My Old China

Britain and China could develop a grown up relationship China is already a major global economic power that relationship is however unlikely to be a healthy one whilst the key interface between the two is George Osborne.

Osborne seems to have found being Chancellor of the Exchequer insufficient to keep him busy. Nature abhors a vacuum so the space he has been pulled into is that as Trade Minister.

The present President of the Board of Trade, Sajid Javid (also known as the Minister for Business) has vanished. Nowhere to be seen on the steel industry, he seems to have no time for supporting business, increasing skills or promoting exports being totally preoccupied in destroying the residual rights of trade unionists.

The Board of Trade is possibly the oldest part of the British state it was in 1621 that James I directed the Privy Council (a body we here a lot more about these days) to set up a temporary committee “to investigate the causes of the decline in trade and the consequential financial difficulties.” 

The Board of Trade has been filled in many ways over the years but it has always had roughly the same objectives - to win overseas markets for British goods and services and to win work for British firms from foreign governments.

George Osborne, Chancellor of the Exchequer, I repeat his title because he seems to have lost his grip on it, at least in relation to China seems to see this trade thing in a very strange way.

Does he think he should be helping British firms to win a share of the Chinese market for British goods and services or helping them to win contracts from the Chinese to undertake work in China?

No he thinks his job as a British trade minister is to help the Chinese get a bigger share of the UK market and so keen is he on this he is prepared to subsidise them to get it and to structure UK public sector contracts in such a way as to favour the Chinese!

Can you imagine any other country doing this? We will subsidise you to increase your penetration of our market. We will package public sector contracts in such a way to help you get more of our business!

The headlines promise us billion of pounds of Chinese “investment” in the UK. But no one makes an investment at all let alone on this scale without a return. So what do we pay the Chinese in return for this investment?

As most of our manufacturing sector is in freefall caused by an over strong pound and slowing Chinese growth, steel is collapsing and both JCB and Jaguar Land Rover have seen a large slow down in sales in China so have even luxury brands like Burberry. 

So how is Osborne to get the Chinese to finance projects like HS2 or Hinckley Point or his most fanciful project of all the Northern Powerhouse?

His record on government investment in infrastructure despite his rhetoric is lamentable falling by over 5% since he became chancellor. Now finance to pay for infrastructure can come from taxpayers, from banks or pension funds or from foreign institutions. However thanks to his policies many of these sources are now unavailable.

His bizarre fiscal charter and its objective of an overall surplus on the public finances prevents a significant rise in public sector capital expenditure and since the banking crisis the banks have become far less willing to invest in infrastructure, so that only leaves foreign investors. Undoubtedly as pockets go China’s are the deepest.

The failure of the Government to do the sums on investment was shown in the 2014 £2.8bn purchase of 1,140 trains and carriages for the Thameslink service. We have paid way over the odds because of its exorbitant finance costs when it would have been cheaper for the state to finance the purchase.

It is worth remembering how ultimately these projects are paid for? They are paid for by me and you. The extra private finance costs are in paid higher taxes, higher rail fares and higher energy bills not just in the short term but for decades to come. 

It is bizarre that only last week the Chancellor (for it is the same person) was telling us we could not borrow to invest because it is immoral – he could find no economic reason. Yet we can borrow from the Chinese state.

How can we determine if this Chinese “investment” is value for money when these deals are hidden behind walls of commercial confidentiality, with costs obscured by government guarantees and with no clear obligations on the financiers to accept any of the risk for the construction or indeed the operation of the infrastructure?

The case of the London Underground public private partnerships shows how bad these things can be with all the benefits going to the “investor” and all the costs to the taxpayer. When Osborne offers Billions as government guarantees, a “contingent liability” does not show up on the books — but such contingencies have a nasty habit of materialising in practice.

So what is Osborne selling in return for this so called investment? Effectively he is selling off future tax revenues. As James Meek has pointed out in his splendid book Private Island, Why Britain Now Belongs to Someone Else, “The essential public good that Margaret Thatcher, Tony Blair and now Cameron sell is not power stations, or trains, or hospitals. It’s the public itself. It’s us.”