Could Brexit bring the end of the new Sino-British “special relationship”?

As Britain prepares itself for the historic June 23 referendum on its membership of the European Union, an unexpected player has entered the debate: China. With Chinese businesses and the government now investing in big, lucrative projects in Britain, they’re clearly worried about the economic implications of Brexit. In recent weeks, Chinese officials and business leaders alike have become more vocal in their support for European unity (and, though they haven’t said it explicitly, for the “stay” campaign).

Peaks and valleys

China has a complicated history with Britain. The Chinese still call the period starting in the mid-1800s (which included the British-led Opium wars) the “century of humiliation” (bainian guochi 百年国耻). And it has only been 19 years since Hong Kong—a former British colony—was returned to the Motherland as a Chinese “special administrative region.” Compared to other major European nations such as Germany, France, and Italy, commercial relations with the U.K. were slow for most of the past 30 years. In May 2012, Prime Minister David Cameron met the Dalai Lama, Tibet’s exiled leader, sparking fury from the Chinese Foreign Ministry (which said the meeting “seriously interfered with China’s internal affairs”). So, needless to say, relations have been rocky.

But things started to improve in December 2013, when Cameron led a major business delegation to China. He brought the CEOs of top British companies such as Barclays Bank, HSBC, Virgin, BP, and Rolls-Royce. The British leader declared that “there is no country in the Western world more open to Chinese investment” than the U.K. As Chancellor of the Exchequer (finance minister), George Osborne became the official in charge of relations with China. Between 2000 and 2015, Britain became the top European destination for Chinese foreign direct investment, with a cumulative investment of $16.6 billion. This included a flurry of high-profile property deals, as well as stakes in Barclays, BP, Weetabix, Thames Water, Anglo America, and both Heathrow and Manchester airports, in addition to a controversial nuclear energy deal at Hinckley Point C. The City of London also became the world’s first international yuan trading platform, with Chinese treasury bonds issued in renminbi.

The budding Sino-British relationship hasn’t come without bumps, of course. In February 2015, for example, Britain was the first Western country to join the Beijing-backed Asian Infrastructure Investment Bank (AIIB) as a founding member, sparking ire in the White House where a senior aide rebuked London for its “constant accommodation” of China (a few months later, British politician Danny Alexander, became one of the AIIB’s five vice presidents.)

Talk of outflow

With the real possibility now emerging that Britain could exit the EU, Chinese investors are getting nervous. One of China’s richest businessmen, Wang Jianlin—founder of real estate and entertainment group Dalian Wanda and owner of a British luxury yachts company, a five-star hotel in London, and a $114 million mansion for himself—warned during a visit to the U.K. in February: “Brexit would not be a smart choice for the UK, as it would create more obstacles and challenges for investors, and visa problems for tourists.” Should Britain exit the European Union, he added, “many Chinese companies would consider moving their European headquarters to other countries.” The clear implication, of course, was that Brexit could bring an investment exodus.

The Chinese government, for its part, clearly sees its relationship with Britain as being a linchpin to its relationship with the West more broadly. During President Xi Jinping’s high-profile state visit last October, he announced a new set of large Chinese investments in the British economy. But as I wrote at the time, China was not so much looking for a European friend in London so much as a Western friend that could serve as a link to the United States and the rest of Europe. At the time, Xi also indicated the importance to China of a united Europe, saying: “China hopes to see a prosperous Europe and a united EU, and hopes 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.”

Nudging harder

With the referendum in Britain now just three months out, Chinese stakeholders are becoming increasingly vocal. In February, the spokesperson for the Chinese Foreign Ministry reiterated Beijing’s position, saying: “China has always supported the European integration process, as we would like to see Europe play a greater role in international affairs.” In a somewhat coordinated action, Wang Jianlin delivered a speech on February 25 at Oxford University, saying: “It’s hard to say whether they [the British] would have a better life outside the EU. It’s easy to exit but hard to re-join. There are certainly many disadvantages if Britain exited the EU.” As one U.K.-based Chinese analyst stressed, from Beijing’s perspective, it needs a partnership with London that is firmly rooted in the European Union in order to play the role it wants in the European economy and beyond.

It is highly unusual for China to be this overt about its opinions on another country’s domestic affairs. But in this very case, money (investment) talks. The emphasis that Cameron and Xi put last year on the new Sino-British “special relationship” could backfire for both leaders if British voters decide to leave the EU, tarnishing the partnership. On the eve of the so-called “golden era” a few years ago, the Chinese leadership was confident in its decision to engage more closely with Britain—a country it saw as a bridge to the European market. But the bridge is looking shakier by the day.

Article previously published on the Brookings Institution’s website. Yimei Zhang, an intern with the Center for the United States and Europe, contributed to this post.