The rise and rise of China


             In 2001 I wrote a book about the rivalry between the USA and the EU, entitled “Stars and Strife”. In that I recognised the first signs of emerging Asian strength in world affairs, concluding that  “The UN will have to recognise the strength of numbers and force of arms point in the direction of the leading Asian countries playing  a bigger role in world affairs as this century advances. As India, Pakistan and China  start to flex their muscles,with the  capacity to raise and sustain huge armies, and now with some nuclear capability, we have to recognise they will have more influence in the world.”

       In 2005 I wrote an update, entitled “Superpower struggles: Mighty America, Faltering Europe, Rising Asia”. I stated in that ” In recent years the Chinese economy has grown at a staggering 9% per annum. It has already overtaken Italy to become the world’s  sixth largest economy, and will soon pass the size of France and the UK at market exchange rates. By the next decade (2010 ) it will be larger than Germany, in third place, poised to overtake Japan. ”

          The news came through in August 2010, just  a couple of quarters into the new decade, that China had overtaken Japan’s GDP at market exchange rates.  My forecasts now  need updating. The UK Treasury forecast in 2005  said it would take China until 2015 to reach $5 trillion of output, a level they achieved in half the time. The West has been good at underestimating China.

           The only comparative target for China  to hit now remains the GDP of the USA, the world’s number one. At the end of 2009 the US GDP was around $14 trillion, far out of sight of China’s $5 trillion. However, if you assume China can grow for another ten years at the astonishing 9% average she has achieved in the last three decades, and if the USA grows at 2.5% a year on average ( a little below her historic average to allow for the problems created by the debt overhang), China overtakes the USA’s GDP level by 2020, without a further revaluation of her currency. Even if we allow for some slowing of China’s growth rate as she becomes richer, it will still be not much more than ten years from  now that China will sport the world’s largest economy. This can also be speeded by some revaluation of the Chinese currency.  When she reaches that goal she will still enjoy an average standard of living of around one quarter of the USA’s.  There is no reason to suppose she runs out of growth when she reaches that point.

           In 2005 I summed up the Chinese evolution by saying ” One day China will turn her new found economic power into military power as well. For the time being her success will be heavily concentrated in industrial products and product markets,and her main impact on the west will be felt in the  rising commodity prices as Chinese demand surges. Unlike Jpapan, she will not remain neutral and lightly armed. As her economic success develops so too will her political and military might.” 

            The Chinese strategy rests on acquiring large commodity deposits and commodity production around the world, to fuel her factories and feed her population. It also is driven by the wish to emulate and surpass western technology in key areas. There is always someone willing to sell it to Chinese interests, a situation which will grow as the overborrowed West looks for easier ways to repay debt or cut their deficits.

                  China now uses 43% of the world’s steel output,  imports 45% of the world’s iron ore,  39% of the world’s copper sales and 42% of the world’s  cotton output. Her economy has a manufacturing sector which accounts for almost half the total economy, and is now dominant in many major areas of world trade. China is already the world’s largest exporter.

                 The West does not seem to have adjusted to the pace of China’s rise, or the speed and depth of her success. The West ignores the fact that in some ways China has a better tax and regulatory regime for new manufacturing than the older established centres in Europe and the USA. Governments should take heed and should understand how co-ordinated China’s strategy is. They seek control over raw materials, over production and over some market outlets. The Chinese government is determiend to raise domestic living standards and to power growth through international trade. The West needs to respond more quickly, more dramatically and more positively. The West is rapidly becoming uncompetitive in all too many areas of activity.


  1. Iain Gill
    January 2, 2011

    Oh yes we need to respond more rapidly

    We need to take a rounder approach to green issues for instance it is pointless forcing a pretty clean factory to shut in the West by asking for ever more expensive anti pollution measures when it will simply reopen in those countries with minimal anti pollution measures done at the cheapest price possible

    We need to take a rounder approach to intellectual property and really have multi dimensional government led action to push these countries for the licence fees and royalties they routinely dont pay us

    We need to push for reciprocal arrangements so that work visas are only issued to their nationals if Brits can get equally good terms to work in their countries, we should only offer free schooling and healthcare if Brits get the same in their countries, we should remove tax and national insurance dispensations to their nationals working here

    We need to encourage them to adopt much higher health and safety standards, its easy to produce stuff cheaply when you spend zero on safety gear, those cheap imports are paid for by the lives lost on the production floors of those foreign factories with no safety gaurds on the equipment and so much more basic stuff

    Its not just about financial measures, its also about levelling the playing field on emissions, safe working practises, IP protection, and so on, for these are a significant proportion of cost of production in the West and massively smaller in the countries you mention

    The West is uncompetitive financially, but then we need to start making the emissions, low safety standards, IP abuse part of the financial equation.

    I’m tempted to say we should have import barriers in the West which are taxes added in proportion to the amount of pollution the producer country adds, and so on, to level the playing field a little, but I have not thought this through enough

    Question to you John how do you think we should level the playing fields on such issues in a way that would be good for the whole world and would encourage better practises abroad? and start giving the UK workforce a chance to compete?

  2. lifelogic
    January 2, 2011

    There is no reason why we cannot exceed 9% growth rates if they just halved the size of the state, halved the tax rates and reduced pointless regulations. Just the releasing these state sector people to do something useful would achieve it.

    But we have major obstacles to overcome – a (largely in favour of a big state) Tory party, the Liberals and the excesses of the green religion, the general BBC think and the largely left wing UK arts and state sector culture.

    In terms of results I estimate that the government spends money about 20% as efficiently as businesses and people do directly. So if you take just half of this government expenditure of circa 50% GDP and spend it five times better you have a growth of 100%. Then you get rid of pointless regulations and the EU perhaps another 50% growth. Then the new tax regime also attracts in new business and stops other good people and money leaving – perhaps perhaps another 40%. Then natural improvement in technology say 50% in ten years. A sensible energy policy perhaps another 30%. So in total over the ten years perhaps 220%.

    Not at all impossible in the UK’s green and pleasant land should Cameron & Clegg just change their brain structures somewhat and start to send out the right message.

    Alas I fear the are stuck with socialist brains and cannot think outside the big state box and they are now further surrounded by civil servants and the EU officials nearly all with the same stultifying mindset.

    1. Stuart Fairney
      January 2, 2011

      Where can I vote for you?

    2. lifelogic
      January 3, 2011

      There are also structural problems (eg. employment and divorce law) in the legal systems which lead to countless over paid pointless lawyers who are often parasitic on productive industry/people and structural problems in the democratic system which make government local, central and EU do so much to reduce everyone’s wealth and well being. Not all rules are bad however and some rules to make goods cookers, fridges, etc. last longer rather than a couple of years (as they always used to) would be good. Some laws to prevent computers and software being updated endlessly purely to force you to buy new ones and new software.

      You cannot vote for me – but as a physicist/engineer I can at least say what I think to be true and do what I think is generally good all the time and not care if anyone agrees with me or not. I do not have to be politically correct or pretend to understand people of religious beliefs, either the new green ones or the traditional ones.

