Chinese Premier backing the euro and the UK

  • 26 June 2011
  • From the section Business
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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."

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