Chinese Premier backing the euro and the UK


The Chinese premier visited Stratford-upon-Avon and the MG car plant at Longbridge

So what did I learn from my three questions to the Chinese premier, Wen Jiabao?

Well little that I didn't already understand to be his views. But, even so, it was impressive to hear from his lips an unambiguous statement that China's massive trade surplus is a contributor to global economic and financial instability - and that it is unsustainable.

Of course, as of now, China continues to generate enormous surpluses, which means that the dangerous division of the world between heavily indebted economies like the UK and US, and those with huge savings, such as China and Germany, persists.

But if words matter, then his declaration that it is a priority to boost consumption by the Chinese, relative to their massive saving and investment, will help to bring balance to the global economy, thereby reducing the risks of an early reprise of the 2007/8 global financial crisis.

Challenge ahead

And it will create important opportunities for British companies.

It is important however not to understate the challenge ahead.

Robert Peston speaks to Wen Jiabao at Longbridge Wen Jiabao was at Longbridge to launch a new car from the Shanghai Automotive Industry Company

On the basis of the latest published figures, for 2009, there is a £17bn gap between the value of what China sells to the UK and the goods and services sold by British companies to China: the current account deficit with China is the UK's biggest with respect to any single economy.

My ten-minute interview with Mr Wen was in a scrum of officials and security officers in the middle of the MG car plant at Longbridge, Birmingham.

For Mr Wen, Longbridge - which only six years ago was a symbol of British industrial failure following the collapse of Rover - shows the opportunities available to both China and the UK from deepening industrial ties.

Now under the ownership of a Chinese company, Shanghai Automotive Industry Corporation, MG is building a couple of new models for the British market. Mr Wen launched one of these, the MG6 Magnette, at noon today.

Brainy business

The good news for the UK is that the cars are designed and assembled here.

Most of the brainy or so-called added-value activity still takes place at Longbridge.

The less good news is that most of the manufacturing happens in China, so most of the jobs are there.

So the 2,000 odd cars being built in Birmingham this year - which should rise to 4,000 next year - can be put together by just 30 or 40 employees.

The spare unused capacity on the vast Longbridge site remains enormous.

The plant is capable of producing 40,000 cars per year - which won't happen unless and until British and European consumers learn to trust a Chinese-owned MG brand (for what it's worth, reviews of the MG6 have been largely positive - most of them pointing out that it drives well and you get a lot of extras for the money, though in technology terms it is not cutting edge).

In other words, and as Mr Wen implied, MG's importance is as a symbol of the kind of investment China wishes to make in the UK, to transform Chinese companies into owners of valuable brands rather than just sub-contractors for western businesses.

But MG itself remains a fairly modest investment, compared - for example - with Indian Tata's ownership of Jaguar Land Rover.

I was also struck by Mr Wen's recognition of the gravity of the financial crisis in the eurozone - which could de-rail a global economic recovery that matters as much to China as to the UK.

Europe's friend

He described China as Europe's friend in its time of acute need. He pointed out that China has been increasing its holding of euro-denominated government debt and hasn't been selling since the risk of a Greek default became acute.

Mr Wen pointed to recent finance China has provided to Hungary as an example of further sustenance his country could give to the eurozone.

This was not quite a commitment to lend to Greece - or Ireland or Portugal - to save it from collapse.

But it was hint that China - and its awe-inspiring $3trn of reserves - might make a financial gesture to restore confidence in a European economy that Mr Wen insists is fundamentally strong, in spite of recent appearance to the contrary.

Update 1728: Chinese premier Wen Jiabao in his own words:

"The goal in tackling the financial crisis - we need to achieve strong balanced and sustainable growth in the world. To achieve the goal, China will play its due part. At home we are going to further stimulate domestic demand and we are going to reduce our foreign trade surplus and our reliance on exports..."

"When some European countries were hit by the sovereign debt crisis, China has actually increased the purchase of government bonds of some European countries and we have not cut back on our euro holdings. I think these show our confidence in the economies of the European countries and the eurozone.

"Before I came to the UK I visited Hungary. We reached agreement on the Chinese government buying a certain amount of government debts of bonds on the Hungarian side... that is China lending a helping hand to Hungary at a time when that country is in difficulty. We have done this for Hungary and we will do the same thing for other European countries.

"I believe the friendship and co-operation between China and European countries are most keenly shown in the times of difficulties so as we often say a friend in need is a friend in deed."

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 77.

    China wants one thing, technology.

    The ONLY way China can gain substantial advances is if it buys into advanced & hi tec businesses.

    China economic model is based upon whats best for China whereas the wests model is based upon whats best for executive bonuses & shareholders.

    China will buy into most things, but it will maintain/control key aspects in China while others do menial assembly

  • rate this

    Comment number 76.

    I suspect that most of the criticisms of China comes from sour grapes, the criticism of there human rights is a laughable sign of desperation from dwindling powers. China has the right to act in its own self interest the same as any other nation, Western countries should be the LAST to pontificate to China about what it does in its own interest

  • rate this

    Comment number 75.

    Its unfortunate that in a world of dwindling natural resources, the answer is for the Chinese to consume more stuff which we make and ship over there, in return for the stuff they make and ship here. Would not a better answer be for us to consume less stuff, and to make more of the stuff that we need here.

