China’s strategy

Whilst people in the UK are preoccupied by our election debates, the IMF and World Bank meeting with Finance Ministers  is happening  in momentous times.

The most significant thing that is happening is the rise of China. China has a plan. They are in transition from relying on exports and investment to grow quickly, to depend more on consumer spending at home. After years of making good value goods to sell to foreigners, to build up a large reserve of foreign exchange, China is now making more to sell to her own citizens. Her  economy is also in transition to higher tech and to delivering more service output.

China is liberalising its financial system. It now has more two way investment into and out of mainland China to Hong Kong. It is putting its currency, the renminbi, forward as one of the world’s great trading currencies. It is seeking the entry of the renminbi into the Special Drawing Right basket of the IMF alongside the dollar, yen, sterling and the Euro. It has set up the Asian Investment Bank to extend credit across Asia and the Middle East.

The most dramatic plan is China’s proposal of a new Silk Road and silk maritime road. The idea is new and improved sea and land transport links from China through Central Asia to Russia and Europe. China has in mind a new large economic zone with joint investment projects in transport, communications and  energy, with more common trading and co-ordination of economic and development policies.

China is working with the City of London, recognising UK excellence in finance and valuing London’s ability to make markets in the renminbi. We need to make the right diplomatic response to China’s developing wish to play a bigger role in the world, and to use some of her great industrial and financial muscle to extend her influence. The UK government was right to back China’s Investment Bank initiative.

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29 Comments

  1. Peter a
    Posted April 17, 2015 at 5:36 am | Permalink

    Off topic but ..
    With great political skill, David Cameron engineered the possibility for EVEL after the Scottish referendum. He had also managed, perhaps inadvertently to embolden the SNP to the detriment of Labour.

    The Tories, your goodself and a few others apart, completely mucked up EVEL, coalition or confidence and supply, with SNP would’ve been impossible. If Labour get less seats and indeed votes in England than the Tories and are propped up by Plaid and the SNP, there will be a constitutional crisis. If the English public feel that Sturgeon is a formidable and articulate advocate of her country (as the polls suggest) and is capable of bullying Milliband wait till they see Salmond in Westminster.

    Farage was absolutely correct about the audience cheering the anti -austerity posturing of the panel in last night’s debate . I know you constantly affirm this John; but there has been no austerity! Add this to the constant bleating about the NHS, which no one ever clarifies is devolved and crumbling in Wales and Scotland. What are the odds that the extra £1500 per head to Scotland will increase post election?

    • Denis Cooper
      Posted April 17, 2015 at 10:18 am | Permalink

      “If Labour get less seats and indeed votes in England than the Tories and are propped up by Plaid and the SNP, there will be a constitutional crisis.”

      Well, the current projection from Electoral Calculus has:

      Tories – 33.7% of the votes, 280 seats
      Labour – 31.9% of the votes, 282 seats.

      The difference in votes per seat won is not huge, 0.120% of votes per seat for the Tories and 0.113% of votes per seat for Labour, so on average the Tories need to get about 6% more votes than Labour to win a seat; but that corresponds to the Tories getting 9 fewer seats and Labour getting 9 more seats than they should do for near perfect proportionality between the two, when it would be:

      Tories – 33.7% of the votes, 289 seats, 0.1166% per seat
      Labour – 31.9% of the votes, 273 seats, 0.1169% per seat.

      Of course other parties have far more to complain about when it comes to the lack of anything like proportionality in the electoral system; the LibDems have about five times as much, and UKIP maybe a hundred times as much, but I don’t expect any of that will provoke a constitutional crisis.

  2. Dame Rita Webb
    Posted April 17, 2015 at 5:54 am | Permalink

    China is a bubble that no serious investor would take seriously. Have a read of Francis Fukayama’s book “Trust”. Trust led to the development of the limited liability company and helped the Anglo-Saxon economies dominate the world in the 19th and 20th centuries. Trust does not exist in Chinese culture, business is done on the basis that your partner is about to rip you off as you are about to do to him. The stock market is hitting an all time purely through leverage and accounts being opened mainly now by people who have little more than a high school education.

    Off topic but has Dave gone on holiday again? Every time I switch on the BBC radio, despite Red Ed being their boy, its always his voice coming out of the speaker and setting the agenda. On May 8th and you finally get a rid of him, replace Dave with someone who can fight his way out of paper bag like David Davis. If you pick the “bookies favorite” Mrs May, after the 2020 election, I can see the Conservative group of MPs returning to Westminster in a couple of taxis.

