British Political Economy in Post-EU Era and China-UK Relations

WANG PANG

From School of Chinese Studies, Fudan University

British Political Economy in Post-EU Era and China-UK Relations

WANG PANG

From School of Chinese Studies, Fudan University

Although Theresa May the new British Prime Minister had followed Cameron to stand for staying in the EU, after taking office, she has openly stated on several occasions that she will respect the public opinions of the country and carry out a foreign policy of implementing Brexit according to the result of the referendum. In so doing, she has even made Boris Johnson, a controversy lead light of the Leave party new Foreign Secretary. Then, after the Brexit, where will the UK head for? What opportunities and challenges will face the country in political, economic and security terms? What are the variables in China-UK relations? Under the situation, what measures can China take to avail itself of the opportunities of Brexit and to avert its challenges?

NEGATIVE EFFECTS OF BREXIT: WORSENING ECONOMIC RECESSION AND STIMUlATING SEPARATISM

Obviously, Brexit will significantly impact economic and trade ties, people-to-people exchanges and bilateral relations between the UK and the EU. UK-EU trade accounts for nearly half of the foreign trade of the UK. Short of being a member country of the EU, the UK will face stiff tariff and non-tariff barriers to enter the EU single market. To “restore” trading status of the UK will take renegotiations with all member countries of the EU, which may be a long and tedious battle.

As such, international bodies are less than optimistic about the economic prospect of the UK after Brexit. The IMF holds that since in the short term the country will undergo a complex and untested process of exit, the uncertainties arising there may damage investment, consumption and employment of the UK and lead to an over 5 percent contraction of the British economy by 2019. The estimates of the Confederation of British Industry are more graphic: Brexit will make the country lose 100 billion pounds by 2020. That loss is not only on the level of the state, the British families and individuals seemingly have to pay for such a choice. George Soros published an article on the Guardian and in which he pointed out that in the five years between the official Brexit and complete stabilization of the British economy, every British household will bear a loss between 3000 and 5000 pounds.

On July 20, 2016, Theresa May arrived in Berlin to talk with German Chancellor Angela Merkel. The photo shows Angela Merkel (Right) in a press conference together with Theresa May.

Economic losses are only part of the story. A still greater challenge is on the maintenance of national sovereignty and territorial integrity. Two years ago, the UK maintained, by good luck, national unity as a result of Scottish independence referendum. However, there are signs that the capacity of British Government in maintaining national unity is on the decline. The possibilities of secession of Scotland and Northern Ireland from the UK are on the rise. Upon the outcome of the Brexit referendum, the Scottish National Party openly vowed to push for a second independence referendum for“seceding from the UK and acceding to the EU”. According to this trend, the probabilities of Scottish independence will greatly increase. This is owing to the fact that stimulated by the Brexit referendum, voters who previously voted for independence will be still firmer for independence and, at the same time, the middle-of-the-roaders will turn to the independence camp and push for accession into the EU after the Scottish independence.

POSITIVE EFFECTS OF BREXIT: IMMIGRATION, SECURITY AND ECONOMIC SOVEREIGNTY

Though there are defects in Brexit, to be objective, the UK was forced by the circumstances to take the measure. It would pay a price to choose either to stay in the EU or to leave it. But in the eye of the Leave party, the cost of leaving is relatively the lesser of two evils.

First of all, both security of the state and security of the pubic are closely linked with the immigration and refugee policy of the EU. In the fierce debate between the Leave and Stay parties prior to the referendum, a major viewpoint of the Leave party was that the EU had neither the political will nor the capacity to constrain the wave of refugees, mainly from the war-torn areas in the Middle East, and that such a wave would not only make the Schengen system of the EU exist merely in name but also add to the misfortune of the EU countries which had already been unfortunate with lingering economic recession. More important, at the time as the establishment politicians were too shy to mention for being “politically incorrect”, the network of international terrorist organizations had moved in with the wave of refugees, posing a great threat to the UK’s state security and public security. At the moment, growing terrorist attacks on EU countries (especially by refugees or offspring of Middle East immigrants) are, one after another, striking the chord with the Britons and continuing to send more and more votes to right-wing parties.

As an offshore island country, the UK has, for a long time in history, enjoyed the protection of the Channel and therefore the sense of security, greater than the average of continental Europe. Treasuring their own freedom and their memories of “glorious isolation” in history as such has taken deep roots in the quintessence of British national security culture. Therefore, in the eye of the Leave party, since the UK could not control the EU refugee policy, it had to cut its ties with the EU in order to keep safe its homeland.

Secondly, from economic perspective, it is not all pain but no gain to opt out of the EU. In recent years, the economic vitality of the EU has continued to drop, and so also has been its attraction to the UK. The forerunner of the EU was the European Community, and to trace it further to its origin, it was the European Coal and Steel Community (ECSC) with Germany and France being the core countries. With the founding of the ECSC, Germany and France immediately made reconciliation and displayed enormous economic efficiency and synergy, attracting the UK to join up.

On July 15, 2016, British Prime Minister Theresa May arrived in Edinburgh, Scotland to exchange views with the First Minister Nicola Sturgeon on domestic union and Brexit. It was the first time that May had left London since she took office less than 48 hours before. The photo shows Theresa May (L) meeting with First Minister Nicola Sturgeon.

