When it comes to China, it’s the long game that matters
We have to deal with China. The rest of the world has to deal with China. And there will be a difficult 20 years ahead.
Right now there are two central issues in the UK’s relationship with China, whether Huawei is to be excluded from the UK’s telecom infrastructure, and what is happening in Hong Kong. Both are difficult and
will continue to be so. Whatever the outcomes, the relationship will get worse before it gets better.
In global terms both matter, Huawei because the UK was the bridgehead that gave the company to international markets, and Hong Kong for many reasons but from an economic perspective because it has been the main financial link between mainland China and the rest of the world. But what will matter even more will be the way the US and Germany grow, or more probably reverse, their links with China.
The US has been increasingly aggressive, and it is likely to remain so whoever wins the coming election. Germany has been more cautious, even craven, in its response. But if you look at German exports you can see why. It exports €100bn of goods and services there, and though the US remains its single largest export market, it does two-thirds of the EU’s trade with China.
At some stage Germany may find it has to choose between the US and China. For the UK it is an easy choice, for Germany a tougher one – but in practice for both it can only be the US. It would be much better, of course, if these choices can be postponed and the outcomes softened.
The reason is simple. The tensions between the west and China are serious and will become more so, but eventually they will ease. The challenge is to get from here to there.
Obviously the Hong Kong situation gives a new angle, for there has apparently been a new wave of enquiries about buying property in London
Why should they ease? Well, anyone peering forward into the future cannot be confident of anything but consider these five points.
One, while China will become the world’s largest economy in about 10 years’ time, its people will still have a much lower standard of living overall than those of the US, Europe or Japan.
Two, it will be hard to push forward in technical terms if it does not have full access to western technology, as seems increasingly likely. It will of course continue to develop its own technologies and it has a huge market to sell them to. It can also reverse-engineer western products, as it has in the past, but when it does so it by definition remains a follower, not a leader. So it will gradually become harder to export to the rest of the world, except on price.
Three, to push ahead of the west in technical terms it has to have the best brains. Yet many of the most successful Chinese people want to emigrate. This is not a new thing. A survey two years ago by CNBC suggested that a third of Chinese dollar millionaires were currently considering emigrating, with the US top of the list, and the UK, Ireland and Canada next in that order. Obviously the Hong Kong situation gives a new angle, for there has apparently been a new wave of enquiries about buying property in London in the past few months. But there are other embedded reasons, including pollution, narrow education opportunities, and lifestyle limitations in China.
Four, China is ageing. Thanks to the one-child policy the country’s population will start to shrink in about five years’ time. That has now been replaced with a two-child policy but the total fertility rate (the average number of children a mother will have in her lifetime) is around 1.7, well below replacement rate of 2.1. As a result, in 20 or so years’ time not only will population be falling quite fast, but a smaller workforce will have to provide for many more older people.
The British politicians that lauded closer relations with China are now
reviled as Lenin’s ‘useful idiots’
That leads to a final point. Older societies are likely to be calmer societies. Security and comfort become more important than overseas adventures. Japan’s extraordinary run of growth after the Second World War petered out with the boom of the early 1990s. Japan’s GDP was actually lower last year than it was in 1995.
China’s leadership is well aware from what has happened to Japan and will seek to avoid this outcome, but it cannot change the cultural shift that is likely to take place – from a country that is currently looking outward to one that will increasingly look inward.
Once China wants to be more comfortable it will become an easier companion to live with. The attitude in the UK towards the country has undergone a remarkable 180-degree turn in the past five years. It has flipped from being a “golden era” to one of suspicion and hostility. The British politicians that lauded closer relations with China are now reviled as Lenin’s “useful idiots”.
But policy can flip back, and will do as and when China itself changes into an easier partner. That will not happen soon, and the task therefore is to maintain adequate communications – with respect and mutual understanding – until it can do so.