    • mickc
      Posted April 17, 2015 at 8:50 am | Permalink

      Is that actually true about the Chinese business culture? Have you personal experience of that?

      Certainly there is less trust now in the Western culture, and rightly so. All businesses can be assumed to be fraudulent, until they prove otherwise, particularly so in the case of financial and big business. Banks are an obvious example but mis-selling is rife in big business, in other words, fraud.

      Local and small businesses dare not mis-sell, because they won’t survive.

      • Dame Rita Webb
        Posted April 17, 2015 at 12:43 pm | Permalink

        Yes other half is Chinese. China has only been a success when it has come into contact with Anglo Saxon values e.g. Hong Kong, Singapore etc. Left to themselves they go nowhere.

      • John E
        Posted April 17, 2015 at 6:50 pm | Permalink

        You do need to take care doing business in China, but it is perfectly possible to build good relationships based on trust. There’s basically little choice, because where do you go to settle disputes? You don’t want to end up in a court in China, and good luck getting them to turn up in London.

    • libertarian
      Posted April 17, 2015 at 7:55 pm | Permalink

      Dame Rita Webb

      Trust DOES exist in China ( it exists in all human cultures) its just that the Chinese default position is not to trust until you’ve proved worthy of it ( In the West we tend to give the benefit of the doubt). The Chinese have a saying that sums up this approach

      qiang da chu tou niao

      Roughly translated it means The early bird gets shot!!

  3. Gary
    Posted April 17, 2015 at 6:07 am | Permalink

    have we abandoned our “special friend” ?

    we had better hope that some of China’s success rubs off onto us. Some influential economists think we are on the edge of debt hell.

    ” ‘Timebomb’ UK economy will explode after election, says Albert Edwards Bearish City strategist says coalition has left economy ‘up to its eyeballs in macro manure’ by failing to cut
    deficit, and that sterling will suffer

    Albert Edwards called the chancellor’s
    plan to boost the housing market ‘one of
    the most stupid economic ideas’ of the past
    30 years.” as reported in the Guardian

    • Dame Rita Webb
      Posted April 17, 2015 at 7:26 am | Permalink

      What success? The local public school is closing down this Summer. For years it has only stayed open because it was sent a regular supply of mainland kids and now the Chinese economy is seizing up that source of income has dried up. If this is reflected in the number of Chinese kids signing up for university courses then it will not just be the NHS that will soon need a bailout.

  4. Ian wragg
    Posted April 17, 2015 at 7:03 am | Permalink

    So Obama is upset that we are joining the Asian Investment Bank. His plans for World Government American style has suffered a major setback
    I don’t trust China but they are no worse than the USA.
    I see the BBC were at it again with their audience selection
    Maybe you can analyse the content. Nigel was 100% correct to point out the left wing bias again

  5. oldtimer
    Posted April 17, 2015 at 9:08 am | Permalink

    You are right to point out the remarkable development of China`s power and influence over the past thirty plus years. It should be no surprise to anyone who has been listening to what the Chinese government has said what it intends to do. After all it has, along the way, invited foreign firms help it to build a new infrastructure and to invest in new industries to transform its economy. For example China is now the world`s largest producer of automobiles. Some of the most ambitious engineering projects are to be found in China. When China says it plans to build new Silk roads, whether railroads, roads for trucks or seaways, we should believe them. It will happen and will transform trade between China and Europe. IIRC BMW is already importing components by rail across Asia, saving weeks off the alternative sea route.

    Investment in China is certainly risky. But that is not a reason to avoid it either as a business or if you are a personal investor willing to accept the risks. Some of these have proved to be worth taking as early investors in Alibaba will know.

  6. forthurst
    Posted April 17, 2015 at 9:11 am | Permalink

    No mention of the ‘Pivot to Asia’, or the neocons’ plan, having got the pot boiling nicely in the ME and Ukraine, to stir up trouble in East Asia.

    Do we have to continue to be the USA’s ally, irrespective of the qualities, both human and strategic, continuously exhibited by the warmongering coterie that controls US foreign policy? Despite having got our servicemen killed and wounded, can we say the world is a better and more peaceful place with fewer refugees than if the neocons had not been waging unprovoked (except in the neocons’ diseased brains) wars of aggression.

    • acorn
      Posted April 17, 2015 at 2:12 pm | Permalink

      I think it is still all about oil and the US neo-cons who want to have control of all that is left. They have spent two years trying to destabilise Venezuela to get rid of a left-wing government and get its hands on more reserves than Saudi has.

