From the TUC

Tim’s East Asia Diary: Part Three – Arriving in China

20 Sep 2013, by in International

If the 19th century belonged to Europe and the 20th to the United States, the 21st century is widely expected to belong to Asia. Dominating Asia’s economy and, increasingly the world’s, is China.

I have arrived in Beijing on the latest leg of my research trip to study industrial policy in this part of the world. I hope to meet with academics, trade unionists and British Embassy officials, to consider what is happening in China and to discover how the UK might respond. So here are a few thoughts with which to get started.

In 2000, China set out to quadruple its GDP over a 20-year period. The first decade of that period reaped economic growth of 10 per cent per year. During the second decade, the growth rate is due to be a more modest (by Chinese standards) seven per cent. China is on course to meet its 2020 target.

Of course, China faces major challenges. Its economy is imbalanced between consumption and investment. Much investment is increasingly inefficient, as structural factors can direct investment the wrong way: one example of this is that banks face little competitive pressure to lend to risky organisations, which can include smaller companies, as compared to State Owned Enterprises. Chinese consumption is growing, which is good news, but there is some way still to go: reforms, including introducing a more adequate social security structure, to deter precautionary savings, are necessary.

There are, of course, environmental challenges: China uses 21 per cent of the world’s energy and is responsible for 27-28 per cent of global carbon emissions. It is seeking both to control the growth of energy use and to control the energy mix. Success will depend on moving from heavy to light industry, from “black” (i.e. oil and coal) to green energy, and on increasing urbanisation, while moving from sprawling to smart cities.

China’s former leader, Deng Xiaoping, famously said that “it doesn’t matter whether a cat is black or white, so long as it catches mice”. Dr Hu Angang, Director of Tsinghua University’s Centre for China Studies, has borrowed this theme and said that China now needs to move from a “black model” of economic growth, to a green one. China, says Dr Hu, must become a “green cat”.

China is currently implementing its 12th Five Year Plan, which includes a focus on developing seven ‘Strategic Emerging Industries’. Taking a longer term perspective, Dr Hu has said that China must restrict or eliminate industries such as iron and steel, building materials and petrochemicals, adding: “China will instead focus on employment-intensive, high-technology and new technology industries and will develop modern service industries, especially those that are information, knowledge and employment-intensive.” (‘China in 2020: A New Type of Superpower’, Hu Angang, Brookings Institute Press, 2011)

That last phrase, “employment-intensive”, is important. I find it interesting that Chinese economic policy is employment-centred in nature.  In the UK, the bell-weather target for economic policy is low inflation. If inflation is low and steady, and assuming the economy is growing, we believe the economy is in fairly good shape. The Chinese bell-weather target is growth, but if growth falls below expectations, the discussion centres on how that will affect employment. In the UK, we assume that low inflation and steady growth will provide employment via the market mechanism. The fact that this market mechanism has delivered so many poor quality jobs in recent years, especially outside of London and the South East, is overlooked. This is not the attitude of China (nor is it of Germany, incidentally), where the employment effects of economic policy are a live issue.

So what does all this mean for the UK? Some think the competition posed by China is so great that we may as well all give up now. I couldn’t disagree more. The more I learn about China, the more I believe there are great opportunities for the UK, if we get the policy mix right. I will address this further in my report of this trip.

2 Responses to Tim’s East Asia Diary: Part Three – Arriving in China

  1. Tim’s East Asia Diary: Part Four: Is a Fourth Industrial Revolution Possible? | ToUChstone blog: A public policy blog from the TUC
    Sep 24th 2013, 3:10 pm

    […] was an interview with Dr Hu Angang from Tsinghua University. As I mentioned in my previous post, Dr Hu has argued that China must develop a new, sustainable model of industry. In Dr Hu’s words, […]

  2. China, the UK and Economic Rebalancing: What about the jobs? | ToUChstone blog: A public policy blog from the TUC
    Oct 16th 2013, 2:44 pm

    […] I blogged from Beijing a couple of weeks ago, China seeks to develop modern services that are also […]