Russia and China on Brexit

The enormous shock on world markets of the referendum about UK in the EU has implications for Russia, China and their luxury industry

Abel Amón. 01/07/2016

The reactions of senior Russian and Chinese leaders have been very different before the imminence of Brexit. President Xi Jinping hoped and wished the continuity of the UK, first for reasons of political strategy since a departure from Britain is a weakening of the EU and leaves, no alternative to US military hegemony. Also for Chinese businesses Brexit is bad news, the decline in economic activity, uncertainty, devaluation of sterling not are you favorable to large Chinese tycoons such as Wang Jianlin of Wanda group that will slow many projects investment.

Brexi 2
Vladimir Putin and David Cameron

President Putin, meanwhile, had not explicit and official position about the UK departure, despite claims by British Prime Minister David Cameron, to the contrary, but an analysis of media controlled by the Kremlin seems suggest that its editorial line was heavily tilted in favor of Brexit.

Burberry 3
Some British luxury brands are strongly implanted in Russia

Positive effects

  • The crisis in the EU seems to be favorable to Moscow: without the United Kingdom – one of the staunchest defenders of the EU sanctions against Russia Russian authorities think that the pressure on the Kremlin will be reduced, resulting in benefits significant foreign policy.
  • A weaker Europe is a weaker NATO: The disintegration of the EU could lead to a weakening of the Organization of the North Atlantic Treaty, long regarded by Russia as a political and military threat.
  • However, Angela Merkel announced that the foreign policy of the EU on Russia will not change much that is not Britain in the Union and the end of sanctions against Russia will continue linked to Minsk Agreements about Ukraine crisis.
The devaluation of the pound purchases propitiate the good price of luxury homes by Russian millionaires
  • Both Russia and China could benefit from stronger economic ties with London, pushing an isolated UK increased cooperation in a wide range of fields, including the financial sector.
  • The restrictions imposed on the financial sector of the country by the EU could relax, which could drive a medium-term increase in funding for investment projects in Russia and China.
  • The devaluation of the pound purchases propitiate the good price of luxury homes by Russian millionaires. The cost of living for them would reduce, for example, the high bill elitist education of their children.
  • Similarly, a pound weakened boost British tourism industry. Specifically, a massive influx of Chinese tourists who spend large amounts on luxury stores are expected. Something similar to what happened in Russia in connection with the devaluation of the ruble. The growth of Chinese tourism in Russia grew nearly 40% last year.
La mano de obra en China sigue siendo muy barata
The fall in demand would slow the economic expansion of China.

Adverse effects

  • London could lose its status as the entry into the European market of international companies, including both Russia and China, have to change their priorities public offering, which could move its European operations elsewhere – at considerable cost.
  • Predictable decline in global economic activity would mean a fall in oil prices and other commodities, the main source of income for Russia. This would affect the price of ruble depreciated would possibly causing a further drop in living standards of Russians. The fall in demand would slow the economic expansion of China.
  • Curbing of ambitious energy projects such as the Nord Stream-2 designed by Gazprom The idea of ​​this project – to pump Russian gas under the Baltic Sea directly to Germany, and from there by pipeline to supply branch to other EU countries , including the UK. Now it is due to depletion of their own fields of fast ramping up purchases in Russia. If Britain is outside the common market, the tariff question receive their gas inlets arises. In addition and to a more than expected devaluation of the pound, Gazprom supply would not be competitive for London.
Brexit can slow the expansion of some business in Russia
  • The uncertainty in financial markets, generates Brexit, may interfere with the government of the Russian Federation to carry out this year a partial privatization of large state-owned enterprises (bank VTB, Bashneft or diamond producer ALROSA ), especially if the offer is traditionally scheduled for the London Stock Exchange. In other words, the Russian budget will lose foreign exchange earnings targets – or get less revenue than expected.
  • By eliminating the restrictions of the EU, Britain could revive one of the industries that have world hegemony as the weapons industry is, which poses a risk of competition for Russia.
  • Brexit is a halt to the recovery of the luxury sector in Russia, which has been falling in recent years due to the loss of purchasing power of Russians. The big brands in the industry (Bulgari, Armani, Chanel ..) have used crisis time to acquire stores very profitable prices. However, the expected return on investment can be delayed due to unexpected event involving Brexit.
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