  3. Yudansha
    January 2, 2011

    America should take on the Chinese pre-emptively and on the slightest pretext whilst she still has the might to do so. Cyber terrorism may be an issue. They may be indebted to China but 10 active supercarrier battle fleets mean that the Americans don’t need to bargain or be fair.

    The Chinese, I fear, will not become benevolent global leaders. There is much at stake.

    1. Iain Gill
      January 2, 2011

      Read Chris Pattons book about being the last governor of Hong Kong and think again about what would happen if there was a conflict with China

    2. StevenL
      January 3, 2011

      If we can pursuade the Americans to wait a few years we could join in with our shiny new aircraft carriers and F-35s!

      Give ’em a good bombing huh Yudansha? That’ll teach ’em not to make all that tat … get ’em all back in the paddy fields where they belong huh?

      Are you seriously advocating the USA order the 7th Fleet to attack China? To achieve what exactly?

      1. Yudansha
        January 3, 2011

        I don’t mind them making ‘tat’. However I’m not at all happy with the thought of them making tanks and inter-continental ballistic missiles.

        The Western world was founded on piracy and is still run on piracy.

  4. norman
    January 2, 2011

    What struck me as odd about China (in a good way) was highlighted in the recent programme on Channel 4 about our debt. The presenter stated that in China, a notionally Communist country, the government spends around 25% of GDP, in the UK, a notionally capitalist country, it’s 53%.

    No doubt people will argue, with justification, that we enjoy a higher level of public service than in China, but our private sector simply can’t compete with numbers like that. No doubt a thriving private sector will also spring up in China to provide services for them that the government does not. I’m not saying China is a better place to live than the UK but we should learn lessons from them.

    We really have to ask ourselves, do we want to continue living in a de facto economically Communist state or not? We may have free elections but when the fare from all 3 main parties on offer is much of a muchness and the system is loaded against the millions who waste their votes on ‘minor’ parties, what’s the point?

    1. Bob
      January 2, 2011

      It’s the votes cast for the main three that are wasted.
      When people realise that they’re voting for the same thing in a different coloured package we might make some progress.
      Who really believes that the Tories are conservative?

      1. Iain Gill
        January 2, 2011

        Yes the main three parties are far too similar, and generally dominated by the same sections of society, and large parts of society are massively under represented

    2. Gordon Styles
      January 2, 2011

      Hi Norman

      I’ve lived in China nearly 6 years now. In my opinion the quality of life here is far superior to the UK. Taxes are lower. Money can be made without too much difficulty. Government regulates but broadly leaves you alone to get on with business. For sure there is no ‘National Health Service’, but in 2011 the Chinese introduce a modicum of free health care for all. China is often said to be a Police State, but frankly it is all you can do to get a policeman involved in anything – so that could be seen as a downside.

      Driving is poor. Food is great. Girls are awesome. Weather in Guangdong is hot – so it feels like I am on holiday 365 days per year. Palm trees when you wake!

      Frankly China is one of the most liberal, beautiful, and fun loving of all countries I have had the pleasure of residing.

      The key to keeping on the right side of the Chinese Government is this: you can say anything you want; criticise as much as you want; but you must never 1) embarrass the Government and 2) attempt to subvert State Power.

      Avoid those 2 big no-no’s and you are home free.


      Gordon Styles

  5. alan jutson
    January 2, 2011


    Your description of present day China could have been applied to the UK of 150 years ago. It could also have applied to Hong Kong of 50 years ago (when we were still in control)

    Its all about incentive, drive, and momentum to improve your lot. If enough people are encouraged to improve their lot by their own efforts and allowed to keep the rewards of those efforts, then the Country benefits.

    We should look at the reasons why we 150 years ago, and more recently Hong kong succeeded, and learn the lessons from those situations.

    It would seem to me that all Politicians in the UK have done in the last century is put the brakes on drive and incentive, have overloaded us all with taxation, regulations and the like, and increased the very basic cost of living/existing for all.

    Yes we have had the complication and expense of two World Wars, but then so have others.

    When will Politicians learn, that by and large they are not Businessmen or economic experts, indeed their constant interfering harms those who are.

    Education is a good example of Political interference for no good.
    During the Christmas period I had the opportunity to talk in some detail to an American who has lived here for 25 years. He is absolutely staggered at the constant year on year changes to our education system.
    In the States it has hardly changed at all for decades, the reason, it still works. Mathematics has not changed. The spelling of words has not changed. History is history and has been recorded for Centuries. The rules of Science and Physics are still accurate. Most Languages are still the same. Success in Sport is still governed mainly by effort, although medical science and diet have helped.

    Have all of the changes in education over the last 50 years improved anything, over the ability of those who left School more than 50-100 years ago ?.

    The problem we have as a Country is Politicians who think they know better than the rest of us. and have used their financial power of tax raising to seek to influence and control our lives to such an extent, that it is killing the goose that has in the past layed the golden eggs.

    The way the EU power is growing, is a fast forward repeat of our own historical situation.

    When will we learn the results of history, again.

    1. libertarian
      January 2, 2011

      Excellent post and I totally agree with you. We are being hampered by a lack of a skilled and motivated workforce. We lack sufficient new workers with STEM skills and we produce “graduates” with the wrong attitude to work.

  6. Iain
    January 2, 2011

    Oh some of us have woken up to the situation, woken up to it a long time ago, its you politicians who have been asleep on the job, and still are. Even George Bush woke up to China hollowing out their economy using an undervalued currency, by any definition a trade war, and strove to do something about it, but from our useless politicians, nothing, NOTHING! Actually I am wrong there, you did do something, while China had declared a trade war against us the British political establishment were giving China Aid money, and as we didn’t hear a peep out of her Majesties Opposition objecting to Gordon Brown’s a largesse, I can only presume you were all for it, but the sheer stupidity of it makes you laugh. This though highlights the incompetence if the British political establishment, and the complete and utter absence of any sort of foresight .

  7. david
    January 2, 2011

    So! what we are admitting, is Communism works, if not perhaps in the way Marx predicted it.

    1. Stuart Fairney
      January 2, 2011

      It is truly perverse to think that the Chinese economic growth in recent years is due to communism, not its total and complete abandonment.

  8. T French
    January 2, 2011

    If all you say is true, and it must be, then Mr Cameron and team hab better show they have some grasp of what’s going on and that they have plans and policies to help us re-adjust to this new super-power and the new world order. Currently our foreign policy seems to echo Eden’s and SuperMac’s, and we have a foreign secretary who is uninterested in his job and travels the globe mouthing the usual Big UK platitudes. All of which makes me very worried.
    Is there any debate in Parliament or within the Conservative Party any time soon that will seek to open these matters for discussion? If not one is needed now.
    By the way my ‘China Facts’ includes this one ‘Of the top twenty richest women in the world 12 are Chinese as is the richest. She has a fortune of $5bln plus’. The UK’s only entry on this list, at number 20, is a book writer, J.K. Rowling.

  9. Gordon Styles
    January 2, 2011

    I am a British Engineer owning and running my own factory in China. I was forced to leave the UK six years ago because of the British establishment’s love affair with the ‘City’. From being a boy I could see how the ‘establishment’ looked down its nose at those filthy dirty manufacturing types and their irksome construction cousins. Too many times I heard the mantra – “but surely we live in a post industrial society?”

