China least affected by Brexit fallout

By Li Xuanmin and Shan Jie Source:Global Times Published: 2016/6/27 0:43:00

Uncertainty of pound, euro to reinforce yuan

Britain's exit from the EU will weaken the euro's status and gives the Chinese yuan an opportunity to become a more internationalized currency, economists said at the Davos World Economic Forum in Tianjin on Sunday.

Speaking on the impact of Brexit, Li Daokui, an economics professor at Tsinghua University, said that China is probably the world's least-affected economy. The yuan's exchange rate might be affected by global market volatility, but even that will be subdued shortly.

"In the long run, if Brexit comes true, the euro's position will be weakened," Li said. "This means a new global currency is needed to compete with the US dollar. It is a chance for the Chinese yuan. And the world needs the yuan."

Li's comment follows the free-fall of the UK pound's value, with its exchange rate against the US dollar plunging more than 10 percent to a 31-year low on Friday after the referendum results were announced, larger than the drop during the global financial crisis.

Bai Ming, a senior international market researcher at the Ministry of Commerce, agrees with the possibility of the yuan's short-term depreciation against the US dollar.

"The yuan's value against the dollar dropped less than 1 percent after Brexit, and it is one of the currencies that has suffered the least fluctuation in the global market," Bai said, noting that the uncertainty of the pound and euro will reinforce the yuan's status as a major reserve currency.

Besides, lower prices in the UK and the pound's exchange rate will attract Chinese investors to the UK property market, according to a report global real estate firm Knight Frank sent to Global Times on Sunday.

The company said it had received five reservations for two London projects from both Chinese mainland and Hong Kong investors, South China Morning Post reported on Saturday.

Experts said that the pound's depreciation is a prelude to Brexit's potential short-term economic impact on Chinese investors.

Effect on China

"For Chinese companies eyeing the EU market, they choose to invest in the UK mainly because of the UK's proximity and privileged market entry to EU countries." Bai said. "Other countries within the EU like France also share similar features, so the UK's exit from the EU has made it less attractive to Chinese companies."

Bai's opinion was echoed by Gianmarco Ottaviano, a professor at the London School of Economics and Political Science, who expects Chinese enterprises to transfer some of their investments from the UK to EU countries in the wake of the UK vote, according to domestic news portal, citing the BBC.

Compared with the potential EU market of 500 million consumers, the UK's is less appealing to Chinese investors with a population of only 65 million, the Brookings Institution's Philippe Le Corre said according to the report.

And in the long run, the most worrying thing about Brexit is the possibility of a trend against globalization, and free trade and investment that the Chinese economy has enjoyed, Huang Yiping, deputy dean of the National School of Development at Peking University, warned at the Davos World Economic Forum.

New challenges

Zhao Junjie, a research fellow at the Chinese Academy of Social Sciences European Institute said Brexit would also affect Sino-EU ties, which is at a key moment when the UK was expected to serve as a new growth engine and bridge.

"Sino-EU relations will face new challenges if the engine breaks down," said Zhao.

In the short term, the UK and the EU will experience hard times. They will need to cooperate with China even more than before, Zhang Shengjun, an international politics professor at Beijing Normal University told the Global Times on Sunday.

"A stable Europe is important to the whole world, but Brexit has triggered a shift in global politics and economics," Zhang said. Zhang said the future of Europe would be the focus of the Group of 20 summit in China in September.

"China should learn from the Brexit referendum, in which the 4 percent winning margin negated the choice of 16 million people. Western democracy might appear reasonable, but it's actually ridiculous," Zhao said.

Posted in: Markets, Economy

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