After Brexit – Rising Powers React to Surprise British Vote to Leave EU

Policy Alert #126 | June 29, 2016

On June 23, the United Kingdom voted in favor of a referendum for the country to leave the European Union (EU). The 52-48 split vote in support of “Leave” panicked global financial markets and prompted a wave of largely negative reactions from world leaders who had previously urged British voters to “Remain.” Once the British Parliament ratifies the referendum, the country would exit the EU in two years. With U.K. Prime Minister David Cameron resigning in October after leading the effort to stay in the EU, the world watches how these events unfold and whether others, including Scotland and Northern Ireland, now pursue their own independence from Britain.

In this Policy Alert, we examine commentary from India, China, Japan, South Korea, and Russia (who reveled in the vote’s outcome) examining what the vote means for the future of Britain and the EU.

INDIA

Given the historical linkages between India and the United Kingdom, the “Brexit” – or British Exit – referendum vote was closely followed by leaders in New Delhi and the Indian public. There are 800 Indian companies across multiple sectors like pharmaceuticals, financial services, and IT operating in the U.K. and employing over a million people.

Most commentary in India was surprised at the Brexit outcome and warned it could have severe implications for the United Kingdom.

• The Hindu declared that Britain now faced a big “scale of unknowable consequences,” especially as the financial markets, Scotland and Northern Ireland independence, and other “international ramifications” play out.
• Sunanda K Datta-Ray, global affairs commentator and editor of The Statesman, said Modi should be wary of the U.K.’s future outreach to India because the “Britain’s Asian strategic perceptions are not India’s” and the anti-immigration stance underlying Brexit shows “Britain may want India but doesn’t want Indians.”
• Rishabh Bhandari, London-based lawyer, expected the vote to “spark an upsurge of support” for right-wing movements unless the EU confronts these failings.
• Hindustan Times worried “India will lose a close ally in the EU,” even though Brexit supporters argued the vote would boost ties between New Delhi and London.

Others tried to look at the positive aspects of the vote’s outcome.

• India should be “insulated from collateral damage” stemming from the vote, argued The Economic Times, because the two year window before Britain formally leaves the EU would give Indian companies enough time to adjust their European investments.
• Chandrashekhar, president of an Indian software association, predicted that the Indian IT industry “is robust to withstand some of the initial pressures” of Brexit, which may be the “tipping point” in favor of a deeper U.K.-India “strategic partnership” free from EU restrictions.
• Sanjeev Sanyal, Indian economist, dismissed the short-term economic impacts of Brexit since “such historic events occur once in a generation and cannot be judged in terms of GDP growth rates.” He concluded the vote was “neither good nor bad for India. It’s mostly about how the country responds to the new situation.”

Some outlets tried to make sense of why Britain voted “Leave” instead of “Remain.”

• S. Panneerselvan, editor with The Hindu, noted many of the claims from Brexit supporters in the lead-up to the vote were “the product of deliberate lies, calculated propaganda, the whipping up of xenophobic fears, and demonizing the other.” This kind of fact-checking was also done by The Indian Express.
• The Hindu blamed growing “nationalist sentiments,” public anger over the economic status quo, and immigration “fear-mongering” for the vote’s outcome. This opinion was shared by The Economic Times and the Daily Pioneer.
• Meghnad Desai, Indian-born Labour Party politician in the U.K. Parliament, said the vote will have generation-long consequences that will change the “future unity of the U.K. itself.”
• Pratap Bhanu Mehta, president of the Centre for Policy Research in New Delhi, demurred that the vote will not solve the U.K.’s troubles, which were never caused by immigration or the EU. The Hindu echoed this view of “hollow” arguments blaming migrants for the country’s economic woes and predicted dire consequences for the U.K. in coming years.

Looking ahead, several observers explored the bearing of the vote on a global stage and the future of British and Indian economic policies.

• The Hindu concluded the “vote also holds a lesson for democracies elsewhere” – the “recklessness of populist policies” and the potential of “anti-establishment campaigns.”
• In a separate editorial, The Hindu suggested Britain negotiate a free trade agreement with the EU or follow the Norwegian model of buying access to the European marketplace, though these options have their own problems and will still leave the U.K. at an economic disadvantage.
• Dinesh Unnikrishnan remarked that Brexit makes Indian Prime Minister Narendra Modi’s pick for the next head of the Reserve Bank of India all the more important as that individual will need to “deal with a life amid extreme volatile markets.”
• The Indian Express wished Brexit would be a “time of introspection and renewal – not retreat” into xenophobia and isolation.

