A sleeping dragon is awake and hungry for our exports

by Liam Byrne | 24.09.13 | in: China, Economics, Foreign policy

My article in the Yorkshire post, 13 September 2013

Only a Yorkshire firm would have the chutzpah to sell tea to China. Yet, nearly 10 years ago, that was the deal delivered by Taylors of Harrogate, the makers of Yorkshire Tea, which dispatched its first £30,000-worth of flavoured teas to Shanghai. It was an auspicious sign for the future – and it’s the kind of story we need to hear far more.

It was long predicted that this would be the Asian century. “Beware the sleeping dragon,” said Winston Churchill decades ago. “For when she awakes the Earth will shake.” Now, the crater made by the global crash means something big. The Asian century is arriving 20 years faster than we thought. Once upon a time, forecasters thought that China might become the world’s largest economy in perhaps 2041. Now experts say we might hit that point in 2016. And the problem is we’re not ready.

If there’s a phrase the Prime Minister likes to quote, it’s the idea we’re in a global race. I happen to think we are. The problem is that we’re losing it while others streak ahead.

Just the other month, the deputy governor of the Bank of England, Charlie Bean, lamented that despite the whopping fall in the value of the pound, our export growth of recent years has been – in Mr Bean’s words – “distinctly underwhelming”.

Our economy is certainly not “re-balancing” towards exports, and while export growth to China is picking up, no doubt, we still trade far more with Ireland, than Brazil, Russia, India and China put together. We invest more in Belgium than China. And German investment in China is twice the size of ours. Germany is in fact comprehensively beating us in what may soon become the world’s largest market.

Germany now accounts for nearly half of Europe’s exports to China, co-ordinated by close ties between German and Chinese leaders and an unbelievably impressive operation at the Deutscher Industrie & Handelskammertag, the Association of German Chambers of Commerce and Industry, from its magnificent polished granite, glass and steel headquarters on Breite Strasse in Berlin.

So we need to act together. For the past five years, I’ve been fascinated by this question of how we’re going to pay our way in an Asian century. I’ve travelled all over China, and talked to anyone with an opinion. And what people have said to me is simple. We need to focus like a laser on just what China needs in its next move forward – and think hard about how we can help.

When Xi Jinping swept to power as president of China in March, he offered his people a powerful vision of a “Chinese dream” — a doubling of living standards by 2020. I think Yorkshire could play a big role in making that dream a reality.

So what does China need? There are three big things.

First, China wants to build a home-grown consumer economy so that it doesn’t have to rely so much on exports. The Yorkshire Post and others recently reported on disappointing Chinese export figures. But right now, Chinese workers save a third of their wages for a rainy day rather than spending, because the country doesn’t have much of a pension system or a national health service.

Second, China wants to become a creator, not a copier, of intellectual property. In China it’s called “the iPhone problem”. China’s leaders bemoan their failure to produce their own Steve Jobs, like America. Look on the back of any iPhone or iPad. You’ll see the words, “Designed by Apple in California, Assembled in China”. The challenge for China is that making an iPhone costs about £4. Most of the rest of the £529 cost is Apple’s profit. China doesn’t take much of the pie.

Third, China needs to find a home for something like £100bn of foreign investment every year between now and 2020. Today, China only invests abroad at about the same level as Denmark. Over the next decade that’s going to change radically. You’ve heard of Made in China. Get used to “Owned by China”.

All this could mean some gigantic win-wins for us. We’re experts in building the “soft infrastructure” that China needs to create a safety net like ours. Our teaching hospitals are among the best in the world. We’re home to the some of the greatest insurance and pensions companies on the planet. Our legal system is world-renowned. We’ve an awful lot of knowledge to profitably share.

And as China’s consumer market blossoms, and even on a pessimistic scenario it will grow by $2 trillion between now and 2020, we need to use our membership of the world’s biggest free-trade club – otherwise known as the European Union – to knock down trade barriers for the sectors where we’re strong, especially financial services, high-tech engineering and world-leading brands. Businesses where Yorkshire is strong. What would be wrong with a little bit of self-interest in Europe?

Next, England – and Yorkshire – is one of the most innovative places on earth. Yorkshire is home to some of the world’s greatest universities, helping to educate thousands of Chinese students.

We should be thinking much more strategically about how we interconnect Yorkshire’s hi-tech firms, investors, innovators and universities to the great growth hubs in China.

Consulting firm McKinsey forecasts that up to a quarter of world economic growth between now and 2025 – about £8 trillion – is going to be driven by just 242 cities in China. Do you know where they are? You need to. Region-to-region links are going to be the great growth zones of the new global economy.

Finally, I think we need to be making sure Yorkshire is one of China’s favourite places in the world to invest. Chinese investment in Britain is growing at a rapid pace. Last year saw a flurry of activity, with Chinese investment in Weetabix, Heathrow Airport and Thames Water. But China is not investing as much in Britain as elsewhere. We need to change that: our investment-starved economy needs it.

If we get all this right, it would make a huge difference to our economy. In 
fact, if we tripled the growth of our exports to China we could add 0.5 per cent to GDP every year. Winning in China isn’t going to happen overnight or on its own.

This is not about a few more trade trips organised at late notice. It’s about a real national strategy – thought through for the long term.

The original article can be found here.

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