China is playing a shrewd long game

 

          The future is China’s for the taking. In the story so far, very hard working Chinese have built a huge surplus from successful exports. They have more than $3 trillion in the reserves. Millions of people have left the land and moved into more productive jobs in factories. China has grown to understand western markets, to design and produce goods that the west wishes to buy. She  has lent money back to the west to help maintain the west”s spending. She wishes to avoid dollar or Euro collapse, to maintain her competitiveness against these large currencies, and to protect her investments through her reserves.  There are many more Chinese who can move into better jobs, earning more for China. There is huge scope for Chinese expansion based on expanding domestic demand and higher wages.

           In her latest 5 year plan China recognises that there are limits to how much she can sell a west becoming very overstretched financially. She also is aware that the Chinese people will themselves expect to benefit rather more in the next five years from their energy and productivity. Chinese people will want to buy the fridges and cars, radios and cycles that China can produce in large numbers.

             China is now using her financial muscle to acquire resources and technology. She is buying into important raw material deposits around the world, recognising she will be the main consumer of these items and will need privileged access to them. She looks to the west for technology. China wishes to move rapidly to equal or surpass the  west at designing and making computers, tvs, cars, machine tools and the rest. She is prepared to buy into western companies with good technology to gain title to it.

             Some years ago I remember being asked by a distinguished Chinese visitor to the UK why the UK government  had not got behind one of its companies bidding for a Chinese project. The UK had not won the competition. My guest was explaining the importance of government engagement and backing to the Chinese purchasers of that time. I explained that the UK government had not been able to, owing to the fact that more than one UK company was bidding. The UK government does not see it as fair to back just one UK company and denigrate or ignore the rest. My Chinese visitor saw our competitive system as a weakness in this case. The UK government could not back one company and instruct others to back away from the competition, as China would have done in a similar position. China also grasped that the west is fairly free with the sale of companies and technology in many fields.

         China has learnt that competition does have its role to play. She has also learnt that freedom, competition and democracy western style can leave the west vulnerable to Chinese competition, and to informed Chinese buying of technologies and resources that have strategic significance. China has a different view of how to govern from the west. She runs a different system from competing party elections and western style law codes. She does have a developed system for listening to public opinion, and for trying to avoid protest or mass disagreement with government policy. 

          China is busily buying up gold, showing her worries concerning the west’s paper currencies. Whilst she talks about supporting the Euro, she backs gold. Maybe part of her strategy is to build a very large gold position, then one day to seek to remodel the world’s monetary system with a new role for gold. The UK’s short sighted sale of gold at low prices looks increasingly foolish, as Central Banks as well as individuals look for a safer haven than low yielding paper money subject to the vagaries of quantitative easing. The west needs to take seriously the Chinese success story. It also needs to be aware that if too much technology and too many raw material deposits are sold, earning our living will be more precarious and difficult.

90 Comments

  1. lifelogic
    February 18, 2012

    Indeed difficult to compete when they have some many advantages over our over regulated, over expensive green energy, over taxed and bloated government.

    Gold is something that produces no income and has few industrial uses, better than pieces of paper perhaps. I prefer other most other commodities which are used up in industry, real assets, farm land, businesses and similar that give income too.

    1. MickC
      February 18, 2012

      You’ll be hard pressed to get a decent income from farm land in the UK.

      Agriculture in this country is on its last legs-Britain prefers to buy its food from abroad where farming is not crippled by over-regulation.

      1. lifelogic
        February 18, 2012

        Farmland prices have increased very nicely since about 2003 if they finally reduce the state sector and the absurd over regulation, as they will have to in the end, then values will surely increase further certainly in declining sterling terms. There is only so much land and more &more people to house & feed from it.

      2. Disaffected
        February 18, 2012

        We are giving away our intellectual property and where the intellectual ideas emanate from. China must be laughing at us and EU students must think it is great to get free university education as competitors while Uk students suffer. For goodness sake why is the socialist coalition unable to realise this???

        One line strap lines to grab a headline will not make the country prosper; more EU integration will make the Uk poorer; more welfare inequality will make people give up working; the bright will realise it is better to leave the UK because it strips the successful of their wealth to throw away on the unelected bureaucrats and the lazy. Why work to have less rewards than those who do not. Stick social engineering where the sun don’t shine.

      3. nemesis
        February 18, 2012

        Good time to buy then.

      4. uanime5
        February 18, 2012

        Actually food is cheaper abroad because developing countries have larger farms, low wage and overhead costs, and can produce several harvests a year.

        Both UK and non-UK farmers are subject to the same regulations if they want to sell food in the UK.

        1. Tedgo
          February 18, 2012

          The 1000 acre farm around our village employs two people, including a working manager. It includes a large chicken unit. Only at harvest time does the number of worker increase to perhaps 6 to 8. Looking at all the modern tractors etc, I think the farm is quite profitable. There’s always money available to buy up adjacent land when it becomes available.

        2. Disaffected
          February 19, 2012

          Socialist drivel. EU CAP puts the UK farmers at a severe disadvantage and is a distinct factor why so many UK famers have gone out of business.

        3. Andy
          February 19, 2012

          What a load of tosh. Just off the top of my head, I assume non-UK (outside of EU) farmers would not be subject to regulations such as :
          – Minimum wage
          – Regulations around paid holidays and maternity / paternity leave
          – Working time limits (48 hours, sort of)
          – UK / EU Health and Safety regulations
          – Employers liability insurance

          Etc. Etc Etc.

          Regardless of other specific farming regulation.

    2. Acorn
      February 18, 2012

      LL Have a read. The Swiss are looking for a “parallel commodity currency” to help stop the Swiss Franc being tossed around as a safe haven currency at times of stress.

      http://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1939036_code365048.pdf?abstractid=1939036&mirid=1

      1. Acorn
        February 18, 2012

        Sorry, your looking for.

