China, Japan Biggest Winners From Brexit

EghtesadOnline: The UK’s vote to leave the European Union could throw up some winners in Asia. That’s because Britain will be forced to deepen links with Asian trading partners and cut new deals allowing access to each other’s markets.

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11 September 2016

Such a move will throw up opportunities for the likes of China, Japan and Hong Kong who already have the strongest investment, financial, tourist and trading ties to the UK, according to a score card by Bloomberg Intelligence economists.

“As Brexit throws the UK’s relations with Europe into confusion, strengthening links with Asian economies that are the main engines of global growth has seldom been more important,” the economists wrote in a note.

The Bloomberg Intelligence analysts listed five factors to gauge the strength of bilateral relations.

Trade: stronger links mean more potential to benefit from a shift in global trade flows after Brexit.

Investment: significant foreign direct investment in the UK offers opportunity for others as the UK looks to stay open for global business.

Finance: strong financial ties provide a basis for enhancing trade and investment flows.

Tourism: inflows of visitors will generate more income for the UK, and a proxy for people-to-people ties that are the basis of goods and capital flows.

Exchange rate: a sharp drop in the pound following the Brexit vote has put the UK on sale, a boon for UK exporters, as well as for foreign visitors and investors.

Overall Rankings

China comes in third place behind Japan and Hong Kong in overall rankings. Its score is boosted by trade and tourism ties but slips down the ranks due to the weakening yuan.  Those who could miss out include Malaysia, Indonesia and the Philippines. That’s because they rank lowest in the heat map for key linkages such as trade and foreign direct investment. Philippines scores a total of 50 compared to Japan’s 12. Lower numbers mean a higher ranking.

To be sure, much about the UK’s future relations with Europe and Asia remains unknown as the aftermath of the Brexit vote has only just started to unfold. Trade deals take time to materialize and trends of investment play out over years, not months, the Bloomberg Intelligence analysts cautioned. Still, those who want the opportunity won’t wait until the dust has settled.

“Businesses and investors are not going to wait too long before grasping the Brexit opportunity,” the economists wrote.

Difficulties for EIB

Britain’s exit from the European Union will create difficulties for the European Investment Bank, a lender owned by EU governments, the bank’s president Werner Hoyer said on Saturday, Reuters reported.

The EIB is also a central tool for an investment program the European Commission estimated would generate €315 billion ($354 billion) of investment in the EU and which is set to be expanded, according to Financian Tribune.

When asked what will happen to the EIB when Britain, which is one of its major shareholders, leaves the EU, Hoyer told reporters in Bratislava, Slovakia:

“The United Kingdom is a big and important shareholder of the European Investment Bank and an important member state of the European Union. This is why it will be a difficult process,” Hoyer said on entering a meeting of EU finance ministers.

“We will have a few years of uncertainty ahead of us during which it won’t be clear what will happen to Great Britain and its relation with the European Union. And depending on this is of course the question of what the relation between Britain and the European Investment Bank will be.”

Of the €243 billion of subscribed EIB capital, only €21 billion is paid in. The rest is callable, meaning it would only be paid in if necessary. Britain’s share of the 21 billion paid-in capital is 16% or €3.4 billion.

When Britain leaves the EU, a process which is to start early next year, it would have to take out this paid-in contribution as only EU member states can be in the EIB unless the EU decides to change its treaties.