CHINA

The Chinese government reacted negatively once polls closed on the referendum. During a trip to London last year, President Xi Jinping wanted “to see a prosperous Europe and a united EU” and hoped “Britain, as an important member of the EU, can play an even more positive and constructive role in promoting the deepening development of China-EU ties.” After the vote, Premier Li Keqiang argued the vote raised global uncertainty and that “against the backdrop of globalization, it’s impossible for each country to talk about its own development discarding the world economic environment.” Brexit has led some Chinese leaders to re-evaluate Beijing’s relationship with London. At least officially, foreign ministry spokesperson Hua Chunying stressed “China respects the choice made by the British people and attaches great importance to bilateral relations” with the United Kingdom.

Several outlets in China debated the economic repercussions of the vote on China’s slowing economy.

• The People’s Bank of China devalued the yuan to head off an expected decline in economic growth from the collapse of the British Pound.
• The Brexit vote quickly became a leading topic of debate this week at the World Economic Forum meeting in northern China even though the Chinese economy may be “less exposed to the impact of the referendum” than others countries. One outside observer writing in Forbes, however, worried China could be the “most important” casualty of Brexit as it disrupts Beijing’s economic and diplomatic plans in Europe.
• Fu Jing, deputy chief of China Daily’s European edition, worried the vote might obstruct global financial markets and economic growth, especially if other EU members are prompted to “negotiate special terms” in trade deals by “warning that they too would exit.”
• In the lead-up to the vote, Global Times mused that if Brexit succeeds, “then the country will have acted like a show-off tightrope walker who unfortunately fell with no safety belt fastened.”
• On the other hand, China Daily assumed the immediate consequences would be bad, but “it is not the end of the world” as the “global economy will not remain in panic mode for long.”

Another thread of commentary looked at what lessons the vote has for the international system and governance at home.

• Li Daokui, professor of economics at Tsinghua University, said “China is now observing the Brexit event” closely with its leaders planning to use the vote as evidence against a “path of referendum, of separatism” to avoid “chaos not only for China but for the rest of the world.”
• Global Times thought the vote signaled Britons’ disinterest in its empire and that citizens prefer the country “to shut itself from the outside world.”
• China Daily hoped the EU could find a way to “offset centrifugal tendencies” as China and the world “needs a healthier, unified EU.”
• Xinhua said the show of hands reduces the EU’s “influence and capability as a whole in dealing with global and regional issues” and will “thwart its longtime efforts toward European integration.”
• In Global Times, freelance journalist Sofie Chen dismissed accusations that the “Leave” camp exploited voters with false information, noting that the 72 percent turnout demonstrated the British public’s clear rejection of the country’s economic inequalities.
• While Europe was in political turmoil, Global Times did not see a “direct political impact on Russia and China.” Yet, the paper expects “the Chinese people, who are at a critical time to learn about globalization and democracy,” will continue to watch the Brexit story develop.

JAPAN

Before the vote, Japan urged British voters to remain in the EU. After the vote, the Japanese yen rapidly climbed in value, prompting concerns this may hurt exports and “hamper Japan’s path toward ending deflation.” Japanese Prime Minister Shinzō Abe told his finance minister to “ever more closely” watch the international currency market and take steps as necessary to sustain the Japanese economy. There are 1,000 Japanese firms operating in the United Kingdom, which Tokyo viewed as a “gateway to the EU.”

Most media commentary in Japan lined up against the Brexit vote’s outcome.

• Asahi Shimbun pulled no punches about the vote, saying the “stunning decision could turn out to be the biggest tectonic shift in the world order since the end of the Cold War.”
• “Seduced by the siren song of isolation,” The Japan Times admitted that when thinking about the impact of the vote on the rest of the world, the “omens are not good”
• Mainichi said the vote was a reminder to the “international community that it is difficult for countries and ethnic groups to be free from historical nostalgia and yokes.”
• The Japan News called the vote a “disappointment that will shake the world” with the country’s future and the stability of Europe left in doubt.
• Yomiuri Shimbun worried the vote could “unleash a wave of populism” in Europe, Asia, and the United States.
• Mainichi was troubled by the potential for Brexit to hurt Japan’s interests in the South China Sea and in other security arenas since Britons “may forget” about its bond with Japan as they seek further isolation.

Others focused on what Britain and Japan should do next.

• Asahi Shimbun urged Japan as part of the G-7 to “play the leading role in securing emergency policy coordination to calm the unnerved markets.”
• In the immediate future, The Japan Times said the biggest task “is healing the internal rifts” in British society that emerged during the campaign, particularly along “age, class, and geography” lines.
• “Japanese businesses will be required to reexamine their overseas strategies while closely watching the negotiation process between Britain and the EU,” argued The Japan News.

