China and the pursuit of happiness

Sir Stephen Wright, Senior Adviser, TheCityUK

I listened last week to a fascinating presentation by Gang Qin, the urbane and thoughtful No 2 at the Chinese Embassy, on the 12th Five Year Plan for 2011-2015 which was adopted in March by the National People’s Congress in Beijing.

To this listener, with strong memories of now extinct regimes in Eastern Europe, the ‘five year plan’ label conjures up images of artificial central planning and mind-numbing statistics about tractor production and arable yields. But it was very clear from Mr Qin’s remarks that I needed to think again.

The economic programme that Mr Qin was describing has a lot more in common with the thinking of modern Western governments including the UK coalition than with old-fashioned Communist ideology. Indeed, whether deliberately or not, by picking up The Economist’s description of the Five Year Plan as “a blueprint for a happy China”, he drew a direct line back not to Marx or Engels but to Thomas Jefferson and his assertion of the pursuit of happiness as one of the fundamental compulsions that drives all our societies.

And in setting out the aims of the Plan –  e.g. reducing the huge inequalities in China between rich and poor people, urban and rural areas and agrarian and industrial workers; upgrading social services, notably in housing, health and education; focusing on the quality rather than the quantity of growth by reducing the energy intensity and raw material demands of production – the Chinese leadership is also broadening the scope for convergence and collaboration with Western agendas for social and economic development. This must inevitably create opportunities for Western businesses offering innovative solutions to new problems such as carbon reduction, new forms of healthcare or food security for urban populations. And all of these will need innovative forms of financial services to support them, not least in savings, pensions, housing finance and insurance.

Of course, the competitive pressure from Chinese industry will also intensify. They expect to create 45 million new jobs in the next five years, more than the entire UK workforce. But here too they are looking for quality as well as quantity. The Chinese are concerned that at present they are overwhelmingly low-end manufacturers and that even when they can stamp ‘Made in China’ on a high-tech product the share of its value that actually accrues to their economy is very small (e.g. 3% for an iPhone). The Plan calls for Chinese manufacturers to move up the value added scale and they are training the engineers and scientists to do it. Our more high-cost designers, innovators