    Britain does almost live in a post-manufacturing and industrial society. That means that Britain also lives in a post Wealth Creation society. Only when STUFF is created with long-term usefulness and long-term value has true wealth been created. Apart from the buildings that house them, financial services firms create ZERO wealth. ZERO. Sure they make themselves rich, but that is merely attracting wealth that was created by lowly engineers like me.

    So, Britain needs to learn from China, Germany, and a raft of other highly successful manufacturing nations that in the long term it is only the industrial, manufacturing, and construction base of any economy that creates long term wealth for nations.

    But these Wealth Creating Sectors need money. As a Brit that strived 22 years of my career in Broken Britain I can can tell you from my own personal experience that it is easier to get a date with Claudia Schiffer than it is to raise serious amounts of cash for serious long term development in manufacturing.

    So, here is the really big problem in the UK. No one wants to hear it. Few will agree and the establishment will ensure absolutely that the following idea NEVER sees light of day:

    The Bank of England must be fully nationalised and with a few strokes on a computer keyboard the national debt to the Bank of England must be written off. Over a period of 3 years the fractional reserve requirement must be lifted to 100% thereby removing the ability for all UK based banks to print their own money. Thereafter only the Bank of England decides precisely how much money is in the system. (Watch – Money is Debt on Youtube)

    The reason for boom and bust in the first place is that the money supply routinely (on a 15 to 20 year cycle) expands out of control, and as sure as night follows day, it shrinks out of control – hence GBP 200,000,000,000 of Quantitative Easing/bank bailouts.

    I would then create a series of State Owned Banks. For example, The Industrial and Construction Bank of the United Kingdom (ICBUK). Each year the Bank of England will give them an allotted amount for long term capital related loans to Industry, Manufacturing and Construction. That guarantees the vitality of manufacturing. No good idea will go unfunded due to the stupidity and greed of the private banking or VC sectors.

    There will be a National Infrastructure Bank. Government in collaboration with the wider public will decide the Huge, Nationwide infrastructure requirements. Huge long term low interest loans will be made.

    And finally, the Pièce de résistance: make it illegal to speculatively trade the British Pound. Peg the Pound to a basket of currencies. Then we decide if we are uncompetitive of not. For 30 years the Pound has been 20 to 30% overvalued. This was another key contributor to the long-term decline of manufacturing.

    If any UK Government had the balls to do just 50% of what I propose, they would take broken Britain from what it is today – BANKRUPT AND WITHOUT HOPE – and transform it into a high growth energetic wealth creating economy in just a matter of a few years.

    Not all of the above comes from China. There are many in the USA who seek this kind of Monetary Reform. Unfortunately I think that the British and American banking/bank-loving establishment will ensure that these plans never see light of day. Therefore Britain is guaranteed to limp from bankruptcy to default and back to bankruptcy for decades more to come.

    One can but dream of a competent British Government – unlike the shambles that has been the last 50 years.

    Gordon Styles, Star Prototype China Limited, Zhongshan, China 00 86 138 2272 8700

    1. alan jutson
      January 2, 2011


      Agree with many of your comments.

      I myself seved an indentured engineering apprenticeship with day release, then further study at night school.

      Got out of engineering 30 years ago (not paid enough for my own skills) as I was never going to be able to set up my own business, as it required too much investment in both premises, plant, tools and equipment for the megre returns available.
      Moved into to the contruction industry which at the time was a much less expensive set up, for running your own business.
      Will be retiring this year, which will be a bit of a struggle, but neither I or my Company workforce can now compete (and do not want to) with Eastern European imigrant labour working for £40 per day.

      As you say, the UK is killing itself.

    2. Vince Causey
      January 2, 2011

      While I agree with you on all the problems facing the country, I disagree with many of your proposals.

      Raising the fractional reserve to 100% would make the credit crunch even worse. There has never been such a time in history, even when countries were tied to the gold standard ( a good idea imo), fractional reserves were less than 100%. Such a move would remove credit even more than it is. I’m not sure why you think this would help business?

      The problem with pegging your currency is that you have to sell sterling and buy other currencies to in order to force it down below market rates. China is effectively using the taxes it raises to sell the renimbi and buy dollars. She is currently sitting on several trillion dollars. This is all tax payers money, that, instead of being spent on public services, is effectively being horded to keep the currency low. China is therefore sacrificing this generation for the sake of growth. Totally immoral.

      The problem with government investment banks comes down to picking winners. May work – possibly worth a try.

      1. Gordon Styles
        January 3, 2011

        Hi Vince

        To clarify the issue of 100% reserve ratio:

        My meaning is simple. Let us say as a round number there is GBP 10 trillion of money supply in the UK today (not the correct number, just easy). No one really knows the true reserve ratio today, but one can guess that prior to the crash it was somewhere in the region of 3% (reference Wikipedia). But let us say it is 10% as in the USA. Greatly simplified this would mean GBP 1 Trillion has been issued by the Bank of England and the High Street Banks have ‘invented’ the rest through the Fractional Reserve System. The goal for Government must be to ensure that the money supply remains stable and grows by say 3% per year to take account of economic growth. To raise the reserve ratio to 100%, effectively doing away with Fractional Reserve banking, would require the Bank of England to issue a further GBP 9 trillion. The net result would be the same amount of money in supply. The difference would be that the money supply could be rigidly dictated by Government (as it is in China, and as it should be) and we are no longer at the whims of the high street banks in respect of the expansion and contraction of the Money Supply.

        That in itself would not solve the problem of not enough money going to Industry and Manufacturing. In the past there were large soft loans from the ECSC. My proposition for State Owned Banks is not disimilar to the kinds of loans that the ECSC gave out (had one myself in the past), but it would be done on a far grander scale. No one in industry, and I know I speak for the majority here, no one wants free handouts. We are quite happy to make our own way in the World and pay back with interest. The problem is that we simply do not get the opportunity to raise sufficient capital to succeed in the first place.

        It is widely accepted in industry and manufacturing that if we could actually get the cash, British industry could expand by 50% over a 5 year period. The reason that companies CHOOSE not to attempt expansion is that they must either get into bed with the (venture capitalists – described unpleasantly-ed), who will rape the shareholders blind, or spend their lives working for the Bank Manager.

        All we ask is a fair crack of the whip.

        Thank you for your comment. Great debate on this page.

        Gordon Styles

    3. Gary
      January 2, 2011

      agree with almost all that you say, except nationalise the banks. Rather throw the banks open, deny them of their monpoly, end legal tender laws. Let people decide what money they want to use. Once you remove their monopoly to create money, the banks become what they should be, vaults, and clearing houses. Not the grotesque wealth destroying cartels they are now. The govt running the banks would be the ultimate nightmare, they cannot even run the Post Office.

      1. Gordon Styles
        January 3, 2011

        Hi Gary, Thank you for your response.