  • rate this

    Comment number 74.

    I love how western nations cherry pick the most profitable 'repressive' nations to do business with. How can our leaders say they value democracy and human rights when they do business with these countries? We might as well start trading with North Korea too since they are just as bad?

    And I hate seeing people call China 'socialist'. As a Marxist, it's far from it, it's got a nice flag though.

  • rate this

    Comment number 73.

    #67 - Yes we live in an automated world, but pick up a set of any manufacturing company's accounts, and you'll see salaries / employee costs making up a healthy % of operating costs. Plus the products & services your company is buying (in addition to direct wages) will have embedded salary costs within them. China doesn't have to be loads cheaper than UK to win business - just a little will do it.

  • rate this

    Comment number 72.

    China's labour is still cheap. They are strategic in education, etc. So we cannot compete on labour intensive product. Our high end product is either unaffordable to them or copied, hence trade is one way traffic. If China floated the RMB/had effective copyright law - maybe it could balance out, otherwise we will have to kept borrowing/devaluing/gettnig poorer until the labour costs equalise.

  • rate this

    Comment number 71.

    The sheer size of the Chinese economy is staggering. Maybe we can criticise their human rights etc record but the Chinese people are realising that they have the buying power to emulate the West - and they want it. Europe/UK/USA are needed by the Chinese as much as we need them. We should encourage and welcome their support.

  • rate this

    Comment number 70.


    Yeah but then isn't this part of the problem? Where we had ten people earning a wage we now only have one? Leading to nine other people out of work and needing to be supported from that one person's wages? I know this is simplified but the principle is correct.

  • rate this

    Comment number 69.

    It is good to see the most successful country in the financial world has more faith in the Euro than the Dollar. In other words they have more faith in regulated markets than in the de-regulated casino that the Anglo Saxon economies advocate.
    Food for thought for the Anti European little Englanders while they gloat over the current PIGS problems.

  • rate this

    Comment number 68.

    So Socialist China has defeated the west by behaving like a typical western capitalist company.
    Remove workers rights
    Pay workers very little
    Undercut competitors prices
    Gain market share and eliminate competition
    What happens next in the free marketeers dream their currency will increase in value and then the other countries can compete in return, does anyone believe this will happen?

  • rate this

    Comment number 67.

    But it's not too difficult to out compete the rest of the world when you've a limitless supply of cheap labour...

    ROT. Back in the 1800äs that might almost have been true. Since then we have built better and more automated machines. A single man can now attend to 10 or more lathes where in 1945 a man per lathe was needed. Same for all machines. What is needed is cheap capital

  • rate this

    Comment number 66.

    Of course the important missing word from Wen's statement is 'when'. Europe and the West will not be able to avoid a managed trade 'war' with the Chinese. Adjustments - yes but not a 'U' turn that would increase the dissension in the population who still have rising prospects of a better life.

  • rate this

    Comment number 65.

    It seems that at least one world leader is politically mature. The word balance stands out as without equilibrium no system will work.

    The one thing that did annoy was that the discussion took place in the MG factory which is owned by a Chinese company. If our political class and union leaders for that matter possessed the same sagacity as the Chinese then it would still be a British factory.

  • rate this

    Comment number 64.

    So they are not going to support the Pound in its hour of need then!

    I suppose they will wait on the sidelines for its collapse to occur then buy us out - every Business , Company ,even our Private Dwelling Houses in a Fire Sale.

    Into the Euro now please and raise Interest rates now before we go under.

    Are you listening Governor?

  • rate this

    Comment number 63.

    This always makes me think of rise and fall of empires, how Greece was once great, later Rome was great, later still Portugal and Spain (during the age of the discoveries).

    Funilly enough, all the great empires fell due to rot from within rather than outside enemies and got replaced by new empires.

    Look at the West saving its "banking elites" while the East invests in industry: makes one think

  • rate this

    Comment number 62.

    So fails the model that freed capital to asset strip developed, and to produce in low cost, countries: and to lend to the developed to maintain their consumption. It put interests in money over interest in people. Don't complain about China buying our family silver, when we gave them the money and the chance. The person who makes and sells is richer than the person who borrows and buys.

  • rate this

    Comment number 61.

    He realises that when you have minus nothing, you really have nothing to lose.
    Creditors are in a terrible position.
    All their hard fought gains can be wiped out on the whim of the debtor nations.

  • rate this

    Comment number 60.

    Let's not kid ourselves that China's buying up of US and European debt is some form of global altruism. China has its own, selfish, reasons for its acquisition of foreign government bonds and gilts. Not least of these is the fact doing this keeps the yuan artificially low against the euro and dollar, thus ensuring Chinese goods remain relatively cheap to export to these markets.

  • rate this

    Comment number 59.

    Off topic, but, credit card use has fallen by 13% in a year. Just where are the banks going to make up this money from now? How much loss to the treasury? The voltage for the life support relentlessly ebbs. The chinese will not want any of our financial products and supposedly these are what drove the "boom" for the last decade?

  • rate this

    Comment number 58.

    re my post above:

    I think we need Arthur Daley at this point to bring us his bar stool wisdom "It's just swings and roundabouts, Terry, that's all, swings and roundabouts ... "


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