BREXIT, 3 Reasons Why China is Going to Love It
“Democracy requires informed participation, not just emotional participation”
BREXIT… what a crazy world we live in. First off, let us not delude ourselves. China will also feel the pinch from BREXIT just like the rest of the world.
BREXIT panic wipes $2 trillion off world markets. (The guardian)
Further financial chaos is expected. The uncertainty on how Europe will move forward will cause pain to all nations around the world. And yes, this includes China. In 2013, China had bet big on the UK. The UK was the first G7 nation with a currency swap of the RMB (Chinese Yuan). It was it’s entry into the Financial Markets of the most powerful countries in the world. In March 2016, the UK became the 2nd biggest clearing center outside of Greater China (surpassed only by HK). So with BREXIT, it WILL BE painful for China.
That said, one always looks at the positive side as best as possible. Here are the 3 reasons why I predict China will love and leverage the BREXIT into its favour.
1“I Told You So!” | BREXIT and the ensuing aftermath will be proof that disunity will cause chaos and the smaller guys will suffer more
China is in the news a lot recently as Hong Kong and Taiwan seek to remain as independent as possible. Hong Kong protests, Taiwanese Elections, disappearing bookshop owners, and more are just some headlines that pop up. The national narrative of Mainland China is that Hong Kong and Taiwan are part of Greater China. The Mainland Chinese believe that these states would fall apart mainly because of their growing economic dependence and reliance on the Chinese market.
“proof that disunity will cause chaos”
The Hong Kong economy was initially very international, a hub of sorts. However, with the handover, Hong Kong life and its economy is being increasingly dictated by the mainland, in a regulatory and economic manner. Taiwan on the other hand, grew from its own manufacturing prowess but as its labour costs soared, it shifted its manufacturing to lower cost centers in China. Today, Taiwan’s largest trading partner is China, accounting for about 20% ($110 Billion USD) of all trade. In addition to all of this, both HK and Taiwan rely significantly on Mainland Chinese tourist and visitors pouring money into the local economies. In Taiwan, the mainland Chinese account for 42% of tourist from their top 10 visitors in 2015. While in Hong Kong
“mainland tourists to the territory has surged from 4.5 million in 2001 to 47.3 million in 2014, outnumbering visitors from all other countries combined” (Forbes Country Profile: Hong Kong)
It is easy to see that if Hong Kong or Taiwan does not work well with Mainland China there will be significant repercussions. And China knows this.
“Hong Kong’s Beijing-friendly leader warned on Tuesday (Apr 26 2016) the city will lose investment and job opportunities if residents continue to seek independence, painting a bleak economic picture of the former British colony without Chinese support” (Channel News Asia, Apr 2016)
Britain is not so different. Its economy is heavily tied to the EU (more than half of its trade). The Center of Economic Performance predicts that in the best case to worse case scenario the UK GDP will drop between £26 — £55 billion. That is a lot of fish and chips…
“GDP fall in the UK is £26 billion to £55 billion” (Center of Economic Performance, CEP)
Add to this the fact that freedom of movement makes it easier for Mainland Europeans to enjoy the Big Ben, Soho, and all the great attractions in the UK, a change in regulation will slow it down. Yes, the decline in the pound will make the UK more attractive to visit, but the added difficulty for EU citizens may negate or even cause greater loss.
Either way, Britain will hurt. It will hurt more than Europe. This was the narrative China has given to Hong Kong and Taiwan, and when Britain starts to feel the pain, China can clearly say “See, I told you so!” to Hong Kong, Taiwan, and any one else.
2“See…We are not so different” |The EU’s expected "hard tactics" will let China justify its own actions.
“cannot afford to look weak”
Panic! In Europe they are already convening meetings for the big boys/girls on what to do next. The EU leaders are discussing how to best approach BREXIT. Why? Because they are terrified. They fear a “Domino Effect”. Already there are calls for exits by other countries.
“France’s National Front leader Marine Le Pen said the French must now also have the right to choose. Dutch anti-immigration politician Geert Wilders said the Netherlands deserved a “Nexit” vote while Italy’s Northern League said: “Now it’s our turn”.” (BBC News, Jun 2016)
The far right-wings of these countries were already gaining traction because of immigration, economic policies, and terrorism concerns. With BREXIT they will ask “If they can, why not us?” Jokes about Grexit, Departugal, Czechout, and more are already flooding the social media sphere. But of course the threat is real. EU leaders are forced between a “rock and hard place”. If they give Britain the same treatment as before or do not act “tough” it sends a signal that the EU is not worth fighting for and “independence” from the EU has limited consequences. The politicians are in desperate scramble to prevent these “referendums” and looking to shore up why its not a good idea. The EU cannot afford to look weak.
So what kind of “hard tactics” will the EU use? Well, just like I was explaining above, “Economic threats” will be the main lever. The EU will not likely give the UK the same benefits it had being a member previously, as it risks looking weak to the right-wings of Europe.
“EU hard tactics may not be so different from China’s”
3 Possible Hard Tactics the EU may employ
1.Limiting movement of people, both tourist and human capital.
