China and the UK

There has been much attention given over to China in recent weeks, following the visit of President XI and the signing of many deals between China and the UK, not least in the energy sector where China (and France) will be financing and largely building a generation of nuclear power plants in the UK. The Times commented that it will not be long before a Midlands UK businessman or woman could breakfast on Chinese cereal (Weetabix), travel to London on a partly Chinese-financed railway (HS2) for a meeting in a Chinese office development (China has invested heavily in UK property), then make a call home on a Chinese mobile phone and arrange to take the family out to a Chinese owned pizza chain (PizzaExpress) to discuss the possible purchase of a Sunseeker Yacht, a company acquired by China in June 2013. It is also worth noting that Chinese tourists to the UK have doubled between 2009 and 2014 to 185,000 and there were 10,468 Chinese pupils and 87,895 students at UK  independent schools and  universities respectively in 2014. By 2030 the World Bank estimates that 30% of global investment will come from China, the year it is estimated that it will become the world’s largest economy.

Currently China provides 9% of our imports of goods but we are only their 7th biggest source of their imports and our 22nd largest export market for goods so there is considerable potential for growth there. Given the UK Government’s intention to move to a budget surplus and not to borrow even to invest, China provides a valuable source of finance for infrastructure investment.

However all is not well at home with recent Chinese growth figures falling to 6.9% in the third quarter, slightly below the target rate of 7%. There has been some doubt expressed about the validity of this figure and some economists suggest that a true figure would be significantly lower, not least because nominal growth was only 6.2% implying a 0.7% deflation in China over the period which some commentators suggest is inaccurate. An alternative measure looks at statistics for electricity, bank lending and rail cargo which suggests growth of between 3% – 4%. Such discrepancies put the UK’s recent fall in GDP growth to 0.5% into perspective.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s