Sir Winston Churchill once said that "success consists of going from failure to failure without loss of enthusiasm". When it comes to Brexit, it is undeniable that there have been failures so far: let's hope that those in charge of it do not lose their enthusiasm to make the best possible deal.

Brexit has unfortunately become a synonym for uncertainty - anathema to all businessmen and investors. The media carries disquieting news of Brexit almost every day, especially now that the March 2019 deadline is approaching, and also because of Boris Johnson's and David Davis' resignations in July as well as Theresa May's weak position, which seems to grow weaker by the day.

The truth is that, right now, no one can tell for sure what will happen. One week it seems that there will be a "soft Brexit", the next it seems that there will be no deal... and so on. Just in case, the European Union is already discreetly preparing for a no-deal Brexit.

However, in this article I will focus only on how Brexit will affect UK-China relations, speculating as well whether Brexit will have any significant effect on Hong Kong, since it will affect China's plan to use London as a launch pad for the "internationalization" of the renminbi. Obviously, it will affect much more that the United Kingdom and the rest of the EU, but in our globalized world, it is inevitable that the decision will affect their trading partners, especially China.

The impact of Brexit in China, in the long run, will entirely depend on the kind of Brexit and also on the degree of unity of the EU: China will be far more interested in dealing with a post-"soft Brexit" UK rather than dealing with an UK which left the EU with no deal whatsoever. This is despite the fact that the current UK-China trade relationship is more essential to the UK than to China

The UK is the EU's top recipient for Chinese FDI with €23 billion in 2016 ($27 billion), becoming China's second-largest trade partner in Europe (€62 billion in 2016), after Germany. In 2017, Britain's trade with China boomed as the rest of the EU lagged behind. According to the Office for National Statistics, the UK sends 3.1 percent of its exports to China, while 7 percent of its imports are from China.

However, a post-Brexit UK will be less attractive for China. The impact of Brexit on China will largely depend on the degree of EU unity. British Prime Minister Theresa May visited China and met President Xi Jinping in February along with a delegation of 50 British businessmen (the first time any British leader made an official trip to China after the Brexit referendum in June 2016), signing a "joint trade and investment review" and £9 billion ($11.7 billion) in deals.

Nevertheless, for China, doing business with the post-Brexit UK will be much more difficult, since there will be many more procedures to go through in order to sign any trade deal, plus one of the main reasons why the UK was attractive to China was precisely the fact that UK is part of the EU, thus the UK becomes a gateway into the EU.

In other words, keeping the status quo benefits both countries. But if UK were to leave EU, it will become far less attractive to its trading partners.

In May 2016, London was declared a key RMB platform alongside New York and Hong Kong. Chinese Treasury bonds have been issued in London, but a big part of China's interest in London lies in the fact that China wants to have access to the EU's more than 400 million consumer market. But without membership in EU, UK’s role as a RMB internationalization center will be substantially reduced.

London’s losing its status as a premier RMB internationalization center will benefit other financial centers such as Paris, Frankfurt and Hong Kong. Since the UK will become more insulated from the rest of Europe, Hong Kong can capitalize on its traditional position as a gateway to China, a fact borne out by its Stock Connect schemes with Shanghai and Shenzhen. This favored status will attract displaced investors to Hong Kong, given the fact that funds domiciled in Hong Kong meeting certain criteria may be marketed to millions of potential investors.

To sum up, the world has turned upside down indeed: meaningless trade wars, Xi championing the Old Order established by the US, US President Donald Trump doing everything he can to destroy this Old Order, Xi defending the Paris Accords and promoting free trade both now being denigrated by Trump... and the still unresolved tumultuous Brexit. But whatever its endgame, Brexit will bring new opportunities to Hong Kong as a center to internationalize the RMB.

Oriol Caudevilla is an expert on East Asian studies and on EU-China relations. The views expressed do not necessarily reflect those of China Watch.

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