First, a decline of tourist and casual travelers is likely to happen. Second, it will be harder for UK businesses to employ individuals from the EU to satisfy gaps they need. One manager in the UK shared that
“many of his staff are EU citizens or present in the UK via EU visas…both employees and customers have been plucked from EU member states…” (BBC News, June 2016)
2. Freedom of Trade, well not that “free”
Decline in trade is expected. The UK will basically see increase in costs and lose out in new initiatives to lower trade costs. Did I mention, just generally less trade? Plenty of reports already outline this.
Increases in trade costs between the UK and the EU following BREXIT can be divided into three parts: (i) higher tariffs on imports; (ii) higher non-tariff barriers to trade (arising from different regulations, border controls, etc.); and (iii) the UK may not participate in future steps that the EU takes towards deeper integration and the reduction of non-tariff barriers within the EU (Center of Economic Performance, CEP)
Simply put, the EU won’t give such favorable trade terms to “outsiders”. Only cool kids in the group can get discounts!
3. Global Financial Center, more of a Dud then a Hub
Global financial hub. The UK has a special status in the finance world because it sits between the US Markets and Asia. It was poised as a massive financial center with traders, banks, and more. It was able facilitate deals in between these huge financial markets AND facilitate them between Europe. Without easy access to the EU, there is a lot less incentive to be in the UK. The impact will be huge, risking
the City of London billions of pounds, thousands of workers and its spot as the world’s top financial center (MarketWatch, June 2016)
I wont bore you with the details why, but looking at Global Banks you can see they are already feeling the pinch, with massive drops in value between June 23rd and June 24th 2016.
So how will the EU leverage this? Well, right now the UK enjoys financial regulations that allows it to do trades and deals easily. But when they exit the EU, they lose these regulations. To remain on top, the UK needs to renegotiate and get these very same treatments… and lets just say the EU will not be giving this easily. Predictions are already coming in on where the new hub will be. Dublin, Frankfurt, or maybe Paris? Basically anywhere in the EU is better then the UK.
To sum it up, the EU will use these forms of “restrictions”, regulations, and denial of access to bully the UK. Something China is already doing to Taiwan and Hong Kong. Such as threatening to cut direct communication with Taiwan, threatening to remove Taiwan from WHO, blocking regional trade deals (like the Trans-Pacific Agreement) and yes even climate talks (Bloomberg, May 2016)
Previous, mainly observers and politicians would decry this kind of behaviour and activity. If the EU starts doing the same, then well the EU hard tactics may not be so different from China’s. It will be very easy now for China to justify its actions, cause all they need to say is “Hey…Whats up Bro?…Looks like we are not so different after all!”
3“So yeah… Democracy, how is that working out?” | BREXIT shows the problem and limitations of Democracy.
Chinese politicians must be having a field day! (Unless they are in finance). With a leading democratic nation allowing its people to choose and to be honest they chose in a way that can be extremely detrimental to the country, it makes democracy far from appealing. This plays into the Chinese hands. It is a line that the Chinese have been touting for a long time. You can’t have a democracy if the people are not “educated”. Democracy requires informed participation NOT just emotional participation.
BREXIT has demonstrated that no matter how many world experts (Academics, Politicians, Businessmen, Institutions, Governments) try to logically demonstrate the flaws of the exit their citizens ignore this and still voted for the exit. Chinese social media has already been flooded with their views on why democracy is limited.
“ Although a lot of people have mocked us… A referendum requires educated individuals with independent judgement” Chinese Weibo User (BBC News)
A Tencent Poll saw 65% of people voting that “Populism is dangerous” (QQ News, June 2016)
“(BREXIT) It is an issue that should’ve been be left to the experts, not to ordinary people who do not have a fundamental understanding of economics and foreign diplomacy”
“Fact is that the democratic system will further drag Britain through the mud”
Of course global social media is also questioning it
Others are trying to analyze where things went wrong: BREXIT: when democracy feels like it doesn’t work
And others calling for healing of democracy
China just got a massive arsenal to counter calls for democracy. It has previously used the rational that rapid “democratization” of Eastern Europe caused instability and poorer nations in its wake. Now they have a likely case study from a leading developed democratic country.
So next time Britain, Europe, or others ask China to be more democratic they will likely say “So yeah… Democracy, how is that working out?”
China is going to love BREXIT. It will be painful. Trillions more maybe lost. But the Chinese are very smart. They will make lemonade when given lemons. China is already going through its own transition and it will leverage this.
What do you guys think? Are my 3 reasons good? What are the chances do you think it will happen? Whats your thoughts?
Btw, did I mention Donald Trump is a tool? Well yep, he is. He declared on twitter Scotland was ready and bro to leave… but a little bit of education and double checking could have told him Scotland overwhelmingly voted to remain!
Kimble’s wants to bring back empathy in the world. He believes when everyone puts themselves in other peoples shoes, both cognitively and emotionally, compassion will flourish. Conflict will be reduced as dialogue and negotiation will replace “I’m right and you are wrong” .
Born in Canada to Vietnamese refugees, Kimble straddles the cultural minefield of East and West. His Singapore based company, Amplify Influence, was created to help Regional Asian Corporates become more empathetic and become leaders with a heart. His work has allowed him to live in 4 different countries and have perspectives from around the world. He has conducted programs across 7 different countries, worked with thousands of individuals, and is (hopefully) shaping a new generation of leaders.