        Ledoit, Olivier and Lotz, Sébastien, The Coexistence of Commodity Money and Fiat Money (August 31, 2011). Available at SSRN: http://ssrn.com/abstract=1939036 or http://dx.doi.org/10.2139/ssrn.1939036

    3. Disaffected
      February 18, 2012

      China is also sending more students to university than the USA and India combined as it recognises that this will help them in the future. They place an emphasis on science, engineering, medicine and technology. They are taking up spare capacity at top universities around the world. It is very cheap for what they will get back in return.

      Compare their strategy to the UKs and see what a ham fist mess is being created by Mr Willetts and Mr Cable. Socialist babble so that our higher education races to the bottom of the league table, placing people from the squeezed middle in debt all their lives. The rich and poor will not be in the same position. Lord Brown’s report was complete tosh and did not think laterally for the wider economic benefits of the country. When it should be viewed how they will help the economy grow and create a prosperous country. Once more, government idiocy. The government wastes more on the EU, bail outs, overseas aid to countries who will leave us standing. Who can take Cameron seriously when he says the economy is the priority or we are doing everything to make the economy grow. Wake up Troy MPs. We are still on the road to disaster two years after being in office. There is not a co-ordinated plan to help the economy and the socialist Government does not have the courage to make spending cuts.

      1. Bob
        February 19, 2012

        The UK will struggle to escape from under the cosh of social engineering, political correctness and fairness while we pump £3.5 billion per annum into promoting socialism via the BBC.

        The chinese are not so precious about whether you are rich or poor, after years of communism which kept them in poverty, now they say “to get rich is glorious”, and that is their aim now, while we are aiming in the opposite direction.

    4. Alan Wheatley
      February 18, 2012

      Any suggestions as to when the gold bubble will burst?

      1. lifelogic
        February 18, 2012

        As soon as people wake up to reality and stop wanting to wear it or keep it in vaults (so who knows). The “shortage” is created by demand from people who want of own it, look at it, wear it or store it.

        From wiki:-

        Most of the gold used in manufactured goods, jewelry, and works of art is eventually recovered and recycled. Some gold, used in spacecraft and electronic equipment cannot be profitably recovered, but it is generally used in these applications in the form of extremely thin layers or extremely fine wires so that the total quantity used (and lost) is small compared to the total amount of gold produced and stockpiled. Thus there is little true consumption of new gold in the economic sense; the stock of gold remains essentially constant (at least in the modern world) while ownership shifts from one party to another. One estimate is that 85% of all the gold ever mined is still available in the world’s easily recoverable stocks, with 15% having been lost, or used in non-recyclable industrial uses.
        The consumption of gold produced in the world is about 50% in jewelry, 40% in investments, and 10% in industry.

        Most other commodities are in far shorter supply relative to “real usage” industrial demand”.

      2. Bazman
        February 18, 2012

        Gold son! We are all doomed. But not yet…

    5. Bazman
      February 18, 2012

      Difficult to compete with poor workers rights/H&S/wages, little environmental/planning concerns and a totalitarian government that executes thousands of it’s citizens every year. I would have to agree we are very regulated in these areas.

    6. Bazman
      February 18, 2012

      Gold has few industrial uses? Why do you believe this? Gold is used in medicine, electronics, automotive, architecture, transport, in almost every field in fact.

    7. libertarian
      February 18, 2012

      “Gold has few industrial uses”

      Don’t think that’s a very accurate statement

      Of all the minerals mined from the Earth, none is more useful than gold. Its usefulness is derived from a diversity of special properties. Gold conducts electricity, does not tarnish, is very easy to work, can be drawn into wire, can be hammered into thin sheets, alloys with many other metals, can be melted and cast into highly detailed shapes, has a wonderful color and a brilliant luster.

      More than 300 tonnes of gold was used in industrial processes last year

      1. lifelogic
        February 18, 2012

        Most is just stored or worn even when used industrially it is usually recovered.

    8. Gary
      February 18, 2012

      Ahem…what good is a commodity as a store of value if it is to be consumed by industry ? How do you save this currency ? What happens if this commodity’s price is more sensitive to industrial demand than it is to monetary demand ?

      In short, it is precisely gold’s relatively small industrial consumption that lends its price to be monetary demand sensitive. It is its portability, durability, non counterfeitability, fungibility, non ubiquitous, and desirability, that makes it money, better than any other substance known to man. THAT is why the price of gold tracks the real interest rate. 6000 years as gold money was not a mere fad or coincidence.

  2. Mike G
    February 18, 2012

    JR,

    You are saying that the totalitarian model is superior to the democratic capitalist model? You can’t believe that, surely. All that has gone wrong in Western economies can be put down to Government and Central Bank interference in markets, i.e. totalitarian leanings.

    Have faith in our muddled freedoms. China is grossly distorted with infrastructure spending, inflation, an extreme property bubble, and a one child policy that ensures that it will get old before it gets rich.

    Oh, and ask why they find the need to steal Western technology – could it be that the totalitarian model cannot turn out innovative students?

    MG

    Reply: No, I am not saying that. It is the free enterprise part of China which is working well. The average total tax charge is just 22%. Progressive liberalisation has worked well, but we need to understand their aims in b uying up businesses and resources.

    1. Yudansha
      February 18, 2012

      Their people being kept hungry has doubtless favoured the Chinese economy.

      What China will have is a lot of men with money to spend but few women of their own.

    2. APL
      February 18, 2012

      JR: “It is the free enterprise part of China which is working well.”

      Free enterprise in a communist regime, you are ‘avin’ a larf, gov!

