The Chinese puzzle

I watched the BBC news last night and particularly enjoyed a puff piece about how China is now poised to overtake Japan as the world's second largest economy. In the year of "global" economic recession, China's economy grew by more than 8%. The biggest economic concern for the Chinese government is not falling tax revenues and a massive trade deficit - it is the worry that the economy may "overheat" - usually a sign that it is, if anything, growing too fast.

Why is China surging ahead economically while the rest of the world stutters along? Well, various commentators have various points of view, but they are - in my opinion - all wrong. China is surging ahead of the rest of the world because it has, outside of a few "closed" states, the most protected industry in the world.

Oh, they don't use anything as transparent as trade tariffs (except in retaliation) but while US food giants buy up British chocolate makers, Indian steel producers close down the remnants of Britain's steel industry and German car manufacturers snap up failed US auto brands, the Chinese government protects their industries like a mother bear protects her cubs.

They don't need to put up trade barriers because nobody can make things as cheap as the Chinese can. Instead, they prevent foreign firms from buying into their industry - whether it is German companies trying to buy ball bearing factories or US fizzy drink giants trying to buy juice producers.

So, when the Chinese government poured in its "fiscal stimulus" it knew that every penny will go to help Chinese industry and Chinese people while Britain spent a fortune keeping Japanese, French and German car manufacturers happy.

Protectionism has a bad name these days, but the lesson we can learn from the Chinese (and, to a lesser extent, Germany and France) is that it works.

Chinese puzzle

It's a bit worrying when the Business Editor of a newspaper as well respected as The Times comes up with such an extraordinary load of drivel as this.

Carl Mortished appears to grasp none of the realities of what he is saying. On one hand he seems to be suggesting that Britain future lies as a tourist resort while on the other he seems to think that we could become the producer nation feeding the Chinese consumer!

Even so, America and Europe are hoping for an invasion because [the Chinese] have something that speaks louder than manners: cash.

Well, some of them do, but the vast majority of Chinese remain pretty poor while the affluent classes prefer to spend their cash elsewhere. Even if you are a wealthy Chinaman you are unlikely to go jetting off halfway around the world to sit in a dreary English cafe on some rain soaked promenade when there are a myriad of delights awaiting you on your doorstep.

If Mortished really believes that our future depends on Britain attracting Chinese tourists then he's going to be disappointed - and coming from the Business Editor of The Times that is a chillingly poor outlook for this country and, indeed, Europe and America.

But it gets worse.

We must begin once again to make things Chinese people might be tempted to buy.

Like what? MG Rover? Notwithstanding the fact that the Chinese are quite capable of making everything they want to buy themselves and a darn sight cheaper than we can, what could we possibly produce that they want? The only thing I can think of is coal - but that isn't going to happen unless some Chinese company comes here and starts mining the bloody stuff for us!

What we need to do is start producing the things we want to buy and buying the things that we produce. Only that way can we become less dependent on - and addicted to - cheap foreign imports. That isn't going to happen either as that would involve the dreaded "protectionism" that the globalists so despise.

The Chinese economy continues to expand because they have a ready made consumer market for their goods and increasing numbers of their own people who want to buy them. We do not. So we better get used to earning a lot less and considerably lower living standards.

And I guess we'd all better learn how to say "would you like cream in your coffee, sir?" in Cantonese.

A shot across our bows

As the Bank Of England and the European Central Bank both resort to printing more money, the Chinese state bank has issued a barely disguised warning to the debtor nations.

"As more and more economies are adopting unconventional monetary policies, such as quantitative easing (QE), major currencies' devaluation risks may rise," it said. The bank fears a "big consolidation" in the bond markets, clearly anxious that interest yields will surge as western states try to exit their QE experiment.

Hans Redeker, head of currencies at BNP Paribas, said China is switching into hard assets. "They want to buy production rights to raw materials and gain access to resources such as oil, water, and metals. They know they can't keep buying bonds," he said

The point of this is that China now holds all the aces and is getting ready to lay them. While the media has reports of various "green shoots" - mostly based on optimistic assumptions and the news that the banks losses may only be devastatingly bad rather than catastrophically bad (thanks to the taxpayer bailing them out) - it seems to me that the next stage of this "recession" is about to begin.

Don't be surprised to see inflation rising sharply and currency values falling substantially. The good news is that I'm starting a wheelbarrow business. Well - we're going to need something to carry the cash needed to buy a loaf of bread!

I hate it when I'm right

But all those "free trade", globalisation supporters still don't get it.

