China’s ambitions

 

On the other side of the world China is emerging as a major economic force. The administration in charge is progressively liberalising the Chinese economy, and bringing it more into the world marketplace. The new Connector between Hong Kong and the mainland permits more foreigners to buy Chinese shares and more Chinese to buy Hong Kong quoted shares.  China is working towards her currency being one of the big five in the IMF’s SDRs, and is out to establish the renminbi as the world’s second largest trading currency after the dollar. The Silk Road projects will spread China’s economic relations into the Middle East, Africa and Eastern Europe.

China under her previous administration showed she could become the world’s largest manufacturer. Her make it and sell it abroad model powered growth and allowed the country to build up large foreign exchange reserves. The  current ten year plan wishes to do the same with services, expanding them greatly. The money China has in reserves will help her build large financial and banking services businesses with global reach.

The west has to respond intelligently to these important developments.  The USA is seeking to construct a trade club built around Japan, her leading ally in Asia. The US will discover that China’s networks will also attract considerable support, as China’s advance is backed by substantial investment cash and a willingness to think big and take the long term view.

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30 Comments

  1. Posted May 7, 2015 at 6:04 am | Permalink

    Indeed and they have much cheaper energy, which encourages manufacturing to be done overseas (with no saving of C02 indeed probably an increase). Not that many serious scientists think that C02 actually poses a serious risk of any catastrophic warming. Particularly given the total lack of recent warming despite the increasing c02 atmopheric concentration.

    Meanwhile the Coalition, with its hugely anti business agenda, over taxation and misdirected incompetent regulation has been pushing banks as vital as HSBC to leave the UK – with their constant muggings, fines and rather misdirected over regulation.

    The country need more engineers, business people, cheaper energy and people that do positive things and less government, fewer lawyers, employment laws, HR experts, daft regulations/restrictions, government, the EU and bureaucrats.

    • Posted May 7, 2015 at 6:27 am | Permalink

      Andrew Roberts in the Spectator a few month back advised Cameron to do nothing (so sticking with his lefty, pro EU high tax borrow and waste greencrap agenda) and he would still win the election.

      Well he has done exactly that and shortly we shall see if Cameron manages to just about scrape home. I think it was very stupid advice. UKIP and the Tories have nearly 50% of the votes but Cameron’s lefty libdem/labour light vision is clearly risking Miliband/SNP. The dreadful vision of a Miliband/SNP stitching up England makes this a very easy election to win. All that was needed was some real Tory vision from Cameron.

      We are just like Labour but not quite as bad – was not the way to win an election.

      This week in the Spectator Andrew Roberts suggest that if we get Ed/SNP he predicts buyers remorse within six months and 2010-15 will be seen as a golden age.

      Perhaps it will, but only in relative terms, and all for a lack of any real Tory vision and leadership. Cheap energy, more jobs, lower taxes, no serial ratting, fewer regulations, competent (but far less) government was all that was needed. Perhaps some minor accommodation of UKIP too, but Cameron delivered the complete, pro EU greencrap, tax increasing opposite.

  2. Posted May 7, 2015 at 6:27 am | Permalink

    Where could the Commonwealth fit in the future of World Trade?

    • Posted May 7, 2015 at 9:04 am | Permalink

      I’m not sure it fits anywhere as a discrete bloc;India and Pakistan have applied (and I think certainly in the case of India been approved)for membership of the Sino-Russian Shanghai Co-operation Organization bloc for instance.

  3. Posted May 7, 2015 at 6:41 am | Permalink

    Interestingly the flow of labour from the countryside to the factories is drying up, so one of the main drivers of growth over recent decades is coming to an end. We will see more manufacturing move back closer to the point of consumption, e.g. Mexico for the U.S. market and low cost parts of Europe such as Hungary for our market.
    I am seeing Chinese companies introducing automation where they can as they are becoming less competitive on labour costs.
    The regime has to deliver growth to maintain their power base, hence the need for them to develop their wider region as opposed to relying on export growth to the West.

    Contrary to expectations the net flow of funds through the Connector has been from the mainland to Hong Kong driving up the market there. A reminder never to underestimate the attraction of well regulated open markets, whether to Chinese investors or to HSBC.

    • Posted May 7, 2015 at 12:10 pm | Permalink

      …or to Anthony Bolton.

  4. Posted May 7, 2015 at 7:10 am | Permalink

    Good luck today, John.

  5. Posted May 7, 2015 at 7:10 am | Permalink

    Beware the (Chinese ed) China is out to dominate the world

    • Posted May 7, 2015 at 12:15 pm | Permalink

      Thanks, Ian, I was wondering what the “Pivot to Asia” was all about; I now understand it is an entirely defensive move to save us all from (Chinese influence ed); I will now need to readjust my worldview to recalibrate the neocons as the good guys, afterall.

  6. Posted May 7, 2015 at 7:47 am | Permalink

    Yep…and via the EU we just sit and watch and hand over our industry for a couple of quid!