      It’s about time you recognised that that traitor Edward Heaths intiative of engagement with Communist China has backfired. Assuming Heath had the advantage of the West in mind when he tried to ‘engage’ with China.

      Like everything else that rotten man did, we are the worse for it today.

    3. lifelogic
      February 18, 2012

      China stealing western technology!

      Personally I am all for a relaxation in over strong patent and other protections. They can have their place sometimes, in encouraging research & investment, but are in general hugely against the public’s interests and can often actively discourage such valuable R&D and effective competition. No patents at all or very selective ones when really needed would be far better than the current system on balance, I would suggest. In terms of the greatest good for the greatest number of people that is.

      1. Bazman
        February 18, 2012

        Basically what you want is a free for all except when it effects you. What you would call capitalism. Many contributors to this site believe this and can ram it.

      2. David Price
        February 20, 2012

        If you are refering to submarine patents dreamed up by lawyers who have no clue of how, or intention, to develop but simply exist to trap true developers then I am all for stringing them up or some appropriate and meaningful discouragement.

        But what do you suggest replaces patents to ensure legitimate inventors get a reasonable return for their development effort and protects them against copiers and counterfeiters. Who decides and so dictates what merits that degree of protection compared to something else?

        As for the greatest good – the 2G and 3G mobile telecoms systems that enables you to make and receive calls more or less anywhere on the planet relied on patents to ensure the enormous effort to develop and standardize technologies. Without the means to protect that investment with patent licencing it probably would not have happened and instead you’d have a different network and phone in Europe, USA, Japan, China etc which was actually the case before GSM.

        Patents don’t restrict technolgies, they allow them to be shared but with a level of protected compensation to the inventor/patent holder. The alternative is no sharing at all or no degree of fair compensation to the inventor, I doubt there would be increased benefit to the “common good”.

    4. Mark
      February 18, 2012

      We happily educate some 66,000 Chinese (including from Hong Kong) at our universities according to HESA statistics, many at postgraduate level. They are well represented on science and engineering courses.

  3. A.Sedgwick
    February 18, 2012

    When Hong Kong was being prepared for return there were about two million British Protectorate passport holders who were denied full British passports. This I always felt was a mistake as those who came over would have stimulated our economy rather than drag it down, apart from the morals, ethics and loyalties involved. After Blair, Brown and Cameron allowing over three million Europeans and illegals in without any connection to this country it would have been overwhelmingly the better option.

    1. Bob
      February 18, 2012

      Hear hear.

    2. Dave B
      February 18, 2012

      You forget that they were successful within the Hong Kong environment. Business in the UK is constrained by a different set of regulations.

      http://www.cityam.com/forum/hong-kong-has-budget-surplus-the-uk-could-too

    3. Mark
      February 18, 2012

      Some 50,000 or more were granted UK citizenship and residence: this accounted for substantially all the net immigration during the Major government, much as Uganda Asians fleeing Idi Amin accounted for an earlier period of net immigration. Compared with today’s levels of net immigration, both were mere pimples.

  4. Iain Gill
    February 18, 2012

    It’s not hard to undercut the West if you are prepared to have the most polluting factories on the planet, when you are prepared to drive costs down by having the least safety equipment of any equivalent factory worldwide, by using factory control software cloned from the west which you have paid no licence fees for. To be fair to British workers you need to be critical of these aspects at least of what China is up to. You must have heard that even Apple are concerned about the conditions of the workers making their kit?

    India too is being particularly clever the way it manipulates the West and our leaders.

    1. Dave B
      February 18, 2012

      If you can see that Western governments have hobbled their people with excessive regulation, you can learn from their mistake.

      1. Bazman
        February 18, 2012

        Where banks hindered by by excessive regulation?

    2. Keith Peat
      February 18, 2012

      Afraid all’s fair in love and war IG.

    3. Mike Stallard
      February 18, 2012

      Here I Singapore, most of the people are in fact Chinese. They go out of their way top be British and they behave like British people used to in the 1950s before we got b
      Arbarianised. It makes me very proud to be English actually.
      I went on holiday to Phuket, Thailand last week and stayed in a hotel with the Republican Chinese. Their manner were abysmal.(makes detailed allegations about their poor conduct-ed)But As a Germans told me in the sea later, “We have the money.”

      Written on a wretched iPad………

    4. Timaction
      February 18, 2012

      I’m afraid we don’t have the calibre of leading politicians (or Sir Humphries) to show leadership, vision or stategic planning. They are more interested in the next soundbite, some politically correct gimmic to deflect bad news but very little action. With so much power given away to the EU, they are our true leaders and Mr Cameron etc just do as they are told. They continue to hamper our economy with major red tape from the EU. All starter jobs are going to Eastern Europeans on minimum wages whilst the taxpayer picks up their housing, health and education costs. They are still driving manufacturing away with its windmill and renewables levy (15%) based on unproven science. We are taxed to the hilt to pay for a massive and unnecessary public sector. Bonefire of the quangos turned into a damp squid and the Equalities Commission are still peddling their left wing poison. We are a declining nation led by politicians who have never had proper jobs in their lives. Why haven’t we got any “right wingers” in Government? Because Mr Cameron and George Osborne are Liberals and happy to hide behind the “limits” of a left wing coalition Government!! Nothing has changed after almost two years. It’s time for the backbenches to put them under pressure.

  5. Matt
    February 18, 2012

    Depressing

  6. Brian A
    February 18, 2012

    China’s current economic success provides a serious challenge to those of us who favour competitive markets and minimal government interference as the best route to prosperity. Recent Chinese governments have undoubtedly been effective in harnessing the savings and work ethic of their people with a pragmatic embrace of some aspects of capitalism, and this has produced spectacular economic gains, particularly in urban areas.