In the Post-Cold War years, the US-led NATO made rapid expansion to the East, bringing about certain pressures on Germany and France, which intended to strengthen the autonomy and independence of Europe. In order to prevent the US from becoming totally dominant of Europe and making the latter its own backyard, Germany and France began a synchronized eastward expansion. As the saying goes, birds of same feather flock together. There is a huge gap in institutions, economic wellbeing and mentality of the people between the newly integrated East European countries and West Europe. In fact, within the “old EU”, there is also a distinction between the North and South. In the German Protestant world of the North there are relatively more developed industries and greater economic vitality such as in Germany, the UK and the Nordic countries. The Latin/Greek Catholic world in the South is relatively backward, its people being more ready to enjoy high welfare than to bear corresponding high labor intensity, which is the historical source of Euro-debt crisis of Greece and in recent years the term of PIIGS, an acronym used to refer to the five Eurozone nations Portugal, Ireland, Italy, Greece and Spain, called jokingly by international investors as “European PIGS” for their long-term economic slowdown that drags down the overall trend of the Euro .

Facing economic conditions and fiscal policies of countries like Greece, the major EU countries such as Germany have been obviously unsatisfied and tried to pressure Greece and other countries to carry out domestic reform but to little avail. Taking Greek reform on taxation and welfare for example, the pertinent resolutions of the EU are next to no effects at all, as in choosing between the EU resolutions (which are in fact in the long-term interest of Greek economy) and the necessity to satisfy the voters’ interest in welfare, political parties in Greece, that are in power by votes, have chosen the latter without any suspense. As the voters’expectation on welfare far exceeds the actual economic capacity of Greece, therefore, the Greek-style democratic election is by nature for competing parties to bribe the voters for their votes at the cost of overall capacity of sustainable development of the country and, at the same time, to export domestic economic pressure to other EU countries. Since the UK is unable to urge the EU to impose reform on countries like Greece, weighing the advantages and disadvantages, it could not but choose to exit the EU.

Not only that, since the economic crisis of 2008, the UK has recovered its vitality, sooner than other European countries, thanks to its economic independence and autonomy. As the UK has not acceded to the Schengen Agreement and the Eurozone, it keeps a distance from the EU and hence maintains its own economic sovereignty. This fact illustrates that keeping the power to issue the pounds gives the UK the capability of addressing economic crisis by huge monetary input. Other EU countries do not have such effective policy tools and hence lag behind in dealing with the crisis. For instance, as Greece is within the Eurozone, it is not entitled to issue money on its own and hence unable to effectively rescue itself for economic recovery. This success story of the UK as a best example there also helps the Leave party persuade voters to vote yes in the referendum.

OPPORTUNITIES AND CHAllENGES BREXIT BRINGS TO CHINA-UK RElATIONS: PROSPECT OF“FOURTH-RING DIPlOMACY”

Those familiar with the British diplomatic history know the term of “threering diplomacy”. At the end of the Second World War, in face of a BritishEmpire riddled with gaping wounds and nearing its end, Prime Minister Winston Churchill put forward such a strategy in October 1948, aiming at strengthening the special status in the“three rings”, namely the ring of the British Commonwealth (“the British Commonwealth and the British Empire and all their inclusion”), the Trans-Atlantic ring (“the UK, Canada and other dominions of the British Commonwealth and the English speaking world where the United States plays such an important role”) and the ring of Europe, and serving as the point of connection and link between the three in order to maintain traditional interest and major-country glories of the UK.

However, Churchill’s calculations based on wishful thinking soon went by the board. After the War, India and Pakistan declared independence, taking away the brightest jewel away from the crown of the Empire. The Suez Canal War of 1956 thoroughly discredited the UK and France. In the 1960s, the upsurge of decolonization and independence raged like a storm, resulting in the British Commonwealth in face of defeat and falling apart. The US sat steady in the seat of hegemony of the Western Camp, and though it kept a “special relationship” with the UK, the latter was clearly the one to be led. Under the impact of US military might, US dollar and US culture of mass consumerism, the majesty and dignity of the British Empire of bygone years no longer existed. As for the ring of Europe, the Union of Germany and France and the rise of the EU made the UK feel like being marginalized. For twice the UK’s application to join the EEC had been vetoed by de Gaulle, and not until it had overcome great difficulties did it joined the EU eventually. Now, by the Brexit referendum, the Britons themselves have got rid of the last ring. Having lost all of the three rings, where should the UK go?

Just a few days after the referendum, the British Chancellor of the Exchequer Osborne made a speech, saying that the UK is capable of meeting future economic challenges. In particular, he stressed on that the vision of the country should transcend geo-limitations, not only facing its neighbors in Europe, but also building strongest economic association with friendly countries in North America, the Commonwealth countries and important partners like China. Chiming in from the other end, Cameron admonished British business leaders not to be entangled with the EU but to seize the time seeking cooperation with economies beyond the EU. His concrete action plan is that on the one hand to start the process of Brexit and on the other to send high-power trade delegations to China, India, the US and Commonwealth countries. Could this be a “fourth ring” of the British diplomacy in the future?

As for the effects of Brexit on China-UK relations, there are both advantages and disadvantages. First of all, Brexit will weaken the position of pound sterling as an international currency, which is obviously a disadvantage for China which is eager to realize internationalization of the RMB with the help of London’s central position in international finance. But conversely, the collapse of the ring of Europe for the UK makes it necessary for the UK to increase its strategic and economic needs for China, which helps China to improve its bargaining chips and initiative in negotiations with the UK. It is an important topic calling for solution in the next step in China’s UK and Europe strategy how to draw on advantages and avoid disadvantages, to take the opportunity of Brexit to improve its power of persuasion in China-UK relations and at the same time to avoid possible losses incurring from Brexit.

Two hundred and twenty-three years ago, Lord George Macartney led a large delegation to visit the Qing Dynasty, aiming to “build trade relations”. He returned empty-handed, hardening the determination of the British Empire to force open the gate to the Chinese Empire by gun boats in the years to come. In 2015, Chinese President Xi Jinping led a huge mission of Chinese political and business elite to visit the UK, aiming at promoting trade and strategic cooperation. Circumstances changing with the time, now that the British history has turned a new page, new annals shall be written for China-UK relations and China-EU relations.