"While steel production is declining all over the world to reduce over-capacity, it is still going up in China. This puts pressure on world markets," he said. The EU steel industry employs 440,000 workers. China's steel exports to the EU were 1.6m tonnes in 2005, 5.6m in 2006, 11.5m in 2007 and almost certainly higher in 2008.

You see, China is just taking advantage of the opportunity the free trade fools have given them. They can make steel cheaper than they can in the EU. With this downturn they are taking the opportunity to increase their market share - just like any western company would. Don't moan about it - that is what you wanted!

Why are they so upset?

A new economic order

Over on The Telegraph, Irwin Stelzer argues that Britain's language, legal system and time zone will ensure that we will "ensure its economic future". I'm not convinced.

First of all, as far as language is concerned it is quite true that English is the language of commerce and has been for some time, but this hasn't stopped thousands of call centre jobs leeching to India and Pakistan. The fact is that the very fact that English is now so widely spoken is the reason why it is no longer necessary to have your headquarters or what have you in England anymore. The other point to bear in mind is that just because English is the language of commerce today is no reason to suppose it will be in, say, fifty years time. It could well be Mandarin Chinese.

Which brings me on to the second point - time zone. Britain benefited from being slap bang in the middle of the two economic global powerhouses; Europe and America. That balance has been shifting for some time now to between the USA and Southeast Asia - notably China. This downturn is going to see that process sped up as China - a country smothered in protectionism - will continue to have economic growth while Europe shrinks rapidly. By the time this crisis is over the transformation will be complete. Our time zone will be of no benefit as we sit on the fringes of the economic powers.

Finally, the legal system. This is a curious one as Britain has been sliding down the table of good countries to do business in for some time now. With Britain part of the EU and the EU hell bent on tougher regulation to restrict business practices the likelihood is that it will become increasingly difficult to do business here. When you also consider that there are several countries with legal systems based on our own - India, Australia and New Zealand for example - who will be much closer to the centre of the new economic order, then why would any business want to come here?

It's actually quite interesting to consider that not only is there an economic shift occurring, but that there has also been a significant change in strategic relationships too. The much vaunted "special relationship" between Britain and the USA is increasingly less so, while Australia continues to build closer ties with the USA. I think that is symptomatic of the future.

Stelzer is pinning his hopes on a status quo which shows no sign of happening. The assumption that Britain is going to be able to benefit from our geographic location, language and legal system is entirely misplaced as - once this is all over - we will be well out on the fringes of what is happening in the global economy.

All the more reason to stop pinning our hopes on "services" which can be provided better, cheaper and more conveniently elsewhere. Bad news for us, but good if you happen to be Antipodean.

Olympically OTT

Before I get into this rant I should point out that I'm not much of a sports fan, but am I the only one in Britain who hasn't found the "celebration" of our athlete's relative success in Peking a little over the top? It seems as if we've had virtually non-stop 24 hour coverage of the blasted circus for the last three weeks with even the news carrying the Olympics as its main story line.

Of course, I recognise that winning an Olympic gold medal is quite an achievement, but I also recognise that they are only doing what they are supposed to do and that they have - on the whole - received an awful lot of taxpayers money to do. In that respect they are far more fortunate than the vast majority of us, so for much of the media to then suggest that their efforts should be recognised with further honours - knighthoods, MBE's and so on - is ridiculous and cheapens the honours system.

The honours should be reserved for those who have given a lifetime of service to the nation or carried out some selfless act - not for those privileged athletes who are largely insulated from the rigours of everyday life that so many of us mere mortals go through.

I have no problem with honours being bestowed on sporting personalities after a lifetime of achievement and dedication - generally they have not only worked hard in their own sport but have done a great deal of good for charity and the nation, but I find the idea of handing out gongs to a 22 year old just for winning one event at the right time rather silly.

One other thing that has struck me during the Olympic fortnight was the incredible sycophancy of the BBC towards the Chinese. From the opening ceremony where BBC commentators gasped in awe like dumbstruck children at the gaudy, vulgar but wonderfully stage managed displays on show (totalitarian regimes are usually very good at stage managed displays - fear is often a good motivator) and through every event they have been doing nothing but telling us how wonderful the Games were and how great the Chinese are.

Yeah, they are great as long as you don't mention the Great Leap Forward or the Cultural Revolution or the millions who have died at the hands of this oppressive nation. It was always a mistake, in my view, to give the Olympic Games to the Chinese - they were always going to use it as a political lever and the BBC more than anyone have helped them to do this.

