Anatole Pang: Trying to be German - Britain needs a China policy

Anatole Pang is a former Conservative council candidate for Twickenham, and is resident in Beijing where he has worked for four years. He is currently an active member of Conservatives Abroad there.

It has been a cliché for some years now, that Britain needs to find a way to make more of China and its economy if we are going to find our feet in a changing world. The current trade position compared to our nearest peers is startling, with exports to China far below Germany and even France, and with the worst trade deficit amongst all the large European economies.

[1]
As yet however, the UK has not demonstrated a particularly coherent strategy as to how to go about rectifying this – in fact one might argue there has been no real “China policy” at all. Part of this may be due to the structure of our economy, with its focus on services; but another entirely preventable limitation is the mentality which pervades some British business, government and the FCO.

Even for those who are keen on confronting the China dilemma, there is a complacency. For instance one theory prevalent in some circles is that Britain, although disadvantaged in this current cycle of Chinese industrialization, is well poised to make the most of the following phase, where China’s domestic markets will begin to demand services. According to this view, Britain’s time will inevitably come, with a little patience, and the strong position of Germany and others is but temporary.

The problem is this: in the history of post-war development, there has been no example of any country successfully migrating from lower to upper-middle income whilst also maintaining an open-mind towards foreign companies. Typically a developing country will begin to expose its manufacturing base to competition from abroad, but will continue to protect its services. Singapore is an example of this, as is Malaysia; in Japan and Korea foreigners barely get a look in. India is notoriously difficult to enter as a market and vast swathes of South America area as protectionist now as they ever were.

The sectors which are therefore unlikely to see much progress in any of the BRIC+2 [2] markets include the cornerstones of the FTSE 100: financial services (including banking, insurance and fund management); telecoms; utilities; and engineering contractors. In such areas overseas entrants to the market will only ever be allowed a small part to play given the sensitive nature of the industry. Even retailers will face some difficulties in establishing themselves, as Carrefour and Walmart are discovering now.

If Britain’s strategy is to wait for the opening of China’s economy to those same large entities and multi-nationals which it has been supporting throughout the last two decades, we might as well give up. Some advocates of the “next cycle” theory are perhaps forget that Britain’s service sector rode a unique wave of American-imposed liberalization in Europe and elsewhere in the post-war period. This was inadvertent, but helpful; however the US will not be able to aid us again with the new powers as the Washington Consensus reaches its geopolitical limits. Britain simply will not be able to approach China, India or others in the same way that it expanded previously.

Instead, the solution to Britain’s export problem actually lies in the same reforms which we should be looking at domestically, as the public begins to stir in favour of a “post-financial age” in the economy. Our country has plenty of successful smaller enterprises in IT, biotechnology and other more niche markets. These are rarely dominated by large multi-nationals; they are instead composed of the SMEs which compete with Germany’s Mittelstand or the Japanese chuken kigyo – the backbone of any successful and well-balanced economy.

British policy, therefore, should be twofold: at home, the government needs to support SMEs in every way, from tax breaks to financing to education policy. This is becoming widely recognized and the Conservative Party already pays lip service accordingly. Additionally though, our foreign policy needs to focus on commerce (which is happening), but more specifically leverage key high-value industries and their SME constituents, even if this sometimes means abandoning large multi-nationals to fend for themselves. There are limited gains to be made in championing Tesco or AMEC or RBS; there is a much greater benefit in helping SMEs who can eventually export successfully.

As a country, we have to have faith that we can actually produce things which others want to buy; and though Britain has never been the home of faultlessly high quality, it is nonetheless the bastion of creativity and innovation – qualities that are as exportable as cars, machinery and luxury goods. Our current appalling trade deficit with China is not insurmountable, but it will not be rectified with blind faith in the conventional “big business” model.

Our foreign and trade policies need to be as inventive as the goods we want to export, and it needs to start with a coherent plan for China, as well the other BRIC+ countries. Actually having a articulate policy would be helpful; and only then will Britain’s talents reach their full potential.

[1] HKTDC Research

[2] BRIC+ is still fluid in its definition but would likely include such emerging markets as Indonesia, Vietnam, Turkey, Egypt, Iran, Colombia and Mexico.