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China should focus on mid- to long-term effects with the UK

Wednesday,Jul 20, 2016

From: Global Times


Cui Hongjian, director of the Department of European Studies, China Institute of International Studies, speeches at a monthly luncheon held by the Center for China and Globalization(CCG).

The stunning UK referendum result to leave the EU is widely considered to be a black swan event that nobody saw coming.

Following the Brexit incident, there are certain reflections to consider, one being the subsequent development of a post-EU Britain. The focus should be primarily on effects stemming from the Leave vote and on whether the new Government will continue the policies of the UK’s former Prime Minister David Cameron’s cabinet at home and abroad.

British economic performance has been successful under Cameron’s leadership. The country has maintained a higher degree of openness than that of other EU members in terms of supporting investment and trade liberalization, which has been an important factor in why the British economy has stood out among its EU members in recent years. In this regard, we hope the UK’s power elite will be wise to continue in this direction towards globalization.

But short-term financial uncertainties in the EU as a result of the referendum vote are expected to persist, including the unknown timeframe of when the UK will invoke Article 50 of the Lisbon Treaty, which sets out the framework for a member country to formally notify the EU of its decision to leave the bloc and marks the start of a two-year withdrawal period. From the market perspective, the earlier the UK triggers Article 50, the better, as uncertainties carried by the decision will be able to be resolved. Also, the UK will be in a disadvantageous position as the 27 remaining EU members will set the parameters of Britain’s position in relation to the EU, which may be why Britain is reluctant to rush to be in that situation.

When it comes to the Brexit effect on China, the impact brought by the UK’s decision to withdraw is substantially lower compared to other countries. Firstly, China should focus more on the mid- to long-term effects, such as how the British government will direct its policy, and how the government will handle the future UK-EU relations. For instance, some Chinese enterprises and investment entered the British market before the referendum when companies had access to the EU single market. At this stage, it is crucial to see what kind of relations the UK will form with the EU, as that will greatly determines whether Chinese capital can be directed to the EU via Britain, to what degree such methods will be hindered, and how much extra costs will be incurred.

Secondly, China should plan for changes to their own relations with the UK, including the possibility of a China-UK free trade agreement (FTA), although this will not take place until Britain officially withdraws from the EU. But certain preparations could be made beforehand and negotiations on recognizing China’s market economy status can also be put on the table during future China-UK talks.

The article was complied by Global Times reporter Wang Wei based on a recent speech by Cui Hongjian, director of the Department of European Studies, China Institute of International Studies, at a monthly luncheon held by the Center for China and Globalization(CCG).

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