    BRICS when you get fed up with West…I mean totally fed up.

    When exactly would Africa become a ROC ?

  7. Posted May 7, 2015 at 7:54 am | Permalink

    Which is why, in my view, we are wasting our time as far as trade is concerned, with the declining EU. We should be concentrating on increasing our trade with countries like China along with India and some South American countries. These are the up-and-coming countries unlike the EU which offers no real new opportunities.

    • Posted May 7, 2015 at 11:04 am | Permalink

      Agree with English Pensioner. The Eu has been a disaster for our fishing industry and will be for other industries all the time they inflict expensive renewable energy on us. Energy intensive industry is moving out of Europe (happened in Scotland recently with the closure of a paper factory 2 hundred years old) and we are losing many jobs because of it. Meanwhile China, India and Brazil and getting on with life and reaping the benefits of job losses here. I just hope things change with the new parliament but I am not holding my breath.

  8. Posted May 7, 2015 at 8:11 am | Permalink

    But China is running out of spare workers, “surplus rural labour” as they are described in this recent article:

    http://www.ft.com/cms/s/2/767495a0-e99b-11e4-b863-00144feab7de.html#axzz3ZRE0KhSG

    and that may slow its economic growth to a mere 6% pa.

  9. Posted May 7, 2015 at 8:11 am | Permalink

    I am sure you are right about this. It is the reason I would not be surprised if HSBC relocates its HQ from London to Asia to where the action is. I read that the leading alternative is a return to Hong Kong.

    • Posted May 7, 2015 at 4:08 pm | Permalink

      Moving to Hong Kong sits very well with their spokesman saying one reason was uncertainty about withdrawal from the EU.
      When did HK join the EU??

    • Posted May 7, 2015 at 4:28 pm | Permalink

      I think HSBC certainly should go. The bank is after all supposed to be run in the interests of the shareholders. Perhaps I should buy some shares in anticipation of the move.

    • Posted May 7, 2015 at 6:35 pm | Permalink

      oldtimer–In banking, in my day at least, it was after all called Honkers and Shankers

  10. Posted May 7, 2015 at 8:37 am | Permalink

    Perhaps China has realised a basic truth in politics. Whatever your party policy or philosophy, it can only be realised with a strong economy.

    The UK could learn from it by freeing ourselves from EU control. Incentivise manufacturing and the export of high tech product with low corporate taxes. Get off the backs of our entrepreneurs, only limiting anti social excesses. For sure the future is not an over regulated, inward looking EU with incumbent socialist stagnation.

    Finally I would suggest our politicians start thinking long term for the good of the country , not the usual short term for the good of the party. Our political thinking has given us a stagnated crap transport infrastructure, and the total lack of viable energy generation. You would think that our politicos could get the above sorted , but whatever they have done has resulted in abysmal failure.

    Time for vision, but I have few expectations. The above two subject along with health, defence, and education have such long term implications that they should be taken away from party political day to day meddling. They are unsuited to the usual five year parliamentary cycle and suffer constantly because of it. Maybe a new long term planning system is required that transcends party politics, but retains a democratic political overview. For sure the way it is done now has been a litany of failure since WW2.

  11. Posted May 7, 2015 at 9:14 am | Permalink

    Yes,I fully agree with your final paragraph.The US has made a major error in trying to”contain” China with its Asia pivot,resulting in the creation of a hostile Eurasian bloc which brings problems for those allies of the USA who also want to participate in the China story.The recent announcement of the new Chinese dominated Infrastructure bank being a case in point.

  12. Posted May 7, 2015 at 9:29 am | Permalink

    My vision of China in the not-too-distant future is one of a country that has spent bucketloads of foreign currency on accommodation for all the workers that are moving to the cities (and thus leaving the agricultural areas massively short of labour and precipitating a major food crisis).

    The country will then be full of unemployed people and factories that have closed due to the reasons cited above by John E, and the fact that China’s consumption of all the foreign currency means that their main markets have dried up.

    I’m really not convinced that China is going to become the next USSR or USA – if that was going to happen it would have happened already. It’s not as if China is a new country after all.

  13. Posted May 7, 2015 at 9:51 am | Permalink

    The EU appears to be betting the farm on it having the muscle to buck this trend .

    It’s response ; unnecessary regulation , legislated increased wages and thus costs to make us more uncompetitive .

    Eventually the EU will surely find out that it is pushing on a piece of string .

    The UK political class chose the wrong horse and is now in denial .

    How revealing that during this campaign all major parties have been telling the electorate that they can make wages go up .

  14. Posted May 7, 2015 at 11:27 am | Permalink

    As you say John: “He who has the money holds great power”.

  15. Posted May 7, 2015 at 11:28 am | Permalink

    One of Napoleon’s generals reputedly asked the Emperor if he had any plans to invade China, to which he replied, ‘Leave China alone, for when she wakes, she will rule the world’.

