Trade between UK and China predicted to grow post-Brexit

Analysts are forecasting growth in UK-China bilateral trade and investment in light of the British government's latest policy document on Brexit arrangements.

They say the impact of the United Kingdom's exit from the European Union's Single Market upon Chinese investment is likely to be minimal, while a potential free-trade agreement with China could significantly support British exports.

The UK government's Brexit White Paper, published on Thursday, confirmed the country's exit from the European Single Market and highlighted its desire to "forge ambitious free trade agreements with other countries across the world".

A free-trade agreement between China and the UK was proposed by British Chancellor Phillip Hammond in July 2016, when he attended the G20 finance ministers meeting in Chengdu.

"Given the height of tariffs in China and the magnitude of their market, it is the UK that can gain big from the FTA," said Maximiliano Mendez Parra, a senior research fellow at the London-based think tank Overseas Development Institute.

Mendez Parra said such an FTA would help the UK adjust to "the strong shock" it might experience upon leaving the EU. He said the UK's service sector in particular would be likely to gain from increased access.

The value of British exports to China has skyrocketed in recent years, increasing by 108 percent between 2010 and 2016, according to British government figures. China is Britain's second-largest trading partner outside the EU, while the UK is China's largest investment destination in Europe.

Meanwhile, Chinese investment into the UK has also grown. Chinese direct investment into its nonfinancial sectors in 2016, from January to November, exceeded $1 billion.

"Much of the Chinese investment into the UK is made to strategically make use of the UK's local market talents, expertise and technology," said Andrew Godley, a professor of management and business history at the Henley Business School. "Therefore, Chinese investment is less affected by Brexit, compared to Japanese firms' investment, which aims to use the UK as a platform for exporting into European markets.

"For example, the Chinese telecommunications firm Huawei highly values investment into the UK for research and development purposes, while many Chinese banks establishing branches in London's financial center benefit from partnerships with global banks in London."

The Japanese automotive manufacturer Toyota, for example, made much media noise when it warned it was examining "how to survive" in a post-Brexit UK, just days after Prime Minister Theresa May said in January that Britain would leave the single market.

At the same time as the UK attempts to woo Chinese investment, many other European countries are likely to increase their efforts to attract China's money during a period of Brexit uncertainty, especially as the UK creates new laws and regulations post-Brexit, said Christopher Bovis, professor of European and international business law at the University of Hull.

"Brexit will create more competition amongst EU countries to attract Chinese investment," Bovis said.