The UK’s impending withdrawal from the European Union is felt acutely in China, which was counting on British partnership in the Continent.

Britain’s decision to leave the European Union on June 23 created aftershocks felt around the world. The pound fell more than 10 percent against the dollar to levels last seen in 1985 in its biggest one-day fall in history, and European shares plummeted more than 8 percent, their biggest one-day fall. The effects are also being felt in the world’s second-largest economy, China.

Why does Brexit matter to China? China and the European Union are two of the biggest trading powers in the world. The EU is China’s largest trading partner, and China is the EU’s largest after the United States. China and Europe now trade well over €1 billion a day. Anything that shakes the European Union therefore shakes China.

China didn’t overtly oppose Brexit, given its non-interference policy, but it did make its interests known. Chinese President Xi Jinping, in his October 2015 visit to the UK, issued a statement: “China hopes to see a prosperous Europe and a united EU, and hopes Britain, 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.”

Britain played a significant role in China-EU relations. First and foremost, Britain acted as the gateway for China into the EU. Beijing showcased its infrastructure and industrial projects in Britain, and by extension in the European market. This strategic move encouraged the more reluctant European countries to negotiate economic engagements with China. With Brexit, China will lose its “Britain card” in the European Union. In addition, China’s heavy investments in Britain are also likely to face risk. State-owned China Investment Corporation owns 8.6 percent of Thames Water and 10 percent of Heathrow Airport Holdings. The Chinese state operator China General Nuclear Power Corporation (CGN) is planning to build the controversial nuclear energy facility at Hinkley Point C in southwest England.

Brexit will also put roadblocks in the way of China’s grand vision of the “One Belt, One Road” strategy, which focuses on greater economic connectivity through Europe and Asia along the ancient Silk Road trade routes. Britain had made a bid to join the China-led Asian Infrastructure Investment Bank, despite US opposition. The degree to which that bid will resonate with the EU is now questionable. With Britain’s exit, China lost a partner that could be mobilized for support in the EU.

In this post-Brexit period, the most pressing challenge for China will be the search for an alternative ally to Britain to push its interests in the EU. With high stakes at play, it is imperative for China to adopt proactive and pragmatic policies to safeguard its economic interests and build new partnerships. Canada might well be one of the options for Beijing. China-Canada relations remain significantly untapped, and so both sides need to explore the potential economic complementarities.

Photo: Esfera / Shutterstock.com

This article is part of the Canada-China Relations Special Feature.

 


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