‘Brexit’ a bonanza for China, Indo-Pacific to be impacted

IDD Bureau

 “Brexit” or Britain leaving the European Union – the biggest political and largest commercial union of the world– will be a windfall for China, aiding its rise further and posing problems, militarily, for others in the Indo-Pacific region.

India, the US, Japan and Australia – notably all part of a ‘Quad’ – would be impacted in tackling Beijing which will have more money to pump into its war-machine that is now producing aircraft carriers, submarines, missiles and fighter jets phenomenal pace.

Apart from being able to play EU and Britain against each other on intractable trade issues, easier market access to the UK are some of the positives that Beijing can count upon.

And, although Britain has a new government in place, there is no certainty how the separation between the EU and the UK will happen. 

The South China Morning Post in a recent report quoting a United Nations Conference on Trade and Development (UNCTAD), A no-deal Brexit would boost Chinese exports to the UK by the US $10 billion, or 17 per cent of its current exports to the country. US exports would rise by USD $5.34 billion while Japan would gain USD $4.9 billion, the study found. The UNCTAD study visualizes a “No-deal Brexit,” – or a situation where Britain leaves the EU without an arrangement and is forced has renegotiated its customs borders and tariffs.

Europeans are wary:

The EU and the UK are both like to be weakened by Brexit, (GRFX representation by arrangement)

According to a new report titled “China and Brexit What’s in it For Us” of the European Council on Foreign Affairs (ECFA) says, “China sees Brexit as a source of major opportunity for its economy and international standing.” The study also found; the UK is likely to be more dependent on China.

“UK more dependent on China and therefore more likely to advocate for China’s interests in international fora,” the study concludes. Quoting a wide range of Chinese policymakers and academics the study states that “they believe that China can benefit from the division of the EU… and sees post-Brexit UK as the leading voices supporting China’s ongoing bid for market economy status (MES). 

“The possibility of the UK lifting an embargo against arms exports to China is another area where Britain’s new-found independence from Europe – and dependence on China – could bear fruit for Asia’s largest military actor.” 

European Council on Foreign Affairs (ECFA)

 “A softer European posture on Chinese human rights abuses. Economic competition between the UK and EU for Chinese investment is also seen as likely to lead to better terms for Chinese companies.,” the ECFA report says while adding that UK leaving the EU would weaken both- UK and EU.  

The report also highlights that “Japan has major greenfield investments in the manufacturing sector with significant physical assets. The decline of Pound Sterling will affect Japanese balance sheets because of higher procurement costs to the UK subsidiaries. In contrast, China’s investments are mostly in finance and real estate and are likely to suffer far less damage.”

Former British Prime Minister, Tony Blair, had in a recent interview to ‘The Independent’ said, Brexit significantly weakens the UK whereas countries like China -which is a global economic powerhouse – will gain. “If the medium-sized countries don’t band together, the giants are going to sit on us,” he told The Independent. He said that “banding together” to form the European Union allowed Britain to deal with “the giants” like big countries like the US, China and India “on equal terms.”   “Who on earth would induce you to think that you would gain by giving up” the relationship with EU, he had questioned?   

IDD’s take

The Indian economy is witnessing a slowdown primarily because of drop-in consumption. Fiscal measures to boost the economy is to yet deliver results. Drop-in consumption resulting in a slump in tax collections has severely crunched the government’s ability to spend its way out of the economic downturn. A divided and weakened Europe does not help India. Importantly, a weak Sterling will make Indian imports to the UK less competitive. Finally, a Russia, China, Iran axis against a divided West could also have strategic implications for India in particular and the Indo-pacific region at-large.

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