Brexit could help form a future Sino-Anglo alliance: Part 2
Margaret Thatcher didn’t hesitate to destroy British industry in order to transform her country into an international financial center, and the City of London won’t hesitate to create such shocks again to become the primary offshore financial center for China’s renminbi, losing some companies to the European Union in exchange.
Brexit will allow interests in London to detach themselves from the shackles of the Atlanticist alliance and utilize the City’s economic links with the 53 members of its Commonwealth conglomerate, present on six continents. That means deeper connections to Canada, China’s resource garden Australia, people-swollen India, Pakistan, Malaysia and, through its long-standing links with Hong Kong, even Singapore. Developing such links would enable further financial engagement with China in these historically and judicially British-linked countries (or through Hong Kong linked with mainland China) in regions of the world Beijing will invest in to grow its soft power.
Two countries that offer such an opportunity are India and Pakistan, both Commonwealth states, and now members of the Shanghai Cooperation Organization.
Also, if the English financial class and members of the British aristocracy and gentry aren’t in the EU, they won’t have any financial regulations dictated from Brussels. They can evade or increase taxes on derivatives and transactions, and inflate bankers’ bonuses further. And dangerously, through their association with Chinese labour practices, they could try rescinding Britain’s minimum wage, child-labour laws, and other labour legislation. After all, the Chinese have no desire for collective bargaining, labour legislation, or workers’ rights to a minimum wage or other perks.
Lord Blackwell of Lloyds Bank, Lady Noakes of the Royal Bank of Scotland, and Sir Henry Angest of the Arbuthnot Banking Group are noted personalities of this aristocracy who favor such ideas. Boris Johnson even cited these banking directors before a House of Commons Treasury Committee meeting as being supporters of a UK exit from the EU.
A final add-on: By disengaging from the EU, and moving away from the US toward China, the UK can benefit from moving away from future euro-zone crises, which would affect European trade, as even the first chief economist of the European Central Bank, and original architect of the single currency, Otmar Issing, believes that one day the euro-zone “house of cards will collapse”.
However, the City is taking a gamble. Soaring debt and stagnant growth in China are a major threat to the global economy. Beijing has overseen credit-fueled growth that can’t be maintained. The danger is a hard landing, and since 2008, Nomura showed, Chinese firms have more than doubled the percentage of income they spend on servicing debt to 20%, while the Bank for International Settlements in Switzerland estimated in 2016 that China’s credit-to-GDP deficit was 30.1%, raising fears that the country’s economic growth was driven by a debt bubble.
This leaves British banks exposed to US$530 billion worth of investments in China, or 16% of overall foreign assets. Thus the City’s desire to involve itself further with China to protect its investments and foreign assets makes sense. UK imports to China rose in value at the fastest pace from 2011 to 2015, with a 94.2% gain, while the United States’ imports from the UK increased by 5.7% over the five-year period.
As the UK formally begins its departure from the European Union, head offices of certain companies will retreat back into the EU almost immediately unless Britain secures a passporting agreement with Brussels. US financial-service firms like Citi, BNY Mellon, Morgan Stanley, Goldman Sachs and others will have to move their 25,000 UK-based employees to other parts of Europe. This will distance the integrated dependence between the US and Britain, and will give the UK space to maneuver into a more independent position, bonding US-European interdependence further.
What happens to Europe if Britain turns further to China and the East?
The dissolution of the European Union isn’t really possible. It will survive in some form. Europe remembers the scars of being the center of two world wars. It simply depends on whether it will be a downsized, become a more fluid association with a two-tier or non-unified currency, or become a stronger federal union. After all, the EU is a political union more than an economic one.
It has a strong will behind its existence. The European Parliament made the first move for a stronger union by passing a resolution to create a defense union, dedicating 2% of member nations’ gross domestic product to defense spending as well as establishing EU multinational forces, to allow the bloc to act in any situation to which NATO might be unwilling.
Germany wants to head this military to re-engage with the world kinetically (push its will, interests, or policy by force) in world regions of geo-strategic importance. This is a radical re-evaluation from Germany previously exercising soft power through established multilateral institutions.
NATO, an outdated organization whose credibility has been damaged by Turkey’s renegade policy in Syria, is hoping for an EU army to be subservient to it, and so inherently to the United States, but Germany’s wishes would enable a policy independent from US foreign policy. Considering that EU diplomacy has achieved little despite the union spending €600 million ($630 million) a year on diplomats and EU embassies around the world, an independent EU army is needed so the union remains prominent.
European federalists recognize that the unipolarity the US has enjoyed since around 1991 has ended. If the EU wants to break away from US supremacy and become more independent, it must seize on the fact that Britain’s exit will mean that America’s key ally for advocating integration in NATO will be gone. Then three things will happen:
- The US will lose its key insider in the EU to convey its interests most loyally, especially in terms of the EU’s foreign policy in relations with Russia, the Far East, and the Middle East.
- NATO’s largest contributor in the EU will be gone. This will leave a vacuum, and challenge NATO’s dominance as the sole European defense organization. It will diminish Britain’s military dominance and foreign-policy hard power on the world stage. British oligarchs, military industrialists, and aristocrats don’t want their global hierarchical positions to wane, and that is why British military echelons are considering a defense alliance with Germany that would see UK helicopters stationed on German naval ships. British Foreign Secretary Boris Johnson even embarrassed himself by showing the UK’s desperation to maintain NATO, promising to try to include Turkey, NATO’s biggest military force in Europe aside from Britain, into the EU structure to maintain NATO’s prominence.
- Britain, as a secondary power, will further reshuffle the balance of power between the US and China to profit substantially from a Sino-Anglo alliance.
The United Stats is currently trying to lure Russia into an alliance and respite from frigid relations, to realign the balance of power to bully China, changing the Russo-Chinese alliance that was ironically caused by the US trying to bully Russia.
China is a country in need of energy. The US and Russia are the biggest energy producers in the world. If the US has some success with Russia and snuggles up to Saudi Arabia, that’s the three biggest energy producers on Earth. Together they can suffocate China, which only really has coal at the cost of pulmonary disease and horrendous air quality (living in Beijing has been an apocalyptic shock for me).
From London’s perspective, the US through its foreign and financial policies has weakened the Anglo-American Empire and is no longer the prime economic or conventional military power, leading the UK into diversifying its eggs into other baskets.
So China has the opportunity to react to the Donald Trump administration’s plans to entice Russia by attracting Britain further eastward, especially with Brexit becoming a reality. The City of London has the resources and capability to transform the renminbi in the years to come, while acting as a back door into Europe and a bridge between the US and China in the new balance of power.
The financial groundwork has been laid: China has to ensure it does not bleed out, and hold out against a US economy $20 trillion in the red, with a Reaganomics playbook, facing a headwind of rising interest rates.
For Part I of this analysis, click here.