Britain’s vote to exit the European Union has added new uncertainties to the global economy at a time when China faces persistent downward pressures, Chinese premier Li Keqiang said at the World Economic Forum in Tianjin on Monday.
But it is no reason to cut business links with the UK.
Last week’s British vote has already impacted global financial markets and a “fundamental solution” to ensure a stable global economy is required, Li told the WEF, dubbed the “Summer Davos” in the northeastern coastal city of Tianjin.
“We would like to see a united, steady EU as well as a stable, prosperous United Kingdom,” Li said. “Against the backdrop of globalisation it’s impossible for any country to talk about its own development while cutting off from the world’s economic environment.”
Li’s remarks were the latest public comments on Brexit from top Chinese officials. On Monday, Li Baodong, China’s deputy foreign minister, called on the Chinese business community to “act responsibly” in the wake of Brexit.
“Brexit is a sudden challenge but we cannot just panic…We cannot give up on our partner in hard times,” he said, adding that China will not pull its UK investments amid the market uncertainty.
The UK’s vote to end its 43-year marriage to the EU sent shock waves across the world and hit global stock markets, which lost about $2 trillion in value on Friday. The pound also plunged to its lowest level since 1985, with investors rushing for less risky currencies such as the dollar.
Best European friend
The UK has for years positioned itself as Beijing’s “best friend in Europe”, which has helped to secure it a number of Chinese investments – mainly properties, infrastructure projects, and financial projects – and deepened ties between the two countries.
Last year China poured $3.3 billion into the UK, making it among the top-three European countries for Chinese direct investment, alongside Italy and France, according to law firm Baker & McKenzie.
Chinese companies also spent about $38 billion on UK acquisitions between 2006 and 2015, snapping up brand names such as Pizza Express and House of Fraser, data from Dealogic shows. With six months barely gone, Chinese firms have this year already splurged $3.6 billion on 15 British acquisitions, including that of football club Aston Villa, according to Dealogic. That already surpassed the $2.78 billion in deals recorded across all of last year.
Li Huaizhen, president of China Minsheng Investment, one of the country’s largest private investment funds, said that Brexit would not derail the firm’s investment plans in the UK.
“I think the market has been over-reacting to Brexit. The UK is actually different from other EU countries on many policies. For instance, its currency hasn’t joined the eurozone and its visa isn’t part of Schengen agreement,” Li told reporters on the sidelines of the WEF on Monday.
“[Brexit] would have a profound impact on the UK, Europe, and the world but the impact wouldn’t be scaring. It just takes time for people to accept it,” he added.
Last February, China Minsheng teamed up with private Chinese developer Advanced Business Park to jointly invest $1.5 billion in the development of a new financial district in east London, one of the largest Chinese investments in the country in recent years.
Most of the capital would come from China Minsheng, which was set up in 2014 with registered capital of Rmb50 billion ($7.6 billion), according to Chinese media reports.
“We have been working on this [London] project since then and have launched two funds for it. Both funds function well,” Li said, adding that their combined size had reached £200 million.
“We are also looking into other projects…In the long-term, there will be [investment] opportunities [in the UK],” he said.
But not everyone at the three-day forum was as optimistic as Li over the impact of Brexit on financial markets and Chinese enthusiasm for UK investments.
“My biggest concern is that it could turn into a black swan event in the short-term, as the global capital market didn’t really take Brexit into account. In the current situation, investors tend to quit first to lower the risk,” Eugene Qian, UBS’s China head, told FinanceAsia on the sidelines of the form.
According to Ian Bremmer, president of the Eurasia Group, China would make efforts to maintain the global stability amid the current volatile environment.
“China does not want Europe to fall apart. They don’t want a [Donald] Trump presidency. China understands that what they need right now is global stability,” he said.