    I believe, however, that a more democratic China would be even more prosperous as the success of generations of the Chinese diaspora in democracies around the world testifies. That success offers strong grounds for believing that China’s future will be more democratic and market oriented as its growing middle class demands greater political and economic freedoms. Ironically, the result may be described as a reverse takeover by Taiwan, where western style democracy is coupled with a hard work and a high savings and investment culture.

  7. Dave B
    February 18, 2012

    In an interview on Uncommon Knowledge, Michael Spence (plugging his new book) said that Chinese political leaders sought and implemented advice from western free market economists before their economic success.

    http://www.hoover.org/multimedia/uncommon-knowledge/83741

    http://www.amazon.co.uk/Next-Convergence-Future-Economic-Multispeed/dp/0374159750/ref=sr_1_1?s=books&ie=UTF8&qid=1329558639&sr=1-1

  8. Bernard Otway
    February 18, 2012

    Gold does have increasing industrial uses,remember it does not corrode.I was still living in
    South Africa when GORDON sold our gold at rock bottom,ie $268 an ounce makes the average current price of $1750 an ounce look eye watering,I said so to friends up here that HE
    AND LABOUR were MAD,especially labour supporters,and now that I am back I REPEAT
    and REPEAT and REPEAT,just to exacerbate their EMBARRASSMENT ,I RUB SALT IN THEIR WOUNDS at EVERY opportunity.Guess what NO MORE LABOUR OR LEFT WING SUPPORT from them now.

    1. lifelogic
      February 18, 2012

      Some uses true but far fewer than silver, platinum, copper, tin, zinc,uranium and many many others.
      It main use is that it is small does not go off in a nice colour and people covert it because they think it will be worth more tomorrow. Just like a Picasso – perhaps they are right but it seem to me something with more uses too is perhaps better in the long run. Especially from the current rather high prices.

      1. lifelogic
        February 18, 2012

        Small for a high value I mean.

      2. lifelogic
        February 18, 2012

        Digging up lots of rock, then extracting the small amount of gold, at vast expense, purifying it then melting into exact blocks and storing it back, underground, in vaults. Also then paying for the insurance and the, now required security, never seemed to make very much sense to me. Nor have I even wanted to wear any. It looks even less sensible than buying a lottery ticket, having Chris Huhne as energy secretary or Vince Cable as business secretary does to me.

      3. Bazman
        February 18, 2012

        Like the desalination of water then?

    2. Keith Peat
      February 18, 2012

      No doubt gold will have special attributes, most material has, but there is no doubt its value is based on ancient historic glitter value and nothing else. Can’t really think what the Romans or ancient Egyptians were doing with it industrially.

      I think we should pull the plug on gold and encourage an alternative like wheelie bins or something. 🙂

  9. backofanenvelope
    February 18, 2012

    3000 unelected people (mainly men) ruling 1.3 billion people. A recipe for disaster.

    1. Winston Smith
      February 20, 2012

      Its worked for several thousand years.

  10. alan jutson
    February 18, 2012

    In the commercial sense China seems to have understood what makes capitalism work, and has engaged with it.

    Same cannot be said of our own Governments, or indeed very many others, where they are trying to build a socialist, politically correct, politicians controlled dream world, but at the same time are slowly killing off the goose that has to pay for it all.

  11. Rebecca Hanson
    February 18, 2012

    As international diplomacy goes, the return of Hong Kong to China remains something of outstanding merit to China, the UK and, of course, the people of Hong Kong.

    One of our ways of addressing the rise of China should be to build from this and other successes. As we link our schools (and therefor our communities) through the British Council school linking structure which is currently being publicised in conjunction with the run up to the Olympic games, let’s make sure we have plenty of links with Chinese communities and schools.

    Building on the positives brings so many benefits to our national insight into China. It will inspire many more children to learn Chinese and to be aware of the importance of China in a positive way which is built on real insight rather than fear.

  12. Bob
    February 18, 2012

    If you were a foreign power intent on undermining the United Kingdom you would struggle to do a better job of it than our previous and current government.

    The reason for the savage cuts to our military are now becoming apparent now that we are surrendering control under a so called “new treaty” to France.

    The financial crisis was just a pretext for more EU.

    Ever heard the story of the Trojan Horse?

  13. APL
    February 18, 2012

    JR: “China is playing a shrewd long game …… The future is China’s for the taking. In the story so far, very hard working Chinese have built a huge surplus from successful exports.”

    Huh, that’s what it looks like through your rose tinted spectacles.

    1. China is a command economy, run on (low wages and lack of freedom-ed) for the majority of its working population.
    2. China pays no heed to POLLUTION of the environment. I’m not talking about the facile Carbon Dioxide scam that western politicians have fallen for, I am talking about real 18th century industrial revolution pollution.

    3. China’s surplus has been built on its mercantile policies and with the willing cooperation of Western policy makers and politicians, has resulted in the hollowing out of western economies and the destruction of the working class in the West.

    All in all we have been betrayed by our own political class for a £3 DVD player.

    1. Winston Smith
      February 20, 2012

      The destruction of the working-class in the UK began long before the introduction of market freedoms in China.

  14. Atlas
    February 18, 2012

    In the long run isn’t it all just a matter of who can debase their paper currency the fastest… ?

  15. Tedgo
    February 18, 2012

    We need to bring back protectionism. There seems to be two ways of carrying it out.

    One is buy British. I see Sir Philip Green is advocating retailers to buy British, in an effort to rebuild the UK’s dwindling manufacturing capacity. Unfortunately the British public seems to dislike British goods preferring to buy foreign made ones. In contrast people in France, USA and other countries tend to buy locally manufactured goods rather than foreign.