        Valid comments. I do not propose Nationalising the High Street banks, only the Bank of England. I then propose specialised State Owned lenders that cater to the areas not catered for by High Street Banks i.e. Industry and Manufacturing mainly; and also for the HUGE Infrastructure projects that the UK needs to replace its crumbling infrastructure e.g. rail.

        Agree about throwing it wide open regarding high street banks. If only the FSA actually did its job and regulated them properly. If only the UK Government forced the banks to comply with existing rules; if only the High Street Banks would lend money to Industry. Government could make all this happen with the existing rules – if its Balls were Big enough.


        Reply: The Bank of Englland is already nationalised – 100% owned by Treasury on behalf of taxpayers, with its boss appointed by the government.

        1. Gordon Styles
          January 3, 2011

          Indeed the Bank of England was Nationalised in 1977. But: “On 6 May 1997, following the 1997 general election, it was announced by the Chancellor of the Exchequer, Gordon Brown, that the Bank of England would be granted operational independence over monetary policy.” (Ref Wiki) This simply means that Government has almost no control over monetary policy. My original comment was that the Bank of England should be ‘fully nationalised’. Bad term of phrase. We should take back control of the BofE. The Government may have technical ownership; but it is clearly not in control of the money supply. Also in 1998 regulation and supervision of the banking industry was transferred to the FSA.

          Clearly absolutely no one was in control of anything. Also, if the Government truly had ownership, why does it not receive a dividend each year which would offset taxes – as in Canada.

    4. libertarian
      January 2, 2011


      Sorry this post shows why engineers shouldn’t run anything. You are just so wrong about many things.

      I’m a businessman that still owns businesses operating in this country. Banking and services in general isn’t the problem. Indeed without the development of fractional reserve banking and London City financial and insurance services in the 18th century the industrial revolution would never have happened. Having a chip on your shoulder is no way to run an economy.

      Manufacturing and engineering are both growing businesses in the UK, we are still suffering a shortage of STEM skills .

      Minimum wage sweat shop metal bashing is NOT the way forward for the UK

      1. Gordon Styles
        January 3, 2011

        Hi Libertarian

        Thank you for your comments. No chip on my shoulder.

        Well, we will never know if Engineers can run the UK given that there are only a couple left in Parliament. Engineers should run engineering businesses. Everything that constitutes a modern country is engineering. Without Engineers you would have absolutely nothing in your life except the people you interact with.

        Your phone, your computer, your car, your chair, your house, your streets, your bridges, your clothes, your shoes, your toilet, your knives, your forks, your garden shed, your shaver, your everything! Without the Engineers of the past and present the British Government would have absolutely nothing over which to preside.

        The UK Government has never supported Engineering, even in its so-called heyday of the Victorian era. The great London sewerage system built by Bazalgette was 25 years delayed by the British Government. It was only the Great Stink of 1858 that finally spurred the Government to give the go ahead. The lack of good sewerage was responsible for the deaths of 14,000 plus people due to cholera 1848 to 49.

        An Engineer fixed that problem with begrudging help from Government. And so it continues to this day. So to claim that the development of Fractional Reserve Banking was responsible for the Industrial Revolution is tenuous at best.

        Well, the non-Engineers have completely bankrupted the UK and allowed it to crumble. Could it possibly be worse with Engineers running things. Well, we’ll never know I guess.

        Finally, you say that Manufacturing and Engineering are growing businesses in the UK. You are in fact correct in that today there is more STUFF manufactured in the UK than ever before. The problem is that it represents an ever declining percentage of the economy (present post-bust mini recovery of manufacturing). Also, other countries have also increased their efficiencies, some at faster rates than our own. Another problem is that we have a massive Current Account Deficit, mainly due to the USD 145.1 billion trade deficit (ref Economist). That trade deficit needs to be narrowed by a good USD 50 billion and that can only be done by increasing the UK’s ability to export manufactured goods. Only a non-Engineer would argue against this fact – or are you one of those people that thinks a Trade Deficit is a sign of success? I always shiver when I hear people say that the Trade Deficit is a natural symptom of living in a post industrial society. Save us.

        You also say – “Minimum wage sweat shop metal bashing is NOT the way forward for the UK” Please read my original posting again. Where exactly did I say this – but it is always the assumption. Personally I believe that we need to be involved in High-Tech to Super-Super-High-Tech. But that doesn’t always mean Sci-Fi technologies. For example, Sheffield Forgemasters needed GBP 80m loan for a high-tech nuclear parts forge. It is metal bashing on huge scale – but it is high-tech. It would be unique and allow a huge lump of additional exports to narrow our Trade Deficit. This Government dumped the loan offer. Thanks George!

    5. Richard Calhoun
      January 2, 2011

      Sorry Gordon, your solution stinks!

      We are not China, we are a democracy!

      1. Gordon Styles
        January 3, 2011

        Hi Richard

        This has nothing to do with democracy, it has everything to do with good Governance.

        [Before reading further you need to know that I am a supporter of NO Political ideology. I am a practical Engineer who wants to see good Governance wherever it is needed.]

        You imply that China is not a democracy. Please define democracy? I assume you mean a country where everyone gets their say, and everyone gets to vote. Well, it might surprise you to know that everyone in China has the right to vote. I can hear the screams already – read up on it if you have not heard this before. Every adult has the right to vote for their local leader. That leader can be from anyone of the 9 political parties or an independent. Then that level votes the next level and so on until you have the Standing Committee. I am not claiming this system is perfect – but no country’s is.

        And still the communist party are in control – why? Did it ever cross anyone’s mind outside China that they may still be in control because they are popular and competent??? Don’t just listen to the BBC – you should do your own independent reading.

        Inside the communist party there are numerous factions with wildly varying beliefs and agendas. (Everyone knows that Wen and Hu have significantly differing beliefs, but they have a job to do and keep their views for private debate.)

        Through a long process of Chinese-style negotiation and discussion the Government forms a consensus which results in the 5 year plan. Almost all people I know in China are happy with their Government, and when they have gripes it is usually corruption of local officials, the price of houses or inflation – all of which are being managed. The Chinese Government is listening all the time to what the majority of people want.

        As the recent Strictly Come Dancing final demonstrated spectacularly, the masses were clearly at odds with the experts. Pamela was by far the best dancer – and the judges were unanimous on that. And so it would seem that ‘western style’ democracy has more to do with winning a popularity contest than with choosing competence. The majority of people are NOT qualified to decide who the Prime Minister or President should be. The evidence of that was the election of George W Bush.

        Just because China does not have ‘western style’ democracy, does not mean it doesn’t have a democratic process. It does. Western leaders hate China because it is the most amazing example of how a country can Engineer phenomenal economic success without the need for regular national elections.

        As Winston Churchill once said – “It has been said that democracy is the worst form of government except all the others that have been tried.” Well, who knows what Winston would have thought of the Chinese model of democracy.

        You may hate it, but you should always measure people and organisations simply by outcomes and results. Germany and China’s outcomes are awesome. USA and Britain’s outcomes have been awful. What does this mean Richard?

        I guess it means that none of it has anything really to do with Democracy, but it has everything to do with Competency, or the lack thereof.

        Thanks for the comments.

