Monday 23 January 2012

China: A Threat or an Opportunity?

James Horrax

Cameron and his cabinet ministers toast with China’s Premier Wen Jiabao, at the Great Hall of the People in Beijing in November 2010. Photo: Wallstreet Journal

Since the Coalition was formed in May 2010, senior Cabinet members including the Prime Minister, David Cameron and the Chancellor, George Osborne have conducted ‘trade missions’ across the developing world. 

As if to demonstrate the importance of these missions, the trip to China took place within the first six months of this Parliament – it was attended by the largest ever British delegation to Beijing in 200 years. 

Obviously countries across the world maintain and develop bilateral relationships all the time, but this delegation was significant because publicly and unashamedly, the Government was putting its trading relations with the world’s second largest and one of its fastest growing economies at the centre of its economic and foreign policy. 

At first the trade mission was scoffed at as an inflated vanity trip – in fact on his trip to China in November 2010, David Cameron was left red-faced by the fact that in the previous week, Nicolas Sarkozy, the French President, had secured €15bn worth of trade deals from the Chinese. The biggest piece of business facilitated by the Prime Minister was a deal worth £740m for Rolls Royce to supply and service engines for a Chinese airline. Although he did make plainly clear his intention to nearly double the trade conducted between the two countries within five years from a present £32bn per year to £62bn per year by 2015.

British Company Rolls Royce secured a contract with Air China Business Today 
China’s economy, as we are reminded on a near daily basis, is growing rapidly – albeit from a low base. It would be easy to provide datasets but this graph shows just how sharply China’s economy has grown, particularly over the last 10 years. It’s growth over that period of time, has been as a consequence of a booming export market – helped by the under-valuation of the yuan and historically high levels of Western consumption – and while it’s imports grew over the same period, a large portion of these were commodities, like oil, coal and metal ores to feed its manufacturing industries and its subsequent exports. 

In 2001, according to the World Bank GDP per capita was $1,042. In 2010 it was $4,428. The Chinese are getting richer, as a nation and individually. This means an expanding pool of consumers for Western products and services and Britain should take the opportunity to exploit this. This makes the British government’s decision to recalibrate the economy away from financial services important – as David Cameron said, Britain must start earning its way in the world again and targeting export markets which are growing, like China, is part of that strategy. Obviously London’s position as the world’s premier foreign exchange hub means that the UK is well positioned to take advantage of China’s currency requirements over the coming years as well. 

Chinese Yuan global importance is growing Photo: Reuters Guardian
But in other areas, Britain must step up to the plate – whether that be in IT, green and renewable energy or high-end manufacturing – these will service the growing demands of a country where fuelling growth is a key concern and where despite many advances, vast swathes of the country are still relatively impoverished. Another area the UK should be able to export in is the services sector. Despite a steady, if unspectacular growth in the service sector, this element of China’s economy remains underdeveloped and immature. British service and consumer facing brands may help to bring about a much needed kick to recalibrate China’s economy, which till now has relied on its exports, to satisfying domestic demand.

So all upside for Britain then? Not quite. In order for the UK and the West to benefit from a booming China in the areas I outline above, whether that be services, IT, high-end manufacturing or green and renewable energies, Britain and its allies needs to press China on intellectual property to ensure that a burgeoning market is not shuttered by copyright infringement and intellectual theft. While China remains a hothouse of manufacturing, it lags behind in idea generation and specialises in producing ersatz goods.

Another consequence of China’s growth over the last few years has been its increasing global ambitions and interests. In its thirst for natural resources, a desire to help create the conditions for favourable export markets and to develop international support, China’s foreign policy in Africa has encouraged the entrenchment of corrupt and in some instances despotic governance. As the call for democracy currently ringing around the Maghreb and the Muslim world intensifies, it might only be a matter of time before China’s interests diverge from that of the local people. While Sino-investment in infrastructure and industry is welcome now, it is not unimaginable that a power shift could throw this delicate quid pro quo arrangement out of kilter. The rise of a series of failed states across Africa raises the ugly prospect of Western and British security threats as much as humanitarian disaster – the UK, along with allies, needs to ensure that China is accountable for any fall-out in this sphere.

And this is before any mention of a political challenge emerging to threaten the Communist leadership in Beijing. Conventional wisdom has it that as a society enriches itself nationally and at an individual level, greater demands for property protection and political rights will occur as well. While it is difficult to know precisely just how much tension exists below the surface, instances of unrest in Xinjiang, the continuing difficulties in Tibet and reports of potential collapse of its tearaway satellite North Korea mean that China’s path from regional power to global superpower is littered with potentially destabilising events for trade and commerce. 

Britain must make sure that while it utilises the many financial opportunities China’s growth presents, it does not sacrifice its principles either.

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