    The other way is protectionism at a state level. In the USA the Jones Act provides protection for its shipping industry. Similarly Brazil protects its offshore oil industry to keep it in house.

    We really need to apply import duty on a country by country basis. The level of duty should reflect each countries wage rates, lack of health and safety costs, lack of free health services, lack of free education and lack of pensions. Europeans tend to live 10 years longer than those in Asia. Damage to the environment would also be a factor.

    Genuine UK manufacture should be rewarded with zero or very low Corporation tax.

  16. Acorn
    February 18, 2012

    I think China has rediscovered Mercantilism. Western liberal democracies discarded this a century back. Mind you, it did cause a lot of wars. Now the US; UK and EU are stuck with out of control federal style governments; supra-federal for the EU. Governments beholden to private sector oligarchs seeking monopoly by subsidising some corporate entities while regulating, taxing and controlling the other 99%. 😉 😉

    The following link is for those who left school after the mid seventies.

    http://en.wikipedia.org/wiki/Mercantilism

  17. Bill
    February 18, 2012

    Agree. China is buying minerals from Australia and creating a boom in the Australian economy. It is also buying Australian mines. It is buying parts of Africa, again those parts with mineral resources. If you visit China, you are soon made aware of its more than 2,000 years of continuous cultural history and its centralised government either in the person of the emperor or, latterly, through the Communist Party. This is surely going to be the century of Chinese dominance. You have only to visit Beijing to see how German technology is being siphoned off by Chinese companies in so-called ‘joint ventures’. In fact, when I look at the vast Chinese population (more than three times that of the USA and Russia combined), I wonder how it was that the UK, with its tiny population, ever built an empire across the world. Yes, now is the time to introduce Mandarin to British schools.

  18. brian
    February 18, 2012

    There has never been a consensus in the UK on the best way forward for the nation. Too many in the City have been content to earn large fees for selling off our companies and too many on the left have aspired to the failed soviet model.

  19. Michael Read
    February 18, 2012

    Cheap disposable labour without any social overhead. A slave camp not averse, indeed looking, to nick any IP on offer. A perverse interpretation of the meaning of the rule of law (etc-ed). A country of 1.2bn of which 1.1.bn exist in conditions of abject poverty.

    And you approve? Wish to emulate?

    Hold on. My tailor will do a perfect Mao suit for you at the discount price of £30. It will be made in an Indian slum with (child labour in poor conditions-ed). The suit will carry a foot-square sticker emblazoned on the back with the message “Mao’s my man”. You are required to wear the suit for 10 years. Parliament will be impressed.

    Reply: What a silly point. Of course I have no wish to copy Chinese government and their approach to the rule of law, and fully understand that China is still on average substantially poorer than the west.It is foolish, however, to ignore the very real Chinese industrial and economic achievement in recent years. We need to live with it and respond to it, as it is having an increasingly important impact on world markets and the use of world resources.

    1. Winston Smith
      February 20, 2012

      1.1bn people do not live in abject poverty in China. In fact very few would even consider themelves poor. Poverty is a term abused by wealthy, middle-class lefties. They use ‘relative poverty’, which is a measure of the median earnings. Its a way of maintaining their existence as purveyors of poverty porn, as with this measure there will always be povety.

  20. RDM
    February 18, 2012

    JR,
    How are we to compete, if GB is so anti Technology, it being so difficult for the Entrepreneurial spirit to become established within GB?

    Things like;

    – I can’t find anything about becoming an Entrepreneur on the Conservative website?
    – Banks are very Risk adverse?
    – The real problem seems to be the type of finance available; there is no source of long term loans for Technology start-ups?
    – No realistic sources of finance?
    – Establishment figures are desperately trying to maintain their patronage over people?
    – Etc…

    I’m unemployed (for more then two years), and I had been a Technology Contractor for 12 years before that. I truly believe that I could have created many highly paid jobs by now, if I had been able to get access to the finance for a start-up! Instead the Jobcentres staff spend all their time trying to force me into jobs (expressions of his personal frustration removed-ed) Yes. I know; not something you understand.

    More importantly; For the Entrepreneurial spirit to take hold, Politicians, Banks, and the People have to become less Risk adverse, then it would not matter what China got up too! We would be strong, and independent enough to define our relationship with them, whatever they do!

    Regards,

    RDM.

  21. Neil Craig
    February 18, 2012

    “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: All the rest being brought about by the natural course of things.” 
Adam Smith

    China’s growth has been almost exactly 10% on average since 1980. Electricity production went up from 240 TWH to 2400 TWH between 1980 and 2005 – a rate of 9.64% annually. That correlation over that period of time is remarkable by any standards. China during this period has become a distinctly free market economy, unforced or restrained by overgovernment.

    The future may be china’s for the taking but they have not done anything difficult. We could have & indeed still could do the same and since it has been historically easier for richer economies to grow than poorer ones we could still outpace China.

    If our politicians were not actively preventing it. The future is ours for the taking too and the responsibility if it is not taken will lie 100% with our parasitic political nomenklatura and the parasite’s parasites in the BBC & other media who censor any honest debate on the subject.

  22. Damien
    February 18, 2012

    JR
    I can understand Donald Trump when he wrote last week to Salmond “Taxing your citizens to subsidise wind projects owned by foreign energy companies will destroy your country and its economy.” He was not referring only to China but other countries who buy UK technology companies after proof of concept. I do not question why Siemens this week has taken over one of our leading tidal pioneers but rather I like the Chinese and Trump ask why do UK investors not invest in their best technological inventions?

    Regarding Chinese diplomacy we could learn a thing or two about the wisdom of avoiding costly conflicts and instead pursuing harmony as our foreign policy.

    The US and Germany hold the largest reserves of gold in the world but China and India are buying at a faster rate both at an individual level and through their central banks. For individuals it is for cultural reasons but for the central bank it is increasing its reserves as fast as the west is printing fait money.

