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Chinese investors worry about access to the EU’s single market while the political leadership in Beijing fears losing the UK as an advocate in Brussels and witnessing a further decline of the EU’s global influence.

Prime Minister David Cameron and President Xi Jinping

During its final hectic days, the British EU referendum debate has come to be dominated by party politics, public fears and soul-searching after the murder of Labour parliamentarian Jo Cox. As Britain is caught up in its domestic woes, interest in what the world thinks about the prospects of a Brexit has taken a back seat again. 

The media stir Barack Obama caused during his April state visit to the UK when he let it be known that he is no fan of a Brexit seems like a distant memory. Outside of Whitehall there is also hardly any recollection of Chinese President Xi Jinping expressing discontent with the British EU referendum during his visit to the UK in late October 2015. 

However, China remains concerned about the prospect of Britain finding itself outside the EU. In recent months, high-ranking Chinese officials have repeatedly expressed their government’s worries about the prospect of a British EU exit with British officials. Beijing’s diplomatic campaign constitutes an unusual departure from the Chinese foreign policy principle of not interfering with the domestic matters of other countries. It underlines the high stakes China’s political and economic elites have in the British EU referendum. 

UK is prime destination for Chinese investments 

Over the past 15 years, the UK has become the prime destination for Chinese investments in Europe. Total greenfield and M&A transactions since 2000 amount to 15.1 billion EUR, making up for about 25 per cent of Chinese investment flown into all 28 EU member states and constituting twice the amount of investment that has flown into Europe’s largest economy Germany. But uncertainty about the future of Britain’s relations with the rest of Europe now calls the value of these investments into question. 

A post-Brexit scenario that entails the loss of unrestricted access to the EU’s single market would align poorly with the business plans of many Chinese-owned companies operating in the UK. A recent analysis of UK-based companies set up by emerging market investors since 2003 suggests that access to the single market was a key reason for Chinese investors to establish business operations in Britain. Out of 508 companies surveyed, almost half of them Chinese-owned, more than 58 per cent specified continental Europe as the actual market for the goods and services they sell, compared with 33 per cent who cited the UK market. 

Chinese-owned tech companies also worry about the prospect of a sudden loss of talent, if highly qualified continental Europeans are no longer allowed to permanently reside and work within the UK. One of China’s richest citizens and owner of various UK-based businesses, Wang Jianlin, warned that a Brexit could prompt Chinese businesses to abandon their UK operations. This may be an empty threat since relocating companies to continental Europe would be a costly venture. But many Chinese investors will think twice about setting up new operations in the UK as long as access to EU markets remains in limbo. 

London would lose strategic value for Beijing 

Apart from concerns over China’s investments in Britain, Beijing’s political leadership fears the deterioration of the strategic value of its relationship with London. Over the past two years, Beijing has increasingly relied on London as an advocate for its interests within the EU. 

Trade liberalisation is a traditional core tenet of British foreign policy and the conservative government has placed specific priority on the expansion of trade and investment relations with China. Prime Minister David Cameron became the first EU head of state and government to publicly push for the conclusion of a free trade deal between Beijing and the EU – much to the dismay of Brussels bureaucrats who considered the statement ‘premature’. 

The UK was also the first EU member state to support granting China the status of a full market economy (MES), which would make it more difficult for the EU to impose tariffs on cheap Chinese imports. Even though the Tory government has recently toned down its support for this move in light of protests from the national steel industry, London continues to block proposals by the European Commission and other EU member states to raise tariffs on Chinese steel imports. 

In another first, the UK also led the way in Europe in signing up to China’s Asian Infrastructure Investment Bank, which was perceived in the past as a rival to the World Bank. In doing so, the British government publicly defied its ally Washington, triggering complaints from within the US administration about London’s ‘constant accommodation of China.’ 

If the UK were to leave the EU, neither of the other two ‘big’ member states Germany and France would make for obvious substitutes as advocates of Chinese interests. Berlin has a track record of criticising China’s human rights situation. Moreover, senior members of the German administration have lately called for an ‘aggressive position against China’ on the MES issue – a stance that was echoed by prominent members of the French government

Beijing worries about EU’s role as a global actor 

Smaller EU member states such as the Czech Republic or Hungary have positioned themselves as potential champions of Chinese interests within the EU – hoping for infrastructure investment in return. But as their nationalist governments find themselves sidelined in EU policy-making, their influence in Brussels and thus their value for China cannot match that of the UK. 

Beijing’s decision-makers also have little interest in a further decline of Brussels’ global power. Although Beijing has long given up the hope that Europe could become a solid pillar of a new multipolar world order on the same level as the US, it still believes that the EU can act as a counterweight to the US on some global issues of importance to China. 

China’s political elites are alarmed by suggestions that a British EU exit could set in motion a domino effect that would see other member states leaving the EU or at least deepening the EU crisis with their own referendums. A further devolution of the Union would mean a shrinking single market, in which Chinese products can be shipped freely. Moreover, it would mean that China would have to devote even more resources to understanding what the interests of individual member states might be. 

Of course, there are also those in Beijing who underline the positive effects that a British departure from the EU would have for China. Some Chinese experts have suggested that once outside of the EU, the UK may be free to sell arms to China. And some Chinese nationalists like the idea of a Brexit for the sole reason that it would place the UK at loggerheads with China’s perceived arch-rival, the US. But these voices are clearly in the minority compared to those who fear losing an important partner in Europe.

A slightly different version of this article was published by the EU Observer on 22 June 2016.