    I often wonder if China’s rule could possibly be any worse than what we presently have, where mega-rich money men have skewed the political and monetary system to favour themselves, whilst so-called ‘developed’ countries still have levels of third-world poverty.

    As Edward Heath might have said, the unacceptable face of capitalism. Fascism and communism do indeed have much in common.

    I favour a different system where capitalism has a conscience. Where it can be used for the advancement of all mankind, and not as a shackle to enslave people in an endless downward spiral of debt.

    We should take the best bits of the Chinese system and discard the worst bits of our own, which of course includes our membership of the EU. A failed ideological concept that the last leader of the USSR condemned, and he should know.

    I wonder if we will ever see the emergence in the United Kingdom of a leader who is capable of delivering an ethical capitalist system where everyone can benefit from our collective industry. It hasn’t happened yet, so how about rising to the challenge John?

    Tad Davison

    Cambridge

  16. Posted May 7, 2015 at 12:39 pm | Permalink

    Yes i see 400.000 hong kong people want to apply for british passports to get away from chinese government.
    Your right it all short term in the west, no more than three month out on the share price, that all that counts with buying back their own shares and not building for the future because they cannot see one, no foresight because of government changing direction all the time, no real planning in the civil service, tax on wages is not a big help.
    China has no singed agreement to hold it back, all ready built enough infrastructure , weather it will last is another thing.
    Chinese switching to robots now for manufacturing, hospitals, starting to take the lead in innovation,
    The chinese people will soon have enough money to buy all are housing stock here and rent it back to us.
    I see most people will be voting for the con party today, a win by a nose, cannot see what good it going to do you, not a brain between them, spiv down in the city of london walking away with million complaining they are not getting enough, the elite taking what they can fearing the worst and buying more holiday homes overseas just in case they did not pick the right countries before, a lot of them going to new zealand, nice country but would go back now because of them, they will turn it into a sin pit and have their five and six star places to go to so they do not have to meet any salve plebs.
    I have all ready confronted the party about change on taxes with no luck, steady as she rolls is the motto, if there is nothing in it for companies and the top 5% it not going to happen it as simple as that, they all have one eye on their suit case.
    They have built a consumer and service society that feeds on it self, incapable of change, the people, government, council, companies, all zombies.

  17. Posted May 7, 2015 at 12:58 pm | Permalink

    And like to say the only growth is immigration for more consumerism at a time when you should be switching over to robots like china and exporting your consumerism, what are you going to do with all these people when the companies only want robots in the future because it a one off cost and they pay no tax.

    • Posted May 7, 2015 at 5:59 pm | Permalink

      Ian – 2 million more UK jobs are in the pipeline, apparently.

      Sorry. Not being negative about the jobs miracle for the sake of it here. I’m not the only one.

      The public have just had to be threatened with the prospect of a Lab/SNP coalition to try to stop them voting UKIP and not Tory despite the good news.

  18. Posted May 7, 2015 at 3:07 pm | Permalink

    I like the news paper head line queen to take control of election aftermath, just like last time to stop them all from ?.
    Queen has no faith in any of the politician, will have call the kids to order before they burn down the house ahead of time.

  19. Posted May 7, 2015 at 9:58 pm | Permalink

    With the con party needing just 7 seats from exit polls and clegg party only showing 10 seats at moment, I would with dup and forget clegg but I still think another 7 seats is on the cards for win by a nose. UKIP will be smiling with local council elections.

  20. Posted May 8, 2015 at 7:12 am | Permalink

    JR I think the impact of a rising China will not be as you think. The US views it as a rival in the Asia Pacific region. For Japan it is a potential security threat. For Europe and the UK which are not in competition for influence in the Asia region with China, it is primarily a trading partner both as a large market for their goods and services. There is less common interest within the West with respect to China than there was in dealing with the USSR during the cold war.
    For the UK with over a million British citizens in Australia and New Zealand it has a more direct interest in peace and security compared to the rest of Europe, but still Australia and New Zealand are a long way from China.
    I believe China will lead to a less united ‘West’ and the UK would be wise to look to being able to manage its own security without being as dependant on the US as it is today.

  21. Posted May 8, 2015 at 7:34 am | Permalink

    I was in Shanghai earlier this year and was hugely impressed by what a modern first world city it was. Much of it looked like it been built in the last 10 years, and this a city of 28 million! They took a third world city, demolished it and replaced it with a first world one every bit a modern as the richest cities elsewhere in the world.
    It reminded me (slightly) of the redevelopment of east London, partly encouraged by the 2012 Olympics, though for Shanghai this was done on a vastly greater scale. It did get me thinking that governments if the circumstances are right can, act as a catalyst. Government investment in an area can attract private investment, ultimately delivering the economic growth and taxes which provide a return on the original investment.
    I hope the new government looks at the possibilities for delivering gowth both in South London (Croydon) where Boris Johnson seems supportive of the idea and also in the north of England, following through on the City Growth Commission report from last year.

  • 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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