  23. forthurst
    February 18, 2012

    China is being run by the Chinese, for the Chinese. The Chinese win.

    1. Bazman
      February 19, 2012

      Which Chinese?

  24. Normandee
    February 18, 2012

    With an oversupply of labour, and technology not likely to help that situation, a currency that is artificially maintained at the wrong level, and a western society that is reducing it’s needs due to economic problems, how is China going to prevent implosion with a growing population of an underclass that is ignored by it’s rulers ? Some parts of it’s massive land mass are still (underdeveloped-ed), and with multiple areas of (possible-ed)unrest caused by religion and the drive for construction on land the owners have been displaced from with no corresponding reward or even an organisation that cares for them, it’s, to my ignorant eyes, (an unstable situation-ed)

  25. pete
    February 18, 2012

    I often ow long i will take until their wages catch up with the west so it becomes viable to make our own things again. This is the only way I see things balancing out and mass manufacturing coming back to the west.

    Its funny how when one entity does well its always taken from someone else – their success largely due to a huge low cost workforce has been to our detriment in many ways as we are now seeing.

    1. Neil Craig
      February 19, 2012

      If the Chinese were earning the same as us their electricity prices would still be 1/4 of ours; their taxes lower; and their government regulatory burden lower. For the hi-tech industries at least labour costs are relatively small compared to these.

      Which also means that by getting rid of these burdens we can use our advantages in higher technological skills, better transport infrastructure, less blatant corruption and speaking English to outproduce them. If only the political class would allow it.

  26. Gideon Mack
    February 18, 2012

    In his book ‘made in Japan’ Akio Morita (of Sony fame) tells the story of two businessmen – a Japanese and an American walking through a jungle. As they turn a corner they see a lion at the far end of the path.

    The American starts running from whence he came whilst the Japanese sits down and starts putting on a pair of training shows. The American shouts “you’re stupid if you think you can outrun a lion”.

    The Japanese replies “I don’t have to outrun the lion; I only have to outrun you”.

    The Chinese, the Indians and Vietnamese put their trainers on long ago. I hope we can survive on ideas alone and that’s all we’re going to have left before long.

  27. oldtimer
    February 18, 2012

    China has also been successful, in part, by running a very competitive currency vs the US$ and, appaparently, being able to mitigate its rate of appreciation. In the newly free floating era from 1970 to 1980 the DM:US$ rate strengthened from c8 to c4; the Yen:US$ rate strengthened from c800 to 400. By 1990 they had strengthened further to just over 2 and 200 respectively. The renminbi is light years away from this rate of appreciation vs the US$. This will continue to be a huge source of friction between the two countries.

    Re favouring particular businesses, from my past experience, Japanese manufacturers somehow found a way not to compete with one another in many overseas markets. This was not true in the major markets of Europe or the USA, but it certainly was true in numerous smaller markets around the world. As for the UK, there cannot be many industries or businesses left where there is more than one world class supplier left that is capable of competing globally. I can think of pharmaceuticals, city firms like fund managers, investment banking or insurance but what else?

  28. Barbara Stevens
    February 18, 2012

    John, you say the people in China will want more of the wealth, they will, but will they be given it? They work for less wages for longer hours and are more or less told it’s their duty for the state. All well and good for a short while, but not for a long while. They have no unions as such top protect their interests, they’d probably be shot if they tried to implement one. How long will this scenorio last? Having more of the wealth in drips and drabs will not satisfy those who do the graft for long.
    Why do we allow them to have the technology we have, to the detriment of ourselves? I find many household things made in China, for example, I wanted a new iron, and all were made their or Indonisia. We made irons once why not now? Even ‘Dyson’ went abroad, to be put together, which was a disgrace, but the government of the day did nothing to encourage him to keep the factories here. May be governments should be more proactive in industry to keep them here, and expand and get better products? May be it’s time we played them at their own game. It takes political will and companies to be more outspoken about what they want. I’ve seen many factories close over my lifetime, that could have remained here with the right encouragement, sadly there was none. I’d sooner by British any day than foreign goods, but its getting companies to reinvest in manufacturing once again and employing our own workforce. It appears lack of confidence and trust in our own country, and we should be ashamed of it. Time to get back to making things, and be proud with the label, ‘made in Britian’.

  29. nemesis
    February 18, 2012

    “She runs a different system from competing party elections” Oh, how I wish we had competing parties.

  30. WALTER MACQUEEN
    February 18, 2012

    I am 85 years old and so I am glad that I will not have to live through the inevitable continued rapid demise of Western Society’s living standards and the loss of all the goodies that we have become used to since the end of our last “Great War”.
    It seems to me that just as during the decline of the ROMAN EMPIRE we also have become soft and lazy and are now incapable of competing in any meaningful way with any of the Asian societies or for that matter the South American groups— watch the continued rise of Brazil with their tremendous mineral resources. {And any time now Africa).

    1. Keith Peat
      February 19, 2012

      WM Our decline was actually insisted on by the rest of the World, led by our so called special friends the US: The only country to make money from both world wars. She broke us financially, simply for fighting two just wars and the rest just filled their boots. So far as lazy? Yes part of our punishment was to accept regulation, interference and undermining by a liberal, left, elite, and relaxed disciplines that don’t seem to have been applied to any other nation so far as I can tell. We have had minority agendas forced on us in a so called democracy and the result is all we now see around us.

      I am 71 and suspect that I will not see the end too, yet secretly hope to see a revolution and reversal. If there is, I will be out there; at least cheering it on.

