Brexit heightens uncertainty for Chinese economy

Jun 29, 2016, 08:00 am

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By Hong Soon-do, Beijing correspondent, AsiaToday - China has been suffering from an economic recession since the second half of last year. In this situation, Britain's vote to leave the European Union should be inevitably bad news for China. Such assertion is not an exaggeration considering the fact that China-UK trade totals over US$80 billion per year. This is why some economists say that Brexit has heightened uncertainty for Chinese economy which may even lead to hard landing.

In fact, such concerns could turn out to be valid, taking what economists say and the June 28th report of People's Daily and other Chinese state-run media outlets. Most of all, yuan devaluation is quite serious. China weakened the yuan's fixing almost one percent to 6.6375 on Monday, which is the lowest level in five and half years. It seems hard for yuan to appreciate in the near future due to Brexit impact. Some even predicts that the yuan will fall to around 6.8 against US dollar. If this is the case, it could help the Chinese exports however, the overall economy could weaken due to uncertainty.

The Shanghai Stock Exchange. It's being negatively affected by Brexit panic./Source: Search engine Baidu

The stock market, which had a rough time last year, is also being negatively affected by Brexit panic. The fact that the Shanghai Composite Index opened Tuesday at 2885.01, down 0.37 percent, shows well that such speculation is not just a vague gloomy view. Some analysts say that the Shanghai benchmark would be lucky if it manages to stay at around 2,600 level. That means, it should not expect to reach a historic peak of over 6,000 points of better times for the next significant period of time.

Besides, Chinese export will be negatively impacted. Of course, Chinese export to UK is unlikely to decrease right away. However, things will get tough if the European Union strengthens its protective trade policies due to Brexit. If so, anti-dumping barriers against Chinese products could inevitably become higher.

Of course, some remain optimistic. Chinese Premier Li Keqiang is one of them. At the World Economic Forum (WEF) held on Tuesday in northern China's Tianjin, he said, "The Brexit impact on Chinese economy is little. China's economy will not suffer a hard landing." In addition, some analysts said that China's yuan could become an attractive alternative as reliable international currencies over euro and pound in the long term. Other positive prospects include greater opportunity for Chinese capital on UK investment following the collapse of pound. However, these are long-term prospects, and they are hard to solve the current problems that the Chinese economy is facing. That means that the Chinese economy has to struggle for a while due to Brexit.

#Brexit #UK #Chinese economy #hard landing #Li Keqiang 
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