New sky-scrapers: old fears
You may have missed Piers Morgan does Shanghai last night, but the message was pretty clear: not for the first time in our history, we 're about to succumb to the yellow peril. The Chinese can now do pretty well everything we can, except 100 times bigger, 100 times better, and 100 times cheaper. We are well and truly Pek Ducked.
By a strange coincidence, the Governor of the Bank of England also spent last night fretting about our relations with the East. Only he presented it as "Soduku for Economists", which proved a tad less gripping than Morgan's glitzy high-rolling version.
The Governor's basic point will be familiar: because China now produces virtually everything we in the West consume, and because they save virtually all their incomes rather than spending it on our overpriced stuff, there is now a huge imbalance in the global economy. The only way we can survive is by borrowing from them and hoping they don't want the cash back any time soon. Sort of idea.
Specifically, whereas we and the Yanks are running massive current account deficits (ie we're still spending way more than we're earning), the Chinese are running a near $400bn pa surplus. And the western economies are now in hock to the Chinese government for a staggering $2 trillion plus. For us, the Great Account Ledger in the East is most decidedly red.
To be fair to the Governor, he pitched the problem as a global one. We may be in hock to the Chinese, but they need us to buy their goods. And if the whole teetering stack of international debt should somehow topple over, we'd all be in trouble. So we'd better find some global solutions pronto.
But however you spin the global issue, the Governor is in no doubt about the UK's grim future - we are going to have to stop eating and tighten our belts by seven or eight notches. Or in Governorspeak:
"The need for a rebalancing of our economy has been apparent for some time. The proportion of our domestic output that we save has fallen by around a third over the past decade, as the share of consumption, especially public consumption, has risen sharply. Looking ahead, monetary and fiscal policy together must help to bring about a switch of demand from private and public consumption to net exports and business investment as the recovery takes hold.And just to make sure we all get the message loud and clear, he added:
A key element in raising the national saving rate is the elimination over time of the structural deficit in the public finances. Of course, there is a perfectly sensible debate about the appropriate timing of the withdrawal of the temporary fiscal stimulus... but uncertainty about how and when fiscal policy will respond has a direct bearing on monetary policy. And markets can be unforgiving."
"The patience of UK households is likely to be sorely tried over the next couple of years. There is little scope for growth in real take-home pay, which may remain weak even as output recovers. It is clear that inflation is likely to pick up markedly in the first half of this year."Patience sorely tried - I'm afraid that's spot on. And the Governor's bleak warning was heavily underlined this evening on Sky, when the ever excellent Jeff Randall interviewed HSBC's CEO, Michael Geoghegan.
Geoghegan is one of the few top British businessmen who really do bestride the world, and can talk authoritatively about the UK, China, and all points in between. Which is why it's so alarming that he's about to pack his bags and relocate HSBC's HQ back to Hong Kong. He told Jeff the UK has recently become much less attractive to banks like his:
"I think when you start moving taxation for political reasons, the trouble is that it is an industry that can move. I know a large number of bankers are moving out of the UK... they are moving out possibly for personal reasons. They can move because they have opportunities in Switzerland and other places to set up their businesses... the UK because the City has all the rights to win and it would be a terrible shame for it not to benefit from all the expertise that is in our industry...So does it worry him that the UK is facing the growing challenge from the East already laden down with debt?
...Hong Kong has surpluses... it raises enough taxation every year to pay for running Hong Kong and it makes surpluses. I think one has to look at how money is spent in a country, if taxation is being raised because the expenditure wasn’t correct, that then is going to impact on the UK as a financial centre."
"It does and it disappoints me. People talk about China, the excesses of China, the excesses of Asia and then you see the savings rates of Asia. People save first, they educate their children and then they spend. If you want to go and see where consumer goods are least used and bought, it’s in Asia. If you want to see where the most money is spent on education and health, it will be in Asia. You’ll see the people, the hours they work and the products they produce and I know that the UK can produce a lot more products. People say well the renminbi [Chinese currency] should be stronger. No, actually we should be more efficient. If we could be as efficient here in the UK as other manufacturers are around the world and cut away a lot of the government bureaucracy that makes it very expensive to do manufacturing in the UK...Ah yes, a mindset change.
I think there has to be a full understanding that we cannot have the style of living that we’ve had in the UK on somebody else’s money. The government can’t spend more than it actually collects in taxes, people can’t really live without savings and to do that, there has to be a mindset change and maybe the politicians and the electorate will say we actually want this to happen in this country."
The trouble with mindset changes is they're a great idea, but they don't happen unless there has been pain. A lot of pain.
And right now, as we've blogged before, most of us have simply not had that pain. Mortgage rates are low, house prices are sailing on as if nothing ever happened, even the job losses somehow seem to have stopped.
You and I may believe we're in cuckoo land, and that the longer we leave the belt-tightening, the worse it will be, but why should the average punter listen to us? Life's not so bad... maybe the Great Helmsman was right after all... maybe he has saved us... maybe we can just keep calm and carry on.
Right, that's it - enough depression for one evening.
PS I realise we've said it before, but Randall's 7.30pm prog on Sky News is streets ahead of anything the BBC broadcasts on business and the economy. Now, what was that about needing a tax-funded broadcaster because otherwise we'll lose all our quality news coverage?