How Concerned Should China Be about Brexit?
By Alvin Cheng-Hin Lim

How Concerned Should China Be about Brexit?

Jun. 27, 2016  |     |  0 comments

At first glance, the unexpected referendum result on Brexit — the UK’s exit from the EU — appears to be bad news for China’s interests in both the UK and EU. British Prime Minister David Cameron’s decision to resign following the loss of the “Remain” vote in the referendum puts into question the multi-billion dollar Sino-UK cooperation agreements signed during Chinese President Xi Jinping’s state visit to the UK last year, in particular the Hinkley Point nuclear project, whose lead developer Électricité de France is considering withdrawing from due to the project’s escalating costs.

Now, with the coming loss of political support from Prime Minister Cameron, opposition against China’s nuclear investment, especially from the security lobby, could be strengthened. This could endanger China’s strategic plan to use Hinkley Point as a showpiece project that would lead to further nuclear projects in the UK and Europe (Adams, 2015; Lim, 2015a; “Brexit: David Cameron,” 2016; “Will China take,” 2016). Likewise, China’s carefully cultivated relations with other EU member-states could come undone following Brexit, with the emboldened leaders of the European far-right, including Marine Le Pen of France and Geert Wilders of the Netherlands, issuing calls for referendums across Europe on exits from the EU (Craw, 2016; Lim, 2015d; Lichfield, 2016; Logan, 2016).

Approvingly citing the Maoist aphorism “There is great disorder under Heaven; the situation is excellent,” the Slovenian political theorist Slavoj Žižek (2016) notes that Brexit presents a “chance to be fully exploited.” While Žižek was hoping but not hopeful that this unprecedented political opening would be seized by the Western Left, China is one of the Great Powers that could make good use of the unexpected opportunities created by the political and economic upheaval caused by Brexit. During the recent Shangri-La Dialogue, for example, France raised the prospect of EU intervention in the South China Sea dispute, with the French Defense Minister recommending joint EU naval patrols in the South China Sea to defend freedom of navigation (Roman, 2016). However, now with the sudden political threat of Frexit and other member-state exits from the EU — not to mention the economic threat of global recession — the chances of the EU nations investing in such expensive naval patrols have considerably decreased, giving China additional breathing room to maneuver in the South China Sea (Mui, 2016).

Another strategic opportunity for China arising from Brexit concerns President Xi’s “Belt and Road” initiative, and in particular, the use of “Belt and Road” projects as a means of exporting China’s industrial overcapacity. One of the primary factors behind the strong “Leave” vote in the Brexit referendum and the rise of the European far-right has been the unequal distribution of the fruits of globalization within the affected economies. While the most visible social consequence of globalization has been the emergence of a class of wealthy elites circulating between their residences in global capitals like London, New York, and Singapore, globalization has also created an underclass of unemployed and underemployed citizens who have not been able to adjust to the loss of Western industrial jobs to the cheaper manufacturing hubs of China and Southeast Asia, or the more recent offshoring of Western service jobs to rising global IT hubs like Mumbai. As Jonathan Freedland (2016) writes of the “losers” of globalization who voted for Brexit:

“Leavers were to be found — though not exclusively — among those who are poor, either out of work or in what are universally derided as ‘crap jobs’: answering the phones in call-centers or stacking shelves in warehouses, on insecure ‘zero-hours’ contracts without benefits. They live in towns, rather than more cosmopolitan cities, often in the shadow of shuttered factories or closed mines, in places that are rundown, if not outright derelict. This is the England that has been left behind, a match for those parts of the American rust-belt that have rallied to Trump.”

Indeed, American economists recently confirmed that China’s accession to the World Trade Organization in 2001 was a key moment in globalization that led to the loss of over 1 million and perhaps even over 2 million manufacturing jobs in the US, in particular in sectors like “apparel, leather goods, plastic plumbing fixtures and surgical and medical equipment” where US-based manufacturers were unable to compete with the influx of cheaper Chinese imports (Gosselin & Dorning, 2015). This will be an important issue in November’s US general elections, when America’s “losers” of globalization are widely expected to turn out in large numbers to vote for the populist Republican presidential candidate Donald Trump (Hirsh, 2016).