        Gordon Styles

        1. Bazman
          January 4, 2011

          I am probably labouring this China post to much, but even as a person with limited education this irks me.
          Gordon old stick. You will find that Europe has democratic and authoritarian forces. Authoritarians sound the same everywhere, as the praise nation, law and order, but damn democratic government as a fraud. You sound like that worst of people a selective liberal. Fill your boots in China by all means, but don’t be an apologist for the Chinese government which is in many ways like modern Russia, a state (that doesn’t play by the rules -ed). If you had to live like a the average Chinese person instead of a rich ex-pat with a ticket out at any time you would have different view. Translators are often very friendly in their translations of Chinese and Russian high ranking people and the English speaking person cannot see what they really are. (Russian leaders can -ed) speak like, and in the language/mannerisms of a gangster my wife says, who is a sort of Russian ex-pat and her former country is always, “Going to (the) dogs. God save the Queen” (semi serious) When watching and listening to any Russian politician.

    6. VIVID
      January 2, 2011

      Gordon- you can link your companies website to your post-
      Like my blue name on this post.
      It’s a quicker way of communicating.


    7. davidb
      January 3, 2011

      The overvaluation of our currency was the result of oil and of the inflows of foreign capital to purchase UK assets and to indulge carry trades. I doubt there would have been much anyone could have done to prevent it. And anyway, Germany coped with a strong currency and is still the export powerhouse of the west.

      The pseudo gold standard has been the Euro. Has that been a success?

      I agree our politicians have not served us well, but as your other contributor suggests, we are a democracy ( of sorts 🙂 ).

      Singapore seems to work too, but again, they don’t truck dissent.

      Perhaps the real problem is that we have voting. But I do rather like that way of screwing up more than the alternatives.

  10. Steve Cox
    January 2, 2011

    The inevitable inevitable rise and rise of the Middle Kingdom should be taken with a pinch of salt (maybe a bushel, actually).

    Firstly, they are facing a major demographic problem due to the one family-one child policy. In all probability China will the first nation ever to grow old before it manages to grow rich.

    Secondly, the much vaunted endless pool of poor peasants in the hinterland willing to work for a bowl of rice is rapidly running out. Recent estimates put it at a mere 35 million people. This is putting major upward pressure on wages, especially for anyone with a skill or good education. China’s current bout of highish inflation is not caused entirely by rising commodity prices, remember. In certain industries, bonuses for locals equivalent to 9 months’ salary are having to be paid simply to retain employees.

    Yes, Chinese statistics in terms of imports of raw materials and production of basics like steel and cement are truly awesome, but so is its overhang of unutilised production. China has consumed just 65pc of the cement it has produced in the past five years, after exports. The country is currently outputting more steel than the next seven largest producers combined – it now has 200m tons of excess capacity, more that the EU and Japan’s total production so far this year.

    There is currently an excess of 3.3bn square meters of floor space in the country – yet 200m square metres of new space is being constructed each year. The average price-to-rent ratio of China’s eight key cities is 39.4 times – this figure was 22.8 times in America just before its housing crisis.

    (Ref. for these statistics:

    This is clearly a huge bubble, which the Chinese authorities are now trying to slowly deflate by increasing interest rates and capital ratios at banks. Not everyone is certain that they will be able to achieve this without puncturing their own blazing GDP growth rates.

    You may recall the book, ”The Coming War Between America And Japan’? At the time the Japanese were buying up large swathes of the USA, the value of the land that the royal palace in Tokyo was built on was worth more than the entire state of California, and the Nikkei index stood at 35,000. Japan seemed just as invincible then as China does today, but we all make the same mistake of extrapolating past trends to predict the future.

    Unlike Mark Hart, I’m not betting on China imploding imminently, but it is certainly a possibility. Given the challenges mentioned above (and it is far from a comprehensive list), China is heading for some very turbulent waters.

    1. Anatole
      January 4, 2011

      Steve, you make some valid points but some are less so:

      1. Major demographic problem / one child policy – probably correct but this problem lies so far into the future that it is not particularly worth trying to extrapolate now. Additionally you are forgetting that the demographic “problem” is only a problem if you allow it to be. With no substantial welfare infrastructure to support, Chinese people will just be told, as people in Europe should, to work for longer. The only difference is that in Asia this is acceptable, in the West is (currently) is not.

      2. Cheap labour being exhausted – again yes this is true but again in such a long time frame that this is not particularly relevant. The Chinese economy could overtake the US far before this limit is reached – let us not forget the sheer scale of the population: 1.3 trillion versus 300+ million for the US. As China is still (as of 2010) 55% rural, you can see where the growth can continue coming from.

      3. Industrial capacity / overhang – this supposes that China will continue to be export-orientated. All economies in their earliest stages do this: Japan, Korea, Taiwan and so on. The US and UK are particularly good examples. However the likelihood is almost certainly that China will gear up domestic consumption in time to allow overhang to be absorbed. Chinese demand has already been rising exponentially in recent years, even if this has been overshadowed by global demand for cheap goods which keeps the trade balance in surplus. However let us not forget that although China’s trade surplus is large with the US and EU, its overall surplus is quite small and it even moved into deficit at times last year.

      When you consider that, democratic or not, the CCP is one of the most nuanced and sophisticated governing machines in human history, the very fact that they are aware of this problem means it will likely find some resolution. Additionally, as Gordon points out, if your economy is actually making things other people want, it will be bought – consider why Germany and Japan have massive trade surpluses with China.

      4. The property market – here I can very much agree with you. I suspect the bubble will collapse before suitable technocratic measures can be taken to remedy it. However the comparison with Japan is not quite right – before their crash, it was the stock market which was most giddy, and the Chinese markets have not reached anything like those levels of valuation yet. Besides the property market was liberalised in 1998 by Zhu Rongji precisely as a measure of helpings stimulate domestic demand (see point 3); as long as other avenues for use of capital start to be opened up, there is no reason why there won’t be a soft landing.

      5. Japan – so on to this one. Major point is, Japan is much smaller than China (though roughly comparable to the US), so it really did take a leap of imagination to see that rivalry, particularly when you factor in the imposed non-militancy of its political system. China, though is much larger (as is India) and its rise, in a peaceful world at least, is inevitable – in the “long run”.

      Secondly, the Western media also has a most hilarious record at underestimating China. Consider any of the following: 1989, 1993 (when Deng stepped down), 1997 (when Deng died and HK handed over), 1998 (Asian crisis), 2001 (global recession), 2002 (power change), 2008 (earthquakes, Tibet, Olympics), 2009 (global crisis) &c &c ad infinitum. At all of these points, the refrains were “facing some very difficult times ahead” / “inevitable pressure to reform” / “unsustainable development”. Yet the accuracy of all this has been, er, zero.

      I am not saying China has not problems. It faces a number of them and there is not telling whether the country might not collapse next week, next year or next century. But I have seen no empirical evidence that the CCP won’t be able to adapt to its changing circumstances – certainly over the last 30 years it has demonstrated itself to be more flexible than most Western political organisations in making itself relevant to the lives of ordinary people. I suspect people are better of trying, as the Americans occasionally do, to learn something than to sit there complacently as Europe tends do.