SOUTH KOREA

Immediately after the British vote to leave the EU, South Korean Foreign Minister Yun Byung-se called for a new bilateral free-trade deal with the United Kingdom. With South Korea the third-largest export market for Britain in Asia, Seoul was anxious to avoid losing potential trade once the EU split is made official.

The primary focus in South Korea was how the vote would impact the Korean economy.

• Lee Jong-myung, head of the Korea Chamber of Commerce & Industry’s economic policy team, said the Brexit decision would have a negative effect on his country’s export-driven economy. He also fretted the vote signals “discussions in earnest for the EU’s disintegration.”
• The decision “might end up whittling Great Britain down to Little England,” considered Korea JoongAng Daily. The paper advised leaders to prepare for an “era of neo-isolationism” that will shift the foundation of Korean policy for decades.
• In contrast, The Korea Herald believed that “despite the big external shock and a sort of panic in investor sentiment, there are some positive factors in the local market” in the wake of Brexit.
• Similarly, Hong Sung-il at the Federation of Korean Industries, contended that while the vote affects global financial markets, the decision could have a small impact on Korea’s “real-sector economy as bilateral trade is not that big.”

Several commentators offered their ideas on how South Korea could avoid the worst case scenarios.

• Prime Minister Hwang Kyo-Ahn said his country would seek “creative endeavors for innovation” to “pre-emptively respond to the Brexit impact.”
• Dong-a Ilbo advised Seoul to avoid being “too complacent” in response to Brexit and instead pursue free trade deals and adjustments to the national budget and currency evaluations. This view was echoed by Korea JoongAng Daily.
• The Hyundai Economic Institute urged leaders to “set aside an extra budget to cushion shock on the domestic economy” as Korea is currently undergoing industrial restructuring and is vulnerable to Brexit’s impact on the global marketplace.
• The Korea Times urged Seoul to “closely guard against volatility” in the financial markets, which “could result in adverse effects for Korea, whose economy is heavily dependent on exports.” The paper also said Korea should “forge stronger regional coordination, through platforms like [China’s] Asian Infrastructure Investment Bank, to jointly deal with global economic uncertainties.”
• Korea JoongAng Daily likened the British anger to Koreans in “their 20s and 30s with no jobs and houses” whose discontent “is on the brink of explosion” and pressed Korean President Park Geun-hye to “pay heed to the deepening public exasperation” or else risk similar outcomes at home.

RUSSIA

In contrast to other rising powers, many in Russia welcomed the Brexit vote outcome as it may weaken EU sanctions against Russia and create new leverage for Moscow in trade and energy deals. While Russia never tried to “interfere” or “influence” the vote, President Vladimir Putin said the outcome “point[s] to the British Government’s self-assuredness and supercilious attitude to life-changing decisions in their own country and Europe.” Despite the financial market’s immediate commotion, Putin was “sure that everything will fall into place in the very near future.”

Other voices in Russia reiterated the President’s enthusiasm for the electoral results.

• Vladimir Zhirinovsky, leader of the nationalist and populist Liberal Democratic party said “rural, provincial, working Britain said ‘no’ to the union, which was created by the financial mafia, globalists and all others.” He later predicted “after the British leave, NATO will collapse” along with the Schengen Area and the Euro.
• Moscow Mayor Sergei Sobyanin tweeted that “without Britain in the European Union, there is no-one to so eagerly defend sanctions against us.”
• Gennady Zyuganov, chief of the Community Party, hailed the vote as a precursor to a chain reaction on the continent with France, Italy, and the Netherlands next in line to exit the EU.
• Alexei Pushkov, head of the Russian Parliament’s Foreign Affairs Committee, tweeted the vote was “a defeat of the opponents of Brexit. And the personal failure of Barack Obama.”
• RT, a Russian government-funded television network, has been a proponent of the Leave campaign with several features over the past year. Other Russian television stations hailed the vote as a victory for “Little England” and a “real nightmare for Brussels.”

A few voices, however, pushed back on this Brexit glee, saying the costs may be deleterious for Russia’s fragile economy.

• Russian Energy Minister Alexander Novak was anxious that crude oil prices – a key source within the Russian economy – may fall further after the vote if EU economies continued to slow down.
• Senator Konstantin Kosachyov, head of the Federation Council’s International Relations Committee, saw the vote as proof the EU had “failed to solve the fundamental problem: to become understandable and convenient for the population at large.” He also feared a ripple effect as the “EU gets weight down in its own problems,” these troubles will “affect our trade relations.”
• Herman Gref, head of Russia’s largest bank Sberbank, thought the vote could curtail Russia’s economic recovery efforts as stocks and bonds take a beating.

RPI acknowledges support from the MacArthur Foundation and the Carnegie Corporation of New York for its activities.