The populist anger felt in the UK and across the EU that was in part caused by the loss of manufacturing jobs through globalization hence creates an opening for China’s European “Belt and Road” investments. Apart from the usual infrastructure megaprojects, “Belt and Road” investments also come in the form of the establishment of industrial zones, as well as investments in heavy industry. In Malaysia, for example, China has invested almost USD 3 billion in heavy industry in the East Coast Economic Region, a special economic zone that has been twinned with an industrial park in Qinzhou, China (Lim, 2015c, p. 37). In Central and Eastern Europe, the Great Stone Industrial Park is a key site of economic cooperation between China and Belarus, while Chinese investments in heavy industry and industrial parks were among the highlights of President Xi’s recent state visits to the Czech Republic, Serbia, and Poland (Lim, 2015b; Lim, 2016). Indeed, China has even set up industrial parks in the US, with a prominent example being the network of Chinese factories in South Carolina that was started almost two decades ago by the Chinese consumer appliance manufacturer Haier’s establishment of a refrigerator factory (Bell, 2016). A concerted effort by China to establish industrial parks and to invest in heavy industry in the UK, Europe, and the US could meet the popular demand in the West for the return of manufacturing jobs, generate popular goodwill for China, and help reduce industrial overcapacity in the Chinese economy.

A concerted effort by China to establish industrial parks and to invest in heavy industry in the UK, Europe, and the US could meet the popular demand in the West for the return of manufacturing jobs.

However, China has to take care to ensure that its investments do not trigger Sinophobia, especially given how the Brexit vote in the UK, the rise of the far-right in Europe, and Donald Trump’s presidential campaign in the US have all been accompanied with nationalistic xenophobia, which has been stoked by the social and economic pressures of the European refugee crisis. Given that this refugee crisis has been fed by the civil war in Syria and the insecure borders of Libya, the events of Brexit, the looming disintegration of the EU, and the possibility of a Trump presidency in the US — all of which can be expected to shatter establishment politics in the West — may all be considered to be stages of an epic event of blowback from ill-considered Western intervention in Libya and Syria. US-led Western intervention in Libya, which culminated with the assassination of Muammar Gaddafi in 2011, created a situation of political instability and intensified jihadist insurgencies in Libya and West Africa, and these in turn have transformed Libya into a major gateway to the Mediterranean for a flood of African migrants hoping to establish better lives in Europe. Likewise, US-led Western intervention on behalf of rebel forces in the Syrian civil war has intensified the conflict and triggered massive refugee flows into Europe (Black, 2016; Kuperman, 2015; Sinclair, 2016; Tasch, 2015).

Western xenophobia against the refugees, which currently manifests as Islamophobia, could easily transform into Sinophobia, especially given the negative messaging about China in the powerful Western media. Recent examples in the Western media include stories about China’s detained human rights activists (Phillips, 2016); the Yulin dog meat festival (“Yulin dog meat,” 2016); China’s activities in contested areas like Africa and the South China Sea (Archdeacon, 2016; Sudworth, 2016); the bad behavior of Chinese tourists (McGuire, 2016); and the vulgar spending habits of China’s nouveaux riches in Vancouver (Bruk, 2016). The Western media may even see it as its responsibility to challenge Chinese news reports. A recent example is the Wall Street Journal’s deflation of claims published in the Chinese news media about global support for China in the South China Sea dispute (Page, 2016). To reduce the potentially serious risk to its investments in the West of media-driven Sinophobia, China will have to develop media strategies that are far more sophisticated than they currently are. Recent Chinese investment in Hollywood movie productions is a step towards strengthening Chinese soft power in the West, but more still needs to be done (Rainey, 2016; Sakoui, 2015).

In the meantime, “acquisition oriented” Chinese investors are taking advantage of the post-Brexit plunge in the value of the Pound Sterling to look for bargains in the UK’s property and business sectors (Li, 2016; “Brexit a possible,” 2016). While China’s economic planners worry about the possible impacts of Brexit on China’s trade with the EU — China’s second-largest trading partner — as well as the possible impacts of Brexit on the proposed Sino-EU free trade and investment agreements, the People’s Bank of China and China’s Asian Infrastructure Investment Bank have declared themselves ready to work with other central banks, the World Bank, and the International Monetary Fund to help regulate global financial flows and “smooth out any volatility and uncertainties” following the massive shock to global financial markets arising from the Brexit vote (Escobar, 2016; Schuman, 2016; Wu, 2016).


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