The City of London Corporation’s Special Adviser for Asia Sherry Madera considers what some Asian countries think about Brexit
In the aftermath of the EU referendum result, London’s status as the most international of all financial centres has never been more important. Asia in particular is growing in importance. Already accounting for two-thirds of the world’s population, it now. contributes 60 per cent of global growth.
As the City of London Corporation’s Special Adviser for Asia, I am at the forefront of expanding our work in Asia. Through my engagement with stakeholders across the region, I am afforded a unique window into what Asian countries think about Brexit.
The first thing to note is that it is abundantly clear that while Britain is talking about Brexit, Asia is talking about business. Of course, Asia is a diverse place that does not lend itself to generalisations, but it is important to take these views on a country or regional basis.
Both in my current role in the City and my previous work as Minister-Counsellor based in Beijing (2014-17), I have worked closely with Chinese policymakers and business leaders. Immediately after the EU Referendum result last year, in my role at the UK Embassy I spoke to stakeholders in the Chinese financial services sector. Overall, their stance was that Brexit was an unwanted surprise, but that China always takes a long-term view.
This sentiment remains true today. China’s plans for going global, internationalising its currency and opening up its financial services sector means it continues to prioritise London as a partner. London accounts for the second largest volumes of RMB trading globally (second only to Hong Kong) and is ranked number one for foreign exchange transactions. This has not changed since the Brexit vote, giving comfort to Chinese stakeholders.
Growing Chinese investment in the UK continues post-Brexit, which reflects both a commercial and political interest. Diplomatically, the UK and China have been in a ‘Golden Era’ of relations since President Xi’s State Visit in 2015. This strong relationship continues to today and is a signal for Chinese firms to continue to engage with the UK as a priority market.
However, there is no Free Trade Agreement (FTA) signed between the EU and China, despite the fact that China is now the EU’s second biggest trading partner. There could be a possibility of nurturing Britain’s unique relationship with China by negotiating a deep and encompassing trade deal.For example, the China-led Belt and Road Initiative, which the City of London heavily supports, makes us an important partner for China.
India is another enormous market in Asia that deserves special consideration. India’s GDP growth rate surpassed China’s last quarter (7.7 per cent growth vs China’s 6.9 per cent) and has piqued world interest. In my engagements in New Dehli and Mumbai, businesses and government-led groups routinely ask about the sentiment in the UK for an India-UK FTA. However, the same questions always come up as to how any agreement would address immigration issues. This issue was raised in government-to-government dialogues during Prime Minister Theresa May’s New Delhi visit last November, and also during the ninth UK-India Economic and Financial Dialogue this April.
It is an issue worth tackling. A free trade deal with India would make the UK the first major economy to strike a deal with the world’s fastest-growing major economy and it could be arguably more achievable after we exit from the EU.
As a global financial hub, Singapore will likely be a netgainer from Brexit. This will include a growth in jobs and shifts in the financial and professional services business opportunities. Singapore is London’s competitor as much as it is a collaborator. This is however healthy competition, as it drives both centres to innovate and evolve. Singapore sees opportunities in Brexit for capital markets and arbitration in particular.
The recent ruling on the EU-Singapore Free Trade Agreement (EUSFTA) provides a useful rulebook on attaining an agreement that does not require Member State ratification. Moreover, a UK-Singapore FTA could use the EUSFTA as a blueprint. During my visits to Singapore, industry has speculated on the recourse Singapore could have on Europe once the UK exits – the UK is Europe’s second-largest economy and the largest EU investor into Singapore. Could the UK’s exit from the EU put some of its third party agreements at risk, including with Singapore?
JAPAN AND SOUTH KOREA
Japan’s financial market is much more mature than its Asian peers, so it is no surprise that Japan’s view on Brexit is more in line with American and European stakeholders. Many Japanese corporations, including banks and carmakers, have invested heavily in the UK, using it as a base from which to serve customers elsewhere in the EU. That’s why both the Japanese government and Japan’s Keidanren business federation (CBI equivalent) respectively issued warnings of Brexit impact, especially in regards to access to the Single Market. This bold statement was remarkable for its departure from cultural norms.
The UK would be wise to engage with Japanese banks to encourage Japanese voices to lobby their European counterparts. Japanese supply chains are complex and crisscross the eurozone. Their interests in open and free trade are a beneficial view to influence all parties as the Brexit negotiations continue.
South Korea has signed the most ambitious of any trade agreement between the EU and a third country. The FTA, signed in 2011, covers a larger volume of bilateral trade than any other. The agreement is seen as an example of a ‘second generation’ agreement that includes areas such as regulatory cooperation and stronger trade in services commitments. This has not gone unnoticed by the UK as it has been engaging with its third largest trade partner outside the EU.
Overall, Asia is continually growing. London offers deep, liquid, diverse markets that can provide capital to Asia. Regulatory dialogues, central bank discussions and intercompany transfers are all top priorities for Asian countries – with pace and enthusiasm undeterred by Brexit. Asians do not want to go to Frankfurt, Dublin, Paris or Luxembourg to learn the financial ropes. They are attracted to London’s diversity of business, finance and culture. Our language, rule of law and geography are all on London’s side, but it is the volumes and variety of services and financial products that keep Asia focused on London.
Asia is looking past Brexit. During our negotiations with EU, perhaps the UK would be well advised to do the same by looking East.