Brexit Britain: Fresh challenges, new opportunities, and closer partnerships with China
Today, at 23:00 GMT, the United Kingdom will leave the European Union, the first country ever to have done so. The Prime Minister, Boris Johnson, says the UK has "crossed the Brexit finish line", and it is to his credit that, despite resistance from Remainers, including the former governor and EU commissioner, Chris Patten, who, despite preaching democracy for Hong Kong, sought to thwart it in Britain, this has finally been achieved. Over three and a half years have elapsed since the country voted in overwhelming numbers to leave in the 2016 referendum, and Johnson has fulfilled his pledge to "get Brexit done".
Johnson says his government can now "focus on delivering a bright, exciting future", but first things first. On Feb 1, UK enters into an 11-month transition period, ending on Dec 31. In this time, there will be negotiations over the future partnership between the two places, hopefully resulting in an ambitious free trade deal. However, an immediate benefit for the UK of its EU departure is that it can now operate its own trade policy around the world, negotiating its own free trade agreements with major economies, including China's.
As China and other countries have found, it is extremely difficult to negotiate free trade deals with the EU. Not only are its procedures bureaucratic and its outlook protectionist, but everything has to be tailored to suit the diverse interests of its 28 member states. Although Canada recently negotiated a trade deal (CETA), it took seven years to complete, while Japan's (EPA) took six years. By contrast, for example, Australia's recent trade deal with the United States was wrapped up in under a year.
In consequence, major economies, including those of China, India, and the US, have no trade deals with the EU, and this is unlikely to change in the near future. Because of fears of Chinese competition, some EU stakeholders are seeking a tougher strategy on China, and the US is asking EU leaders to do all they can to contain China's development. The US, however, is not getting everything its own way, and, despite pressure, Johnson wisely decided this week to give Huawei a role in the UK's 5G roll-out plans.
In reality, China, with the world's second largest economy, and Britain, with the fifth, have much to offer each other. With its new-found independence, the UK can now leverage fully on its innate advantages, and exponentially increase its trade and investment with China.
In 2018, moreover, during bilateral exchanges, Britain and China committed themselves to safeguarding multilateralism, and to an open world economy, underpinned by the World Trade Organization. The UK already trades with China on WTO terms, and, post-Brexit, this relationship can be upgraded. Premier Li Keqiang has spoken about a "golden era" in Sino-British ties, and emphasized China's readiness to promote bilateral ties in various areas, including trade.
China, of course, as a proponent of the international trading system, opposes protectionism. Through free trade agreements, it can not only integrate into the global economy, but also stimulate market reform at home. There is no reason why the UK, as a sovereign state once more, should not be China's natural partner going forward. After all, with its financial services, low-tax and low-regulation economy, Britain is a highly attractive investment opportunity for China, as many companies have discovered. Chinese companies in the UK are, in fact, thriving, and, according to the business adviser, Grant Thornton, the largest 750 enjoyed an average growth rate of 11.6 per cent, and a combined turnover of GBP 68 billion, in 2018. The picture is rosy, and there are new opportunities on the post-Brexit horizon, from which Hong Kong, with its externally oriented economy, can also benefit.
Hong Kong, of course, is not only a founding member of the WTO, but also has historic links with the UK, and they each play leading roles in the world economy. They can now collaborate more closely over the innovative industries of the future, including smart technology, health care, infrastructure and health, while working together on the financing of infrastructure projects, including China's Belt and Road Initiative and Britain's National Infrastructure Plan. With their seafaring traditions, both places can mutually develop their maritime sectors, including arbitration and sustainability. The UK, moreover, is keen to build a FinTech partnership with Hong Kong, and they have much to offer their global partners.
There are over 600 UK companies with a presence in Hong Kong, all benefiting from its advanced business environment and unique economic connections with the Chinese mainland. In 2016, it was estimated that UK investment in Hong Kong was worth over GBP 33 billion, representing about 35 per cent of British investment in Asia. Recent Hong Kong investment in Britain, moreover, most notably by CK Asset Holdings, has helped to counter a fall from the rest of the world, and is attributable to the confidence of Chinese businesses in the long-term strength of the British economy. Many Hong Kong executives, moreover, have lived and worked in the UK, and even been schooled there, and they appreciate not only a legal system similar to their own, but also a place where business rules are fair and transparent.
In numerous areas, the UK is highly esteemed around the world, and its fundamentals are sound. Its basic values, world vision and can-do spirit can be just as successful in the future as in the past, if not more so. As Britain once again embraces its global destiny, much of its focus will be on China. With their historic links and close associations, the two countries can now, in the interests of both their peoples, lift their partnership to new levels, and the opportunity must be seized.
Grenville Cross SC is Leave Means Leave Ambassador, Hong Kong & Macao.
