British economists agree that a UK withdrawal from the European Union could have an affect on Sino-British trade links, but opinion is clearly divided on to what extent.

Prime Minister David Cameron has pledged to hold a referendum on whether to exit the EU - the so-called Brexit - by the end of 2017.

This has led to much speculation about the potential impact, not least in China, which has enjoyed increased trade and investment with the United Kingdom in recent years.

Jonathan Portes, former chief economist with the Cabinet Office, believes China-UK ties are strong enough to survive in the event of a Brexit.

"If the UK left the EU, the UK would remain a large, developed economy that trades extensively with the rest of the world, including China," he says, adding that other key links such as the large numbers of British students who study in China, and vice versa, would not be directly affected.

Portes, who is now principal research fellow at the National Institute of Economic and Social Research in London, says Chinese investors will not be too concerned about the EU referendum until closer to the time, and even then only if it appears the British public will vote to leave.

"If that occurs, there may well be a pause in investment while investors wait to see what the result is and, if we vote to leave, what the future trading arrangements between the UK and the EU will look like," he says.

In a Daily Telegraph poll in November, 52 percent of respondents said they wanted to leave the EU, while What UK Thinks, an independent website that measures British attitudes toward the EU referendum, puts it at about 49 percent.

Jacob Nell, chief UK economist for Morgan Stanley, says an "out" vote would have substantial impact on both political and economic fronts.

Morgan Stanley puts the likelihood of a Brexit at 35 percent, and Nell says, "We think the uncertainty will have the greatest impact on investment, particularly among investors for whom access to EU markets is important, which often includes foreign investors."

Dennis Novy believes Chinese investors would no longer take the UK seriously if the country left the EU.

"It would be one-sided deterioration," argues the associate professor of economics at the University of Warwick, who has written numerous articles on the subject. "Britain would be in a much worse position and would not matter much to China, since Britain is a relatively small player on the global stage.

"The EU works because it leverages size. There are a lot of small countries in Europe that individually are not terribly powerful, but together they can increase their economic and political power. Of course, this is also true for the UK."

He believes the main reason China is talking to the UK now is due to direct influence Beijing believes the UK has in Brussels.

"What would Britain look like if it left the EU? This is the big question, and I think this is the weak point of the Brexit campaign because we have a relatively good understanding what the future would look like if Britain remains in the EU, but if it left it would be much harder to think about," Novy says.

The campaign in favor of a Brexit argues that, once the UK leaves the EU, it would no longer have to subscribe to the regulations that come from Brussels.

Portes says EU regulations do have significant cost and benefits, and that if the UK left it would have considerably more flexibility, possibly at the cost of reduced access to the single market.

But he argues, "There is little or no evidence this increased flexibility would yield large economic benefits. The most serious problems faced by the British economy - the dysfunctional housing market, the failure to educate a large enough proportion of our population to a high enough standard, and years of under-investment in infrastructure, all of which have little or nothing to do with EU regulation."

China has shared its opinion on the subject. During President Xi Jinping's state visit to the UK in October, he said he backed a strong and united EU, while the Chinese Foreign Ministry released a statement expressing the nation's interest in building stronger economic ties with a unified EU.

Despite this, Nell believes Sino-British relations would continue to grow even in the event of a Brexit.

The UK, with its strength in higher value-added services, can benefit from China's transition from manufacturing to a service-oriented economy, he says. "More specifically, the UK, with its global expertise in financial services, is well-positioned to support the opening of China's capital account and the development of the renminbi as a global reserve currency."

wangmingjie@mail.chinadailyuk.com.cn

(China Daily European Weekly 12/18/2015 page23)