      Here endeth the lesson.

      Reply: China’s population is I think 1.3 billion, not trillion.

  11. Alte Fritz
    January 2, 2011

    An account of the Macartney mission to China in 1793 ought to be required reading for anyone doing business with China. It is not a matter of bad or good, friend or enemy; China is a proud nation which, in different ways, owes nothing to anyone. Look over the past two hundred years, and ought we to suppose that China has any reason to feel benevolent to the West?

    Why then did the genius running BT think it a good idea to let it come to pass that our telecoms infrastructure runs, day to day, at China’s suffereance? Why did we think it a good thing to let price differentials widen so much between China and elsewhere?

    Our policy ought to be to promote manufacturing industry so that the price differential is narrowed to the extent that flexibility of local supply, and still, in some areas, quality makes it worth paying extra it will always cost. That begs questions about competition for raw materials, but unless we are prepared to “Tremblingly obey and show no negligence” as George III was commanded by the Emperor following Macartney’s unsuccessful embassy, we have to start somewhere.

  12. Martin
    January 2, 2011

    Much of China’s wealth comes from the same source as Britain’s did 150 years ago – converting peasants earning peanuts to factory workers earning a few shillings.

    As others have hinted much of Britain’s financial infrastructure has been focussed on House Price bubbles. We know all about the price of a 3 Bed Semi but as for the cost of a lathe ?

  13. Jan Maciag
    January 2, 2011

    Predicting a continued growth rate for China is folly. China has created an asset bubble internally (whole cities unoccupied and owned for speculation reasons), is vulnerable to import disruptions and is facing a demographic implosion/imbalance due to its single child policy . Any or any combination of these matters will eventually result in some form of social disorder or bloodshed. It seems to me that the risks are, therefore, less to do with being economically overtaken than with dealing with an eventual breakdown of the globe’s manufacturing heartland in China. Are we are tied to a junk rotting below the waterline?

    1. Richard Calhoun
      January 2, 2011

      Someone needed to make this point!!

  14. Lindsay McDougall
    January 2, 2011

    China has a population of 1300 million and has just overtaken Japan with a population of 120 million. China has a GDP per capita of US$ 3,600 whilst Japan has a GDP per capita of US$ 37,000. Well done, China.

    China has inflation and a property price bubble, which will burst, just as the property price bubbles in the west and Dubai have burst.

    China doesn’t give a toss about the living standards of its workers, which is why they deliberately undervalue their currency, have poor safety in their mines, and use environmentally unfriendly energy and production processes. Their motive is imperial.

    Fear not. Chinese workers will campaign for better treatment and will eventually get it. The Chinese growth rate may then slow.

    Meanwhile, let us do business with them. The more the Chinese learn about our living standards, the more they will want for themsleves, and the less willing they will be to let their rulers finance western debt.

  15. John Ward
    January 2, 2011

    As a student I befriended many of Liverpool’s Chinese community.
    What makes China now different to the USSR in 1970 is that Chinese people are far more intelligent, with a stronger and more natural commercial nous.
    Their geopolitical strategy is obvious to anyone with a brain of average size. But not the Coalition.
    This will be our ruination unless we wise up.

    1. Martyn
      January 2, 2011

      It seems clear that education in China, albeit for perhaps a relatively small chosen minority, is treated with the utmost respect, being modern, intense and geared to producing the largest possible number of the best educated and smartest people it needs to challenge the rest of the world.
      Here, on the other hand, after decades of government and union meddling, politically correct rubbish and constant change 25% of our children leave secondary school qualified as being functionally illiterate. We were recently told that a significant number of local government employees are looking to become teachers. How many of them, I wonder, see this as an opportunity to move into a professional vocation to inspire and motivate the education of children and young adults, rather than as a self-preservation matter of pension and income?
      How can we prosper as a nation whilst carrying the burden and financial drag arising from an increasing number of effectively unemployable young adults? No wonder DC and the rest are bent on maintaining the inward flow of qualified immigrants, thereby putting the cart before the horse. I despair…..

  16. Bazman
    January 2, 2011

    The decline in manufacturing in Britain is criminal and governments over the years have done little to stop this one of the main reasons I believe is what the man above writes in the view of the City on manufacturing aided and abetted by politicians looking for post political jobs, but lets not pretend China has based it’s success on anything other than political oppression, human rights abuses, terrible working conditions, pollution on a massive scale and the West’s appetite for cheap goods paid for by property speculation. If anyone would like to tell us how we can win a race to the bottom and pay Chinese level of wages as well as maintaining our overall living standards. I would like to know, and of course do you want live and work in a state like that? The main reason for this company being in China is low labour costs and desperate people with no rights. ‘Star Prototype offers the best of the west, but at half of the price.’ How do you do that exactly Gordon? Most British companies do not overcharge by 100%.
    This right wing fantasy of no tax, regulations, benefits is exactly that, a fantasy in modern Britain there would be civil unrest on a massive scale and quite rightly. It will not be these fantasists that will have to endure this life. At least not at first. When you cannot threaten the workforce how do you run the company and the country?

    Reply Good manufacturing does not need low wage rates – wage costs are a relatively small proportion of the total. A wise and good employer rewards and looks after his staff well. One Uk manufacturing company I worked with had wage costs around 10% of turnover, with high value added, and a well motivated team.

    1. lola
      January 2, 2011

      Wrong. Before you even opne the doors on a factory you are committed to a 100% overhead cost in taxes and regulation. That is tax is 50% of labour costs, it doubles the cost of labour. Add to that regulatory overhead, which in my case adds another 50% and you can see what the problem is. Low wages are driven by state intervention and bureaucracy. Undr freedom and markets workers of all grades get wealthier and better paid all the time.

      The answers to our problems are depressingly simple, as follows:

      1. Slash taxes, and…
      2.. Realease 8 million workers from redundant bureaucratic non-jobs to find more rewarding wealth creating work in private business.
      3. Deregulate the whole economy.
      4. Slash 90% of goverment ‘subsidies’ and vanity projects.
      5. Run very sound money, and..
      6. Reform banking, especialy in respect of FRB…
      7. and return the freedom to banks and in fact anyone to issue money.
      And in order to keep thigs on track…
      8. Priavtise the BBC
      9. Demonopolise Education…
      10…and health…
      11…paying for it by vouchers
      12. Massively reform taxation to take the burden off labour and capital and put it onto land.

      Roughly, job done…

      Is there the political will to do this? Nope. ‘Course there ain’t. Too many cushy numbers go.

      1. Bazman
        January 3, 2011

        Yada yada.
        1. Slash taxes, and… Civil unrest as living standard of the poor goes into meltdown
        2.. Realease 8 million workers from redundant bureaucratic non-jobs to find more rewarding wealth creating work in private business. Where are these jobs exactly?
        3. Deregulate the whole economy. Safety Banks run riot etc.
        4. Slash 90% of goverment ‘subsidies’ and vanity projects. As In?
        5. Run very sound money, and..
        6. Reform banking, especialy in respect of FRB… Take the banks to pieces? I would agree with that.
        7. and return the freedom to banks and in fact anyone to issue money.
        And in order to keep thigs on track…
        8. Priavtise the BBC
        9. Demonopolise Education…
        10…and health…
        11…paying for it by vouchers
        12. Massively reform taxation to take the burden off labour and capital and put it onto land.
        The rest is just pants to put it politely. Like SKY do you?
        Job far from done.

