China Warns Firms to be Cautious over Brexit
Photo Credit: China News Service
By Marcus P. Knudsen

China Warns Firms to be Cautious over Brexit

Apr. 26, 2017  |   Blog   |  0 comments

Chinese Ambassador Liu Xiaoming has advised companies operating in the UK to be cautious especially those whose European offices are headquartered in Britain. In an interview with China Daily, Liu asserted that China respects the UK’s decision to exit the EU, and shared his hope that the UK and the EU can find a favorable agreement in the best interests of both parties.


Before the Brexit referendum took place in June 2016, China was tight-lipped over the possible repercussions of Brexit. China viewed the matter as something internal, and said that it only wanted to see a strong and more stable Eurozone.


Theresa May, the new British Prime Minister who succeeded David Cameron, laid out her plans clearly in a speech in January 2017 about the UK leaving the Eurozone, which would mean a clean break from the bloc.


When UK residents voted in favor of Brexit in last year’s referendum, this meant the nation would no longer be a member of the European Union. Fifty three percent voted to leave the EU, while 47 percent voted to stay. Since then, debates about Brexit have dominated the news, with economists wondering what exiting the European Union will actually entail.


According to FXCM, the UK has been engaged in negotiating the terms of an eventual exit for quite some time now. In two years’ time, either the UK will have a “soft” Brexit, which would mean a continuation of trade deals, close links with some European nations, and immigration controls, or a “hard” Brexit, that would signify a complete separation from the EU and a return to an arrangement that existed even before the UK joined the European Union. According to the Gibraltar Chronicle, countries such as Spain and Germany want a soft Brexit given the fact that both countries have close trade relations to the UK.


The reason why it will take two years for the negotiations regarding Brexit to be complete is because of Article 50 of the Treaty on the European Union. It is part of EU law that sets out the process by which a member state may withdraw from the union. This was widely debated after last year’s Brexit referendum.


Now that Article 50 has been submitted on March 29, there is a two-year limit to complete the negotiations. If a favorable outcome does not present itself after the designated time limit, the exiting country and the European Union will be instructed to follow the rules set by the World Trade Organization. The WTO’s trading agreements are long and complicated because these are legal texts covering a wide range of activities. However, there are a number of simple and fundamental principles that run through the organization’s rules, and these principles are the foundation of the multilateral trading system.


Whether PM May leans towards a soft or hard Brexit will determine how much it impacts foreign businesses as well as local ones. For one, it would affect China’s exports that rely on London-based entries into the EU market. The UK has worked hard to improve its economy after it was hit as a result of the Brexit vote, and one of the solutions was to attract Chinese investors. Brexit is a major setback in Britain’s plan to attract more Chinese investors.


China and the UK have had a number of high-profile disagreements over the years over human rights and the future of Hong Kong — a long time colony of the UK that was only returned to China in 1997. Both countries’ ties, however, have strengthened over the past few years, and economic partnerships have blossomed in what both nations refer to as the “Golden Age.”


However, last year the partnership came under threat when the UK decided to put the Hinkley Point Nuclear project on hold. The project would later be approved, and no further issues have been voiced publicly or internally.


Ambassador Liu is quite positive about relations between the UK and China moving forward, saying, “There is huge potential to be tapped and bright prospects for cooperation.”