      The Middle East is in chaos because of similar US invented controversies that didn’t exist, anywhere there was large reserves of “unfriendly” oil. They got Saudi to dump oil in the market to get at Russia and that has spectacularly back-fired.

      The Eastern world is coming to a common understanding that most of its domestic problems are made in the USA.

      Reply The Middle Eastern conflicts have a life of their own without the USA, and Saudi makes her own decisions about how much oil to pump

      • forthurst
        Posted April 18, 2015 at 8:55 am | Permalink

        “I think it is still all about oil”

        Throw in gas and pipelines and you still do not have a full explanation for US foreign policy. Less advanced countries without valuable natural resources are not in a position to build regional power and influence, threatening US hegemony and therefore are below the necons’ radar.

  7. Stephen Berry
    Posted April 17, 2015 at 9:17 am | Permalink

    Recently America began smoking the pipe of peace with both Cuba and Iran. A future deal with Iran would be particularly welcome as it would be a slap in the face for both the neo-cons in Washington and the bombing club in Israel. The American government has clearly seen that a deal with Cuba improves its relations with other Latin American countries. A deal with Iran would give the US a valuable ally against ISIS in the present Sunni-Shia struggle in the Middle East.

    But what’s sauce for the goose is sauce for the gander. It’s not just the US which should be seeking more peaceful relations around the world. Of course the UK should be seeking better relations with one of the rising super powers of East Asia. Shanghai is a huge financial centre and growing rapidly. The UK needs to take note of that and John is right to commend the British government for joining the new East Asian investment bank.

    But more important than this is what is going on in the Ukraine. Russia is a way more significant power than either Cuba or Iran and it’s perfectly clear that Europe should seek harmonious relations with that country, especially as Russia is a major supplier of energy. I think that the Germans and French can see this. I trust that London now gets the message and can see the incongruity between Washington’s attitude to Cuba and Iran and it’s sabre-rattling in the Ukraine.

  8. mickc
    Posted April 17, 2015 at 9:27 am | Permalink

    Incidentally, it is actually mainly the Westminster bubble which is pre-occupied with the election. It gives them work and makes them feel important.

    Most normal people are sick of it and wish it was over.

  9. Denis Cooper
    Posted April 17, 2015 at 10:30 am | Permalink

    JR, do you think there is any way that we can benefit from increased trade with China without having to grant all of the 1,400 million Chinese citizens the automatic legal right to come and live and work here? If so, if we can separate trade and immigration issues with respect to China, why is it supposedly impossible to do the same for the 440 million citizens of the other EU countries?

    Reply Exactly – which is why we need a new relationship with the EU, so why not help me get one?

    • Denis Cooper
      Posted April 17, 2015 at 1:10 pm | Permalink

      But I am helping you, in my own very small way, indirectly, by contributing to the pressure on your party leader to at least superficially act as though he agreed with some of what you say.

      What would happen if UKIP were to fold, as he would love to see?

      1. The eurofederalists in your party would resume complete rather than partial control, with inevitable knock-on effects on what happened in the Labour and LibDem parties; but, however paradoxical this may still seem to those who haven’t kept up with developments, at the same time

      2. It would be of little net benefit to your party in its contest with Labour, as now very belatedly realised by Lord Ashcroft and Tory commentators such as Fraser Nelson, who have suddenly discovered that most UKIP supporters are not sad little Tory sheep who have strayed but can be brought back into the fold. Now they are “Dear Ukippers”, and the plea is “Please come home”; but in fact in the absence of a UKIP candidate to vote for many of them would either not vote at all, or even worse from your point of view they would vote for the Labour candidate, with each one cancelling out a UKIP supporter who heeded the call.

      Reply I do not see UKIP opposition as helpful to me in any way.

      • zorro
        Posted April 19, 2015 at 2:08 pm | Permalink

        Reply to reply – without UKIP pressure, there would be no referendum as evidenced when he blocked it earlier in the Parliament. You know full well that if Cameron has a majority and can dragoon your lot into the fold there will be a reason found for a real referendum not to happen or Armageddon type warnings from the great and good of the consequences of an anti EU vote.

        zorro

        Reply This is nonsense. Conservative MPs voted for a referendum in the Commons then persuaded MR CAMERON to make it party policy. I was present at the crucial meetings and can assure you no UKIP person was present and we did not talk about UKIP. They had no MPs and therefore no votes at the time.

    • forthurst
      Posted April 17, 2015 at 1:35 pm | Permalink

      Denis, surely someone as astute and as well-informed as yourself must be aware that the Treaty of Rome was not really about trade but about creating a country called Europe?