  31. uanime5
    February 18, 2012

    If would be far better to take seriously Japan’s success story, as unlike China Japan went from being a poor country in the 1950’s to an economic superpower. Whether China will even be able to transform from a developing country to a country with Poland’s living standards is unclear. What’s clear is that China will not be able to produce a vast amount of cheap good if everyone in China wants a western standard of living.

    Regarding low cost employment the Government’s plan to make the unemployed work for free in private companies has been stopped due to wide spread public opposition. It seems that people realises that companies won’t create jobs if they have access to a large pool of free labour.

    http://www.independent.co.uk/news/uk/home-news/employers-reject-jobs-scheme-thats-all-work-and-no-pay-7079777.html

    1. forthurst
      February 18, 2012

      “…unlike China Japan went from being a poor country in the 1950′s to an economic superpower.”

      I suggest you read, “Mao: The Hidden Story”, then you will realise that China in many ways was in a worse predicament in 1976 than Japan in the 50s. You should also know that in terms of industrial developement China has previous; up to about 1840, China was responsible for a third of world trade. A civilisation based upon rice cultivation in China predated that of the ME by 2000 years. What undermined China was political instability culminating with Mao Zedong, brought to power with the great assistance of the Bolsheviks. The Chinese are therefore keen to avoid political instability.

  32. ChrisXP
    February 18, 2012

    Many years ago my parents said that one day China would dominate the globe, mainly by their sheer numbers, let alone anything else.
    This is all very well, but if China produced everything the world needed, what would the rest of us do for jobs and income? A bit exaggerated maybe but it is not a good thing for the world to be dominated by one country.

    I have heard the Chinese are very good at copying (counterfeit electronic components is a hot market). There isn’t much they can’t copy, working away like ants in the sweat-shops. But is this really a skill? There’s a vast difference between copying and original, inventive thinking.
    They are buying gold because maybe they know something we don’t? Gold may not have much industrial use but it is a time-honoured method of wealth protection, especially in the East. As they often say in horse-racing, “follow the money”.

    1. forthurst
      February 18, 2012

      “They are buying gold because maybe they know something we don’t?”

      Probably that dollar bills would be more useful if joined together with perforations.

  33. Terry Harris
    February 18, 2012

    History proves that when Central Banks and Governments buy Gold, that is the time we sell our own. The reverse is equally as true.
    The recent proof of this, is Gordon Brown selling our gold (against the wishes of the BoE) and the aftermath – the price of Gold has soared.
    As Gold has risen over the past 5 years, the US Dollar has collapsed and Central Banks and Governments are once again seeking to hedge. The want to buy into Gold because the US Dollar is down and out. Too late, the peak Gold price is over again (for now) and now is the time to become a Contrarian. Sell Gold buy Dollars, the international currency of commodities.

  34. Frances Matta
    February 18, 2012

    I’d love a one child policy here. Or, better still, none.

  35. zorro
    February 18, 2012

    Yes, it’s being played a bit like a game of Risk or Chess. Essentially, the Chinese are looking to position themselves to take advantage of different potential scenarios that could occur geo-politically over the next few years.

    One thing that I have learned about the characteristics of Chinese thinking is that they are careful about criticism and are reticent about pointing out the mistakes of others too openly, particularly about Westerners (though they have been quite vocal about our financial imprudence over the last two decades which is fair enough).

    Another thing is that they are good copiers but others in business there have told me that they sometimes lack initiative or innovation, but are willing learners. This chimes in with their ability to ‘absorb’ western technology, take advantage of ‘joint ventures’, and their engagement in what some might term industrial espionage/cyber espionage. It is true that they see our seeming lack of support for national companies as a weakness of our liberal, free market system.

    China as a nation, and Chinese as individuals are buying gold and real estate/property investment in large numbers. This rooted in their psyche as a tangible means of wealth protection. However, there is also a movement to stabilise the international financial system. A return to a currency system based on gold valuation is certainly not out of the question so this makes good sense. Gordon Brown defended his move to sell our gold in the House by stating that he had ‘invested’ it in Euros….

    I think that their search for commodities around the world is driven by what they think that they will need in the future. In Africa, they are building some infrastructure for African countries in order to gain access to that mineral wealth, but it is up to the Africans to get a good deal.

    However, the lynchpin to all this careful preparation is the continuing ‘stability’ of China. I would be amazed if China exists in its current political form within the next 20-30 years. There are too many different tensions for the Communist Party to manage (social/employment/religious/economic/ethnic). I suspect that there will be some breakup. There is a lot of tension in several areas of China where rioting occurs.

    zorro

  36. Mark
    February 19, 2012

    This press release supports many of the points made above:

    http://www.petrochina.com.cn/Ptr/News_and_Bulletin/News_Release/PetroChina_and_INEOS_complete_transaction_to_form_trading_and_refining_joint_ventures.htm

    As to the future of currencies, as yet China seems wary to let the yuan/renminbi supplant the dollar as the currency of international trade. Its surpluses are dominated by the fiat currencies of the West and their bonds. It seems likely that these will decline in value due to inflation, and just as the Japanese found when they built a large cumulative trade surplus, their real value evaporates. They could follow in Japanese footsteps into a post-bubble economy. Or they may use their power to dominate resources. Given how long they have been planning resource access – I personally encountered them doing this 20 years ago – the latter seems more likely. That could create geopolitical instability of itself.

  37. David John Wilson
    February 19, 2012

    We need to see our government instigating more positive actions to mitigate the threat of South East Asia and China in particular. For example action could be taken in the following areas:

    1) Stronger action against the importation of goods that are produced in unacceptable working conditions. The responsibilities for this should be placed on our retailers and other importers with some force of law and not just left to their public consciences. This could have the added advantage of discouraging the replacement of home produced goods when the cost advantges are marginal.