      2. Ken
        January 5, 2011

        I don’t think political will is the main problem. I think the greatest problem is the BBC and in this regard, Mr Cameron has taken the path of least resistance. I just wish he was more interested in politics.

    2. Vince Causey
      January 2, 2011

      You say that good manufacturing does not need low wage rates, yet wage rates are set by the market – supply and demand. Actually, supply may be distorted such as by union wage bargaining, as in the past – but then all you acheive is wages higher than the market clearing rates in closed shop industries, and unemployment for others.

      The reason Chinese manufacturing is labour intensive is because labour is cheap. As wage rates rise then companies will capitalise. There is no point doing so if it costs more to buy in machinery than to buy in labour. The West has high labour costs so manufacturing is highly automated. Hence your 10% figure. France has very highly automated manufacturing – she also has high unemployment. As Western countries decline in real wealth, wage rates will decline in real terms. Then your 10% figure might start to go up.

      1. lola
        January 3, 2011

        As wage rates rise then companies will capitalise. Nope. It’s the other way about. Business owners srtive to compete in the free market and forever seek ways to do more for less. They apply reserved savings to more capital equipment to increase the productivity of each worker. As this happens workers wages rise – they are more productive – and prices fall.

        France and the UK has high employment due to various factors, like: Socialism, coercive and privilidged union brigandage, unsound money, excessive taxation on labour and capital, sclerotic labour market and laws, crap and disheartened management, elf’n’safety etc etc. It has nothing at all to do with the underlying ‘price’ of our labour.

      2. Bazman
        January 3, 2011

        Many companies have revolving door recruitment policies in work that is quite simple. They just pay the minimum they can get away with and when the people leave just replace them. The ones who do not leave are constantly having there pay and conditions attacked. With the threat of the sack if they do not sign the new contract. A union is there only hope of improving their lot. Becoming a surgeon or taking to the stage is not an option. Many are to scared to put their name forward for membership of a union. To believe that the company will pay higher wages id it makes more profit is naive and laughable. Take the banks for instance. Many people who work for them are paid so little as to be able to claim benefits. The bosses are however rich beyond belief. To say they create employment where there is none is to beat the gold so thin as to be not worth anything.

    3. Ken
      January 3, 2011

      I agree, John, that added value is good, however, I see no reason why we cannot also compete in more basic markets as well. They are surely not mutually exclusive.

      Young people (18 to 20) continue to be drip fed £50.00 per week because, by law, they cannot sell their services for less than £4.92 per hour. We have built-in stagnation (and crime) as a large chunk of our population are turned into benefit junkies by the state.

      We are not all Einsteins (thank goodness) so why can’t we employ the labour we have in this country instead of expecting them to watch daytime tv and pricing them out of a living by law?

  17. Geoff not Hoon
    January 2, 2011

    Mr. Redwood, Notwithstanding a major war involving the US and China the thing that will resolve all of this is simple economics. Many many years from now Chinese labour, despite oppression, will cost as much or more than our’s and then, only then, will the current trend begin to reverse. It is now no longer good enough to assume China will go on making the rubbish and Europe so called quality. China have already overtaken us in so many areas and only when production, regardless of labour as a percentage of sold or cost price, is cheaper here will ‘economics’ come into play. Government can only tinker at the edges unless all out trade wars are to emerge. When the bulk of society realises the depth of the problem and accepts money has to be earned instead of just borrowed because the celebrities have it we must have it too culture will we even be anywhere near the long staircase we have to climb. As a Chinese General is supposed to have said in 2010 “people in the West spend their lives watching porn and reading about celebrities, we dont need to fight these people they are ruining themselves”.

  18. Acorn
    January 2, 2011

    The distance between the haves and don’t haves is very wide in China. There are officially, fifty six ethnic groups, and they have all got legendary grudges against the dominant Han tribe. It would not take a lot for civil (disruption-ed) to break out in China. It could easily split into five separate nations;(suggest external involvement in bringing about trouble-ed) It will be Yugoslavia; mega scale. The Communist Party of China, dose not have the Iron grip that every one thinks it has. Having all the guns works for a while; but, when people get to know the names of the guys with the guns; and where there mums; dads; brothers and sisters live; things can change.

    Reply: It is not in the interests of the West to seek to subvert China as you suggest. It is also wrong to underestimate China and to think outside powers are poised to take military action. Such a major conflict would do untold damage to us all.

  19. Phil C
    January 2, 2011

    In reply to a few of the comments above, I have to say that I do not understand why only manufacturing industry should amount to real wealth. Other businesses produce wealth by utilising resources of non-material kinds: medical and agricultural technologies, various kinds of design, software and media; but personal services are also capable of generating wealth.

    Although it may be possible to improve our manufacturing output it is unlikely we can compete with Asian labour costs in many product areas. Whereas most personal services have to be delivered domestically and cannot be outsourced abroad. Education, healthcare and elderly support should also be wealth creating sectors: it is not, only because funded mainly by taxation, by transfers of wealth. Release these sectors from Treasury cash limits, and they will be free to grow without fiscal constraint; they will become more competitive, more innovative, and respond dynamically to demographics, instead of to political imperatives and by state rationing. Compulsion (and tax breaks) to provide for one’s family and future will expand GDP more sustainably than imports of manufactures.

    1. Gordon Styles
      January 3, 2011

      Hi Phil, you ask a very good question about wealth creation.

      Only a few know the answer. Few British politicians can even guess at the answer and this and previous British Governments had no clue. But the Chinese Government holds this as their central economic principal.

      The answer is simple accounting. To become more wealthy as a country, a company, or an individual you have to increase the overall value of your complete balance sheet.

      Generally there are two types of asset and one type of liability. There are physical fixed assets (buildings, machines, infrastructure etc.) and there are intangible assets (cash and equivalents). There are usually only intangible liabilities (loans of all types).

      To increase the value of a balance sheet you must either increase the long-term realistic value of your physical fixed asset register or increase the long-term realistic value of all of your intangible assets, or both.

      Finally, overall, your total assets must be increasing at a faster rate than your liabilities. Seems simple – right?

      [On a UK national internal domestic level we can completely disregard all savings and loans denominated in GBP because all money is debt (including savings) and ultimately owed back to the banks and finally the central bank – all money nets to zero in a ‘cash is debt’ closed monetary system. So for financial assets and liabilities we can only look to foreign held loans and assets denominated in any currency including GBP.]

      So here is your answer:

      To increase the national wealth of the UK you must increase the asset base at a faster rate than the liabilities. That means increasing the amount of fixed assets and external cash reserves, and/or reducing our financial national liabilities.

      This can be done in only two ways:

      1. Build national and private infrastructure at a faster rate than it is physically/financially depreciating (industry, manufacturing and construction).

