You are here

Uncertainty over UK role in EU could choke Asian investment: analysts

Uncertainty over Britain's future in Europe is unsettling Asian investors, analysts say, warning if voters opt in a referendum to leave the EU, the United Kingdom would lose a major drawcard for attracting foreign money.

[TOKYO] Uncertainty over Britain's future in Europe is unsettling Asian investors, analysts say, warning if voters opt in a referendum to leave the EU, the United Kingdom would lose a major drawcard for attracting foreign money.

The United Kingdom - a gateway to the lucrative European market, with an educated workforce and business-friendly laws - has long been an attractive destination for Asian businesses looking to spread their wings.

Japan alone has around 900 companies with operations there - including car giant Nissan - worth US$8 billion a year and accounting for a third of all Tokyo's European investment, according to government figures.

But after the surprise victory of the Conservative Party in last week's general election, Britain is now headed, by 2017, for a simple "in-out" vote on remaining part of the European Union, fulfilling a pre-election pledge Prime Minister David Cameron made as he looked to out-flank his Euro-sceptic rivals.

Market voices on:

While Downing Street has signalled it will look to bring the vote forwards, a possibly lengthy debate will worry any company planning on spending money there, commentators say.

"We have two years of uncertainty on investment climate in Britain, and uncertainty is the last thing business wants," Joerg Wuttke, President of the EU Chamber of Commerce in China, told AFP in Beijing.

Between 2008 and 2014, Chinese investment in the UK surged from US$800 million to US$12 billion with Britain ranking as one of the Asian giant's top investment destinations, according to the China-Britain Business Council.

Bernard Aw, market strategist at IG Markets in Singapore, said Asian business managers will pay close attention to political events in Britain over the coming months, with Cameron's progress on renegotiating thorny aspects of EU membership - particularly around immigration - front and foremost.

"If these negotiations proceed well...(the) UK is likely to vote to stay in the EU, which will substantially ease jitters," said Aw.

But if Mr Cameron is unable to squeeze sufficient concessions from his European partners, and his testy electorate votes to leave, Britain would lose one of its chief attractions for Asian investors, warned Kazuyo Yamazaki, senior economist at the Daiwa Institute of Research in Tokyo.

"If Britain exits the EU, it would cause businesses to think again" about making fresh investments there, she said. "A major reason for investors to choose Britain was that it is within the EU. If Britain leaves that, the attraction would disappear." Analysts and opinion formers in Asia are largely united in the view that Britain - and Europe - would be the poorer for a split.

Japan's leading Nikkei business daily used a weekend editorial to urge Mr Cameron to draw closer to his continental partners, while finding a way to pour balm on the burning nationalism of parts of England, and the Scottish pull towards independence.

A split - the so-called "Brexit" - would "shake Britain's status as a European business and financial hub, and could choke investments from Asia and the US," the paper intoned.

The reputation of London as - along with New York - the city of choice for the financial sector, would take a hit if Britain chooses to step into the political unknown, said Wuttke of the EU Chamber of Commerce in China.

"I think that London will always remain special because it has a global language, it has an established financial system, so to replace London is going to be, in the medium to long term, very difficult," he said.

"But (foreign investors will) possibly wait until the decision in 2017 with big money decisions because they want to have some certainty - is England going to remain in Europe or are they going to decide to turn into a financial Dubai of Europe." Any move to jump into the abyss and go it alone would not automatically cause a sudden capital flight from Britain, said Daiwa Institute's Yamazaki.

As the home of the international lingua franca and a place that has a foot in both the mega markets of Europe and the United States, an EU-less Britain would doubtless continue to have its draws.

But longer-term trends could be exacerbated if Britain turns in on itself, she said.

"Western Europe has had a long history of attracting investment, including from Japan. But we are seeing a tide of money going into Eastern Europe, where the labour is cheap and there are good tax incentives." AFP