its first sale of debt on London’s markets, drawing orders of more than £3 billion.
Now, would this still be the same after Brexit? It is not an easy question to answer, but it's quite clear that the Chinese strategy to consider Britain as a gateway to the European market no longer holds. Those Chinese investors may have to reconsider when they invest in the UK, at the aim of expanding their businesses to Europe.
Other Chinese companies may also hold their thoughts when they initially want to invest in UK infrastructures, buy landmark buildings and develop new residential and commercial properties, as well as entering the city regeneration projects and large construction and engineering projects. It will witness some short-term impacts from the uncertainty as a result of Brexit.
Despite the doubts and uncertainties, Brexit may implicate new opportunities for Chinese investors. In Chinese Culture, ‘risks’ also mean opportunities. Lower prices in the UK property sector for example may attract more investors to flood into the market. More importantly, the UK is still the fifth largest economy in the world and people should not easily lose their confidence in Britain. The UK has the largest market in Europe, which Chinese companies don’t want to lose. After Brexit, the British government and businesses will have more freedom in trading with Chinese partners. There will be more flexibility for the UK in negotiating terms and deals with countries such as India, China and the US. Last but not least, in order to maintain London’s global financial centre, the UK government is believed to continue to offer strong support for the Chinese RMB to become a global currency and for China’s One Belt, One Road initiatives.
Across the UK education sector, more attention may be shifted to Asian countries, especially China. Britain has always been a desirable destination for Chinese students to study. This is unlikely to change in the future. If the number of EU students reduces after Brexit, it is more likely to see a dramatic surge in the number of international students from China.
In terms of cultural exchange and tourism, from January 2016 UK visitor visas for Chinese tourists are valid for two years, four times the old six-month limit. With Chinese tourists contributing £500 million a year to the UK economy, the new policy and the fall in sterling value will attract even more, to both spend and study, thus further boosting the economy.
After all, it is certain that there will be new challenges in developing future relationships between the two nations after Brexit, but with the right advice and business strategy, it will surely be possible for many opportunities and for an even stronger Sino–UK relationship.
Dr Kurt Yang Liu
Birmingham Business School
University of Birmingham