      [We are not building physical infrastructure at a rate faster than it is depreciating/crumbling. This means national wealth destruction.]

      2. Sell more than we buy as a nation. The most efficient and high-volume way to do this is to sell more manufactured goods abroad than we do today or replace imports.

      [Today we have a GBP 90bn trade deficit. That means that we are losing money as a nation and therefore it weakens the balance sheet – and that means national wealth destruction.]

      One of the mantras of those who decry the wealth creating properties of Industry, Manufacturing and Construction say that domestically consumed services add to the economy. But let us be very clear about this. GDP is not wealth. Only the balance sheet tells you the value of the country. GDP is clearly important, but only to the degree to which it is stable and growing. It is the same insanity as the Managing Director of a company only reporting that Sales are growing without mentioning profitability or the state of the balance sheet. All we heard from Gordon Brown from 1997 to 2008 was how wonderful our Sales Turnover was.

      There is no one place you can go to get the balance sheet of a Country. I did some recent calculations of my own and estimated that the balance sheet value of the UK is negative – if you want the numbers I am sure you can find my blog. We all know in our bones that the UK balance sheet is shot to pieces. I challenge anyone at the treasury to publish a UK balance sheet. I challenge anyone to officially publish anything like this. You will not find it because it is too embarrassing for the UK Government.

      I hope this explains why Industry, Manufacturing and Construction are at the top of the wealth creating pyramid. For sure IM&C could not function without a well rounded economy. But services that have no remaining physical value or usefulness do not create wealth unless that service is exported. If a service is purely for domestic consumption, it does not directly create balance sheet wealth.

      This is the reason why the Chinese Government is so supportive of all forms of physical asset creation and all forms of trade surplus generating activity.

      Great question, hope the answer does the trick.

      Thanks, Gordon Styles

      1. alan jutson
        January 4, 2011


        How refreshing to see that someone else thinks in terms of simple accounting. Most do not, because it exposes the truth.

      2. Ken
        January 4, 2011

        I know it adds nothing to the forum but I couldn’t resists saying ‘here here’ to this contribution.

  20. michael read
    January 2, 2011

    I just didn’t know. Good post. Obviously, making yourself useful as an alternative to another mince pie.

  21. Richard Calhoun
    January 2, 2011

    The politicians in the ‘ West ‘ are hooked on bribing their electorates by the introduction of the Welfare State 60 years ago and its continued and never ending expansion.

    The ‘Welfare State’ has been given priority over everything else, from Defence to Health, sacrificing our industrial heritage and in the case of the UK giving up our sovereignty.

    John Redwood praises China and its industrial policies but gives us no proposals as to how we should extricate ourselves.

    Reply: I have offered many policy proposals to restore greater strength to UK manufacturing and commerce generally.

  22. brian kelly
    January 2, 2011

    China is greatly to be feared by the West. She has the single minded purpose to dominate the West and, indeed, the world. She has very recently stated that her military power will be very substantially boosted and will seek alliances in Asia – Russia and India will be particularly targeted. Japan will be threatened and, I hope, not cowed by the growing threat. Her appetite for world resources will grow ruthlessly. She will be no benign foreign power to the West. For too long we have had the attitude that we can always rely in the last resort on the USA. This is now changing. The West should address all these things as a matter of urgency. Before we can do it effectively we need to ruthlessly and quickly put right the economic disaster we have allowed to happen.

    1. Richard Calhoun
      January 3, 2011

      ” The West should address all these things as a matter of urgency. Before we can do it effectively we need to ruthlessly and quickly put right the economic disaster we have allowed to happen.”


  23. Richard Calhoun
    January 3, 2011

    ” The West needs to respond more quickly, more dramatically and more positively. The West is rapidly becoming uncompetitive in all too many areas of activity.”

    We all agree with the above but how to resolve it? Where to start?

    I would suggest we need to start with reducing the size of the welfare state radically and at the same time introduce a Flat Tax.
    Have a referendum on the EU which must be forced by Tory MP’s and hopefully supported by the Libdems.

  24. Peter van Leeuwen
    January 3, 2011

    On a small scale some business areas have well adapted to the Chinese growth: Rotterdam transports 5 x more Chinese containers than 10 years ago, that would be an 20% annual rise, and the number of Chinese companies in Rotterdam has doubled in 5 years (almost 20% annual rise).
    We have also prepared our tourist industry: with one visum Chinese tousrists can travel through most of Europe (Schengen) needing only one currency (euro).
    I don’t have figures but I imagine that London too profits from Chinese growth.

  25. Tony T
    January 3, 2011

    Extrapolating future growth from previous performance is a risky business. How do you factor in the huge property speculation bubble in China where whole cities are sitting empty? What about the ever increasing price of oil and other commodities? The ongoing collapse of property and (word left out) financial sector fraud in the USA might affect their output, as might the increasingly authoritarian (approach -ed) displayed by their government. ( when a country is completely controlled by corporate interests that promote eternal war and suppress freedom you need to say so – (words left out-ed)).
    It’s quite possible that China will overtake the US soon but just as possible is that it might be derailed by internal and external pressures as the US has.

  26. Lizzy Williams
    January 3, 2011

    I had the pleasure of meeting with Philip Hammond at Brackley in the summer to discuss HS2. When we queried his commitment to a valid and lawful consultation process his response to me was that “if we lived in China we would not be having a consultation”. I replied that we lived in a democracy and what relevance this outrageous comment had to which he replied that “we need to compete with China on a business level”. What absolute rot. It is naive of any government to think they can compete with the scale of the Chinese strategy for global domination. Pandering to their undemocratic, communist administration at the expense of everything this country has fought to uphold, in particular our human rights, is an “if we can’t beat them join them attitude” we should be thoroughly ashamed of. I fear our Great British identity is consistently being eroded by our inability to defend ourselves and stand up for what is right not what is stronger.
    Coincidently where will all the steel come from for HS2? It is highly likely to be China. How is that environmentally sustainable?
    Bring back Lady Thatcher’s health, I would love to hear her insight.

    1. Anatole
      January 4, 2011

      Can you please explain where this comment comes from?

      “It is naive of any government to think they can compete with the scale of the Chinese strategy for global domination”

      I have neither seen any evidence, nor even heard any commentary of even the most extreme nature (Fox News &c), claim this before. Please enlighten us.

  27. BobE
    January 3, 2011

    Due to the single child policy China has many young men that will never be able to form a family.
    “According to a report by the State Population and Family Planning Commission, there will be 30 million more men than women in 2020, potentially leading to social instability” Source Wikipedia.

  28. brian kelly
    January 4, 2011

    Just a proviso on my previous comments on the ‘rise and rise’ of China, etc. China may well implode due to the contradictory nature of its system of government – that is the contradictory nature of its rampant capitalist industrial policies and rising public expectations as against the hard communist style of government. It should be also remembered that countries like India have endemic corruption which may limit its power.

  29. George Rowley
    January 7, 2011

    If you look back over history all empires raise and fall and it is the turn of the West currently, we need to learn from our history and work on making our country better and not make the citizens of the UK and beyond suffer by them losing jobs and making wealth creation difficult.

Comments are closed.