    2) More effort should be placed on reducing the importation of fake goods. This needs to concentrate on fakes of items usually manufactured in the UK or by UK companies. Increasing the traceability of the sealed containers brought into the UK could enable better concentration of searches in the right places.

    3) The cost of manufacturing in the UK needs to be reduced. Firstly by reducing employment costs by for instance reducing employers’ NI. Secondly by reducing the cost of renting premises by for example stopping retailers taking over sites originally planned for manufacturing or warehousing (as a side effect this would also reduce he movement out of town centres).

    4) Make it more difficult for companies producing goods in the UK to move their production abroad. This could be done by imposing a surcharge on redundancies directly created by exporting jobs (and possibly even by moving them from high unemployment areas). Such a surcharge could for example be created by companies under these conditions being required to take on the burden of any future unemployment or similar benefits from the government. They similarly could be required to take on full retraining costs.

    5) Looking at the carbon cost of imported goods and finding a way including them into the carbon trading scheme.

  38. John C
    February 19, 2012

    John,

    There is one area that you have not mentioned which, I feel, may have profound implications in 20-50 years time.

    I read an article a couple of years ago where a top level Chinese official was making the point that they have learnt a lot from American history in the 20th century.

    Whereas America spent most of the second half of the 20th century intervening militarily globally, China was not going to make the same mistake. The USA has spent trillions in its attempt to dominate the world. The USA has arms in every sphere of influence in the world. It has been involved in more wars than any other country since 1945.

    China has decided to go along the soft power route where they will influence the world by investing in countries and developing partnerships.

    I, for one, am open to this possibility. I’m fed up with US militarism in the world.

    OK, China may not be democratic, but, if it refrains from having wars around the world, I for one will think it is an improvement over the US foreign policy for the last 60 years.

  39. Backwoodsman
    February 20, 2012

    Sun Tzu pointed out long ago that it was better to win with minimal conflict and to take over a society with its resources intact .From Iceland to Kazakhstan, from New Zealand to Zambia ,the strategy can be seen in action.It is more than just a matter of resource acquisition and currency manoeuvres.
    And,of course,that is not incompatible with building up military capability.As Sun Tzu also realised,there is certainly a place for armed force.
    Where have the guardians of the West,and its values and the the defenders of democracy been the last decade?Where are they now?Where will they be ten years hence?

  40. David Price
    February 20, 2012

    I am not sure what you hope to have happen. Without moving toward some level of protectionism and even command economy you won’t be able to change the situation significantly enough. One key problem is attitude, on the one hand the UK consumer only cares about the lower cost of something now and completely ignores the higher cost that results later on.

    Western “businessmen” have been giving away the West’s technologies and competitive advantages for decades, not just to China but also India, Russia, Korea etc. Those who pointed out the idiocy of this were told to go find other jobs after being required to transfer their skills and experience away to outsourced personnel. Meanwhile those who benefited from the transfer went on to find other skills and livelyhoods they could give away for a fee.

    Our competitors, including Germany, France, USA and others are quite happy to employ as much protectionism and encourage patriotic buying as they can get away with. In comparison our politicians and economists seem solely focussed on sustaining a unilateral free market while regulating and taxing our industries out of existence.

    I suspect the time to do something has long since past. There are too many interests in academia, investment banking and consultancies geared to giving technology and skills away. Even where there has been some recognition of strategic advantage such as aero engines and wing design idiot executives happily broadcast some of the art and engineering in TV programmes.

    I am glad a senior conservative politician sees the problem but what do you suggest is done about it?

    Reply: Competition law can take action to block take-overs and deals involving state owned companies. There are export licenses which can be used to protect sensitive technologies etc

    1. Winston Smith
      February 20, 2012

      Businessman did not give away the West’s of the UK’s competitive advantage, it was removed by the State and the communist infected unions. They made our industries uncompetitive.

  41. lojolondon
    February 20, 2012

    You are absolutely correct about commodities, John, the Chinese are all over them, and this is where the major threat is – Africa.

    The Chinese are ‘investing’ massively in Africa, building roads and hospitals, fast and cheap. They are signing multi-year contracts that involve weapons, medicines, implements. The flipside is that African countries will send the majority of their food production straight to China, no matter what shortages there are locally. Mark my words, China will be by far the biggest controller of food in the world very shortly. Their biggest ally is the foolish protectionist of ‘CAP’ system, which prevents African farmers selling to their natural marketplace, Europe, and drives them to do a great deal for China.
    Soon we will start to regret our destruction of our local farming community and business, but it will be too late!

    China has a plan, they have no weaknesses we know of and they are implementing fast.

    If you have any doubts, see the ‘spin’ from China’s version of the BBC – http://www.chinadaily.com.cn/china/2012diplomats/2012-01/11/content_14424579.htm

  42. Steven Whitfield
    February 20, 2012

    We don’t value science, engineering or intellectual property highly enough in this country. As with so much of our governance, it is as if the policy was designed to inflict as much damage as possible.

    Examing how we have played our key strengths in the Uk is very depressing.

    Techincal brilliance and know how. Given away freely. Machinery, expertise, university places and know how all sold off for a short term profit.

    Oil & gas. Most of it sold off when the price was less than $25/barrel to prop up the Thatcher administration.

    Coal. Most of the industry has been closed down.

    Manufacturing. Tiny pockets remain. Much is now foreign owned in a way that the French or Germans would never allow.

    Nuclear. Technolgy sold to a Japanese company.

    I see the inevitable outcome of Mr Redwood’s analysis as a world where China and probably India call the shots on how scarce resources are allocated. It is already happening with China buying up the rights to mineral deposits -how long before they become unaffordable to the West with it’s phoney money. It’s a trap we have sleepwalked into. We have been too benign, too reluctant to protect our own long term interests aggressively.

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