3 Reasons China Fears Brexit

China’s economic ambitions in Europe would be hindered by Britain’s departure.

No doubt, the United States stands to lose a great deal from a Brexit. In recent months, countless commentators, as well as the Obama administration, have emphatically made this point. But few analysts have noted that the same holds true for China. Britain’s departure from the EU would be a costly economic and political blow to China, which worries Beijing. Thus, China has quietly but firmly opposed a Brexit, a message which President Xi Jinping personally delivered during his October 2015 visit to the UK. During the visit, in an unprecedented break with its official policy of noninterference in other countries’ domestic affairs, Beijing also issued a statement declaring that “China hopes to see a prosperous Europe and a united EU.” The message is clear.

But why is China so deeply concerned by the prospect of Brexit? To answer this question, it is crucial to understand why China puts such great importance on its relations with the UK. There are three reasons.

First and foremost, Beijing hopes to use its increasingly close relationship with Britain to influence the EU’s China policy. Faced with pressure from the United States and Japan in Asia, China has increasingly turned toward the EU to pursue economic opportunities, a turn that has been one of the chief drivers behind Beijing’s One Belt, One Road strategy. Against this background, China has cultivated an increasingly close political and economic relationship with Britain, with the hopes of building up the UK as its chief partner and advocate within the EU. China’s leadership has made special efforts to woo the UK’s ruling Conservative Party, which is staunchly protrade, especially Chancellor of the Exchequer George Osborne, a potential successor to Prime Minister David Cameron.

This strategy has already begun to bear fruit on two key issues. In spite of serious domestic and international opposition, the British government has lobbied the EU to grant China Market Economy Status, which would allow Beijing to reduce the serious threat of having antidumping duties imposed on Chinese goods. London has also publicly advocated a multibillion-dollar EU-China free-trade deal, which Beijing sees as a unique opportunity to greatly expand its gigantic trade and investment relationship with Europe. From China’s perspective,an added benefit of such a free-trade deal, would be to make the U.S.-backed transatlantic trade and investment partnership more difficult. A UK vote to leave the union would deliver a severe blow to Beijing’s plans of influencing the EU with Britain’s help. It would also weaken the EU as a potential economic and political partner for China.

Second, Britain gives China vital access to the gigantic but hard-to-penetrate European market. Many Chinese companies have invested in the relatively liberal British economy as a stepping stone to penetrating the heavily regulated EU market of more than 500 million potential customers. Such strategic investment has become even more relevant in recent years, as Chinese companies have begun to move up the value chain, particularly in services, and have faced restrictions on investing in other major economies, such as the United States, on security and technology-transfer grounds. Naturally, a Brexit would sever China’s access to the EU market through Britain. Wang Jianlin, the founder of the multibillion-dollar real estate and entertainment group Dalian Wanda, and a major Chinese investor in Britain, warns that “Brexit would not be a smart choice for the UK, as it would create more obstacles and challenges for investors.” Even more ominously, he predicts that in case of Brexit “many Chinese companies would consider moving their European headquarters to other countries.” According to insiders, Chinese companies have already put on hold business deals in the UK and are nervously awaiting the outcome of the referendum.