      Whether, having digested Europe, there will be a push to forge a new country called Eurasia or even One World, I have no idea, but its doubtful that having had a one child policy for decades, the Chinese would welcome an invasion of possibly rapidly expanding, culturally incompatible foreigners, but speaking for myself, I would much rather live in a monoculture in a multipolar world than a multiculture in a unipolar world.

    • Mike Stallard
      Posted April 17, 2015 at 4:04 pm | Permalink

      Nice repost Mr Redwood!
      The question is HOW?

  10. Tad Davison
    Posted April 17, 2015 at 10:45 am | Permalink

    Well it seems to me that China will have different ways of working to the dead horse model that is the EU. At least I hope so, because they could be a force for good.

    The US isn’t exactly a model of financial or moral rectitude either. I just wonder if the US will export it’s inimitable style of ‘pork barrel politics’ to China, and along with it, the vested interests that exist behind the scenes such as the power of certain banking families.

    I see Bernanke has walked into a cushy number at a hedge fund, despite being unable to answer even fundamental questions on the US economy whilst at the Fed. It makes me sick to see it. whatever happened to the idea of a meritocracy?

    Tad Davison

    Cambridge

  11. Robert Clive's Bones
    Posted April 17, 2015 at 1:50 pm | Permalink

    What’s needed is a National Kowtowing Strategy and a National Kowtowing Adviser to monitor any chance of any UK official raising any hue and cry about Tibetan rights.

  12. ian
    Posted April 17, 2015 at 4:46 pm | Permalink

    Italian PM in usa to be talk into signing up to tipp, coming soon, its call free trade on everything like GM crops and if stop us from selling anything to you or bring new rules into stop us from selling to you are companies will take your country to court and have your people of your country fined for the value of goods a companies would had been able to sell to you over a number of year. Its the old backroom deal and the people do not have a clue about it, its all hush hush, the ink already dry on the paper hear.

  13. ian
    Posted April 17, 2015 at 4:51 pm | Permalink

    Oh I forgot to say, and if you tax are companies that will be seen as break in the agreement and will be taken to court. loving it.

  14. ian
    Posted April 17, 2015 at 7:27 pm | Permalink

    Greece might be bailout with minus interest rates by ?. Minus interest rates mortgages in Spain, oh oh oh its magic, buy to let mortgages at their lowest rate ever, like I tell you hold on a bit longer and they will pay you. Stock market to zoom up on tipp, every country and companies competing to knock the other one out who will win.

  15. Lindsay McDougall
    Posted April 17, 2015 at 10:48 pm | Permalink

    We have no interest in financing an overland Silk Road. However, I would be interested to know what is meant by a maritime Silk Road. To what extent is it possible to engineer the sea? Perhaps port facilities and ships are what they have in mind. Does China have in mind to set up some vast port owning empire like Dubai World?

    • bluedog
      Posted April 18, 2015 at 11:35 pm | Permalink

      ‘Does China have in mind to set up some vast port owning empire like Dubai World?’

      Absolutely. It goes well beyond that. Try entering ‘string of pearls’ in your favourite search engine.

  16. bluedog
    Posted April 18, 2015 at 11:33 pm | Permalink

    ‘We need to make the right diplomatic response to China’s developing wish to play a bigger role in the world, and to use some of her great industrial and financial muscle to extend her influence.’

    Is this right? It certainly reflects the policy of the Cameron government, but to what extent is China benign? One sees everywhere that China seeks to replicate and subvert the post-war economic and financial structure of Bretton Woods. China’s challenge to the US security structure in the Asia-Pacific is just as real, but off topic. As the UK was a key stakeholder and contributor to this economic and financial architecture, it is frankly bizarre to see comment that concedes to a challenger of the status quo rather than a vigorous defence of the status quo. China’s geo-strategic ploy in the Asian Infrastructure Investment Bank is a litmus, and indicates a Chinese strategy of setting up parallel institutions to those that have ensured Western global hegemony since the end of WW2. The problem at present is that the Republican right in the US congress will not allow China greater representation in the key financial institutions such as the IMF. This short-sightedness has possibly a catalyst for the AIIB.

    It is reckless to assume that the Chinese Communist Party that rules China has any other goal than ensuring its own survival and continuing dominance. The end of Western global hegemony is a key part of achieving this goal. If the Cameron Conservatives seriously believe that would be in the British interest, good luck. A turkey has just voted for Christmas.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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