2016 Brexit effect on export companies of China
A lot of events accursed in 2016, among which the Brexit public vote is no doubt a heavy message. On the afternoon of June 24 2016, the British announced the final outcome of the “Brexit” public vote: the British exits from the EU. The referendum not only has a significant impact on the overall fate of the EU, but also bring a lot of variables to the Sino-British and Sino- European relations. From the US general election 2016, the vote of British exit from Europe, Italy constitutional amendment, the debt crisis in Europe and other major events, the west countries originally have been advocating a global economy seems to have a wave of deglobalization, but for the rapid rising east country China, The demand for global economic and trade is growing.
1)Please write a postmortem review of the selected case in 500 to 2,000 words, pointing out the types of risks and the major causes leading to its happening.
For China, there’re at least six short-term impacts the Brexit may bring:
1, in the short term depreciation of the pond to the RMB, then, due to the depreciation of the pound to the dollar, the depreciation of the RMB to the dollar would take place.
After the Brexit, the pound exchange rate is bound to fall in the short term, for travelers that may be good news, but as one of the major international currency pounds, like a pillar of an international money market, its collapse will bring the appreciation of the dollar to the pound, and then the appreciation of the dollar will squeeze the RMB exchange rate.
As one of the world’s most important financial center of the United Kingdom, Brexit may lead to the world’s financial market shocks and even panic, the outflow of capital in mainland China, may likely cause the RMB to depreciate to the dollar further .
2, the RMB internationalization process would be disrupted.
In recent years, London as the world’s top financial city, has been pushing forward the RMB offshore market, China issued in RMB bonds in London, the two central banks renewed the bilateral currency swap agreement and now gradually expand the scale, the People’s Bank of China issued in London 5 billion RMB central bank bills. London has become the world’s second largest after the Hong Kong offshore settlement center, once the Brexit gets out of the EU, these monetary dividends would no longer exist, the cost of promotion strategy of the RMB through the United Kingdom into Europe will also be greatly increased.
3, in short-term British economic recession would occur, China’s exports to Britain would be blocked.
Once British out of the EU, almost certainly, the British economic development will suffer a huge impact in the short term, the pound will be further depreciation, the demand for foreign markets will be reduced with the currency shocks. There maybe a certain possibility that China’s exports to the UK would be impacted.
4, China-EU trade cooperation will face changes.
Lost Britain, as the world’s second-largest economy, EU will also suffer a financial strike that is equivalent to the debt crisis in Europe, which undoubtedly has an impact on China’s export economy in Europe.
Brexit broke the intangible cooperation between China and the EU indirectly, make it difficult to carry out China’s strategic plan to strengthen cooperation with the EU countries, leading China have to choose another way to intensify cooperation with the EU.
5, China-Europe channel by Britain will no longer exist.
China has nearly 500 million potential customers in Europe, but for the sake of protectionism, Chinese companies are often shut out, the United Kingdom is regarded as one of the the most activeEU countries that have always advocated liberalization of trade, investment, many Chinese enterprises regard Britain as the production base of entire European, a channel to enter European market. If the British get out from the EU, the trade barriers between Europe and Europe will reduce the willingness of these enterprises in the UK to promote the production, which will cause some impact on China’s economic expansion.
2) Please comment how well or bad the concerned parties have handled the event after it has happened.
For the settlement relations,China has further communicated the economic ties between Asian countries through Asian Investment Banks, promoted the internationalization of the RMB, stabilized the stability of the exchange rate. And it achieved certain good effect from the perspective of result.
Export cooperation, the relevant Chinese export trade companies actively looking for new partners, on the one hand to build a new business relationship between China and Europe, China and Britain; on the other hand to re-examine the cost of export under the new structure of the cost, try to decrease the relying of exports to Britain.
3) With hindsight please suggest some pragmatic measures that the concerned parties could use to identify, prevent, and manage the risks.
The export companies should keep the observation on the exchange rate, the export policies and regularities that concerned the companies.
The HHM ETA and FMEA are useful tools for the companies to recognize the situation the companies are face with and allocate the obstacles that the business are running into.
The CBA is also an important tool to decide the business direction when the global environment is changed.