After Brexit: what next for EU-China relations?

Richard Maher

Following Britain’s decision last month to leave the European Union, national capitals around the world have been sorting out how it will affect their relations with the EU. Assuming Britain does in fact leave the bloc, what will be the impact and significance of this decision for EU-China relations over the immediate and medium term?

Over a decade ago, EU leaders proclaimed a ‘comprehensive strategic partnership’ with China, which was intended to elevate bilateral relations beyond trade and investment, in order to address some of the most important political and security issues in world politics. Though bilateral interaction has become more extensive and intensive over the past ten years, anything approaching a comprehensive strategic partnership has failed to materialize. The EU and China remain divided over core political and social values, strategic interests and priorities, and conceptions of international order.

Brexit is not likely to lead to tectonic shifts in EU-China relations, but it could affect three issues at the heart of their partnership: (1) the EU’s decision whether to grant market economy status (MES) to China; (2) the future of the EU arms embargo on Beijing; and (3) the EU’s capacity and readiness to respond to China’s challenge to the territorial status quo in the East and South China Seas.

First, without Britain, China loses its biggest advocate in the EU for granting it MES, which Beijing has long desired. In 2015, the European Commission initiated more anti-dumping investigations against China than any other country. With MES, it would be much harder for the Commission to bring such suits. Brexit could also affect whether the EU and China are able to finalize a bilateral investment treaty, which the two sides have been negotiating since 2013. In addition to an investment pact, Britain has been a strong supporter of an EU-China free trade agreement sometime down the line.

Second, without Britain, the EU may re-evaluate its arms embargo against Beijing, which remains a sore point in EU-China relations. Some countries, such as France and Spain, have voiced support for lifting the ban over the past decade, while traditionally Britain has been one of the strongest voices within the EU against doing so. Other countries that oppose ending the embargo, such as Denmark, Sweden, and the Netherlands, may not have enough clout by themselves to stop a renewed push from some EU capitals to repeal the ban. Though the decision to lift the embargo must be unanimous, absent the prospect of a British veto, France’s claim that the embargo is an anachronism and an obstacle to closer relations with Beijing may win out. While China has modernized its military to an impressive degree over the past decade, it would still benefit from access to European equipment and technology. The lifting of the embargo would also represent an important symbolic victory for Beijing.

Third, the EU will not be in a position to confront or resist China’s challenge to the territorial status quo in the East and South China Seas. Beijing’s ambitious land reclamation projects have drawn rebukes from several of its neighbours. In March, the EU issued a tough statement against China’s activities in the South China Sea, including its decision to deploy missiles on some of the islands it controls. France has even called for coordinated EU naval patrols in contested waters. But without Britain, the EU will have less influence as a global power, and its voice in global affairs will slip. Britain has the biggest military budget in the EU, accounting for about a quarter of the bloc’s defence spending. The EU will need to devote energy, resources, and time to negotiate Britain’s exit from the bloc, which will shrink its ability to pursue other initiatives, such as addressing geopolitical issues in the Asia-Pacific. And in addition to Brexit, EU leaders continue to be absorbed and distracted by sluggish economic growth, the Greek debt crisis, the migrant influx, and a resurgent Russia.

Following Brexit, China will also rethink its close partnership with Britain. Former Chancellor of the Exchequer George Osborne proclaimed that Britain would be China’s ‘best friend in the West’. But outside the EU, China will view Britain as a less valuable ally. Britain has been one of China’s favoured destinations for outward investment over the past 15 years, and is the largest recipient of Chinese foreign direct investment in the EU. Outside the EU, Britain will no longer serve as a springboard to the rest of the bloc. Instead of providing access to a market of over 500 million people, Britain will be an isolated market of only 65 million (or even less, if Scotland votes to leave the United Kingdom). The Sino-British ‘Golden Age’ may be over before it had even started.

In some ways, China may benefit from Brexit, but in other ways it will likely be hurt by it. Arguments that China will emerge as the big winner of Brexit not only miss the mark, they also go against public and private statements made by Chinese officials. Before the 23 June referendum, for example, Chinese leaders were uncharacteristically outspoken in voicing their preference for Britain to stay in the EU. A secure and stable EU is, according to Beijing, an important component and source of international order. After the vote, Chinese leaders reiterated their interest in both a stable and united EU and a stable and prosperous Britain.

Chinese and EU officials will adapt to these new economic and political realities. Some aspects of their relationship will take on a new complexion, but the EU-China relationship will remain essentially as it was before Brexit: a limited partnership mainly defined by trade and investment interests and opportunities, and in which cooperation and discord are delicately and perpetually balanced.

Richard Maher is a Research Fellow in the Europe in the World programme, Robert Schuman Centre for Advanced Studies, European University Institute.

His latest article ‘The elusive EU-China strategic partnership’ was published in International Affairs in its July 2016 special issue, ‘Chinese foreign policy on trial’.

Click here to access his original article.