How Brexit helps China

The long-term repercussions of Brexit won't be known for at least a year or two, but for now, one thing's relatively certain: the era of ultra-easy monetary policy is going to be prolonged, possibly significantly.

That's good news, on balance, for China and the rest of emerging Asia: they will suffer from volatility and safety-seeking liquidations in the coming weeks, for sure, but the backdrop of a far more dovish Fed than before the Brexit vote - on top of the retraction of hawkishness in the week prior - will be a much-needed cushion and likely medium-term growth booster. With no rate hikes likely now until December at the earliest - and significant risk of a new need to cut back to zero - we may in fact have seen the end, for all practical purposes, of an all-but stillborn effort to normalize borrowing costs in the current rate cycle.

Even better from China's perspective, Brexit has given it the excuse to devalue the yuan against the dollar by the biggest single cut since the notorious surprise of last August 11. With even the onshore RMB now likely to flirt with 6.7 (the offshore is already close), Chinese exporters are getting a shot in the arm that many of them desperately wanted - but which wasn't likely without a valid external pretext, since otherwise it would've created more doubt over the Chinese economy and spurred more large capital outflows.

Of course, the permabears everywhere are back at their old habit of predicting a 2008-style global meltdown and/or Chinese crash/devaluation, but the logic against them is now glaringly obvious - as is the self-contradiction in their own rationale.

True, the EU authorities in Brussels and Frankfurt have every incentive to make the divorce as costly and painful as possible for London; but they also have every incentive to minimize collateral damage on their own intertwined financial sectors and by extension real economies. Britain, after all, is far more important than Greece: its leverage over the EU is commensurately greater, and once it comes down to it, the bloc's authorities have no choice but to collude with it to preserve what normalcy can in fact be salvaged. It would be one thing if Britain could be hung out to dry as it gets cut off from the rest of a flourishing European economy, thus deterring other would-be exiters; the reality is that to achieve this, the continental EU can only inflict potentially far greater economic harm and thereby political instability on itself.

And that leads to the biggest help that Brexit offers China: it clearly demonstrates that the middle kingdom isn't the weak link in the global economy as so many had feared, since Europe is looking to be an even weaker link. In the short term, its turmoil will hit China via trade, but in the longer term its forced readjustment - most likely resulting in a permanently lower pound and euro - will merely reflect underlying economic fundamentals. European products and services will become cheaper for China, thus helping the latter's transition to consumption and services; Chinese investment in Europe will likewise increase as a strong yuan makes for more bargains, and even the more entrenched European resistance to greater Chinese ownership of choice domestic firms might soften at the prospect of boosting cheaper exports to a wealthier China.

The final piece of the puzzle is the role of Russia - the land bridge between China and Europe. It shouldn't be considered a coincidence that Brexit coincided with a state visit by Vladimir Putin to Beijing, where he conferred with Xi Jinping and other top Chinese leaders to deepen comprehensive strategic cooperation, notably (as always) in energy and arms, but also with more groundbreaking finance and infrastructure tracks. The long-term Chinese strategy is unmistakable: as Western Europe fragments and weakens, Russia grows relatively stronger. Now that Brexit has sped up the prospective timetable for the EU's relaxation of its Ukraine and Crimea sanctions on Moscow, the Kremlin is looking stronger than it has for some time: yes, the Russian economy remains down in the dumps, but the combination of partly recovered crude prices and an emerging competition between China and Europe to develop its vast internal market is bound to swing the geostrategic balance in Putin's favor - as even George Soros has admitted as he acknowledged Russia becoming a world power again on the back of Brexit and a decaying EU (just before last Thursday's vote).

So overall, Brexit is a big long-term gain for the Russo-Chinese authoritarian axis. Putin and Xi must adeptly (as ever) navigate the cluttered minefields that are their respective domestic political landscapes over the next 6-12 months, and should they succeed, by mid-2017 they will find themselves in a far stronger position than anyone in the West could have thought possible not too long ago.