From what I understand, the Berlin Olympics of 1936 were wonderfully stage managed too and went a long way to allaying some of the fears people had about the Nazi regime. It would be another 12 years and millions of violent deaths before there was another Olympic Games. There is also a certain irony that after the Berlin Olympics the next city to host them would be London in 1948 - as it will be after the Peking Games.

Though I don't expect the same thing to happen this time I do find it repugnant that another viciously oppressive totalitarian regime is once more allowed to present a false visage to the world through a sporting meet and that our own state broadcaster more than anyone supports them in doing so.

Stealing from the starving

In a years time, Peking will be hosting the Olympic Games. Meanwhile, the Chinese government is putting up money to buy a stake in Barclay’s Bank and there are billions of more dollars available for China to buy up huge swathes of British industries, businesses and real estate. We’re importing anything and everything made in China – from cheap plastic toys to heavy machinery.

And yet, in China, they still sell crippled children into slavery where they are forced to beg on the streets by their unscrupulous owners.

That’s just one of the many, many things which are unacceptable about China – a lousy record on human rights, insufficient basic facilities for the rural poor, restrictions on foreign currency and activity in China and yet we are happy to take their money and for them to buy MG Rover or Barclay’s Bank?

I think this is wrong. It’s the responsibility of any decent nation to demand that countries we deal with behave in certain ways and, at least, try to achieve and maintain certain standards for their people.

For instance, why, when there are millions of their people barely living at subsistence level in the rural provinces of China, are we accepting huge amounts of money which they ought to be spending to improve the lives of their people?

The Chinese government have “modernised” in a way that David Cameron can only dream of. Gone are the old communist stalwarts in their cheap grey suits, huge glasses and the slogans of Mao, Marx and Stalin. In their place is a new breed of urbane, expensively dressed and eloquent “internationalist” politicians who talk the talk of the liberal progressive – but still walk the walk of communism.

China is a communist state hiding behind the façade of liberal capitalism – but capitalism is not a political doctrine, merely an economic method which can be applied equally adroitly by a fascist, communist or democratic nation. The government of China remains as oppressive, illiberal and unpleasant as it has been for sixty years.

China’s success over the last two decades has been brought about largely as a result of the events of Tiananmen Square in 1989 when they were seen to ruthlessly crush a pro-democracy rally by Chinese students. Nobody is certain how many died when the tanks rolled in and in the ensuing months – the toll ranges from a couple of hundred to several thousand – but the response of the world was to demand reform.

Reform was what they got, but it was only skin deep. The communists maintained, possibly even strengthened their grip on political power, but changed the way they presented itself to the outside of world – and most of the world swallowed it hook, line and sinker.

They swallowed it because they wanted to believe that things had really changed. They wanted to believe it because they wanted to believe that “soft power” had worked and that the tough stance the west – led by Reagan and Thatcher – against the Soviet Union was not the only way to force oppressive regimes to change.

It hasn’t worked. Most of the “liberalisation” was already underway before Tiananmen Square – the reason the students were demonstrating was that they wanted to force the pace of change and for it to be more than just economic reform – and was a response to the Reagan/Thatcher stance with the USSR. The communist leaders of China were keen to hang on to their power which they had watched slip away from their political contemporaries in the USSR and had already embarked on the process of creating a façade of liberalism long before “soft power” got involved.

But the western nations – particularly those of the EU – were keen to prove that their more “nuanced” approach had worked. So we opened up markets for the Chinese and sold our technology to them – believing, rather stupidly, that the west’s technological advantage would always keep them ahead of China economically and believing, or rather, wanting to believe that things had changed in China.

China’s leaders, whatever else they are, are not naïve. They recognised the opportunity that the west had presented to them and they grabbed it with both hands. The new breed of Chinese politician was presented to the west and the west fell for the shiny new look. China was given the Olympic Games as a reward for their “liberalisation” and, in typical communist fashion, they threw themselves into preparing for it with fervour – a fervour that showed little consideration for the ordinary Chinese who were forced from their homes, shoved out of view and punished if they dared to complain.

I’m sure I’m not the only person who finds the idea of the Chinese government spending billions of dollars buying up British, and indeed western, businesses when they really ought to be using that money to relieve the abject poverty – real poverty – that exists throughout China in the rural heartlands, which is why we should shun their advances and tell them, in no uncertain terms, where to put their money.

As an analogy, it is rather like a wealthy businessman taking money from charity instead of it going to the needy poor. It is, literally, stealing from the starving. It makes sense to reject these overtures from a moral perspective, but it also makes sense from an economic perspective. We should not allow China rights and freedoms to our markets that they deny us to theirs and we should demand that they liberalise not just their economy, but their politics as well.