The Impact of Brexit on Foreign Direct Investment and Trade Relations Between the UK and China

Abstract

The main aim of this paper is to identify the possible impact of Brexit on foreign direct investment and trade relations between the UK and China. The UK’s decision to leave the EU has been a shock and a source of uncertainty, especially in the Western world. It triggered a debate on the political and economic consequences of the move for the UK, the EU and their key partners. EU–China relations are based on trade and investment where the EU is the number one export market for China. The UK has been attracting the largest chunk of China’s outward FDI among EU members. The country has also been open to China’s economic goals, including a free-trade agreement, market economy status and an investment agreement. With the UK out of the EU, China may face more protectionist attitudes that dominate in continental Europe. As the details of Brexit are ironed out, the paper investigates the possible implications of Brexit for the international competitiveness of China. It finds that Brexit will not have a significant impact on Chinese FDI flows in the UK as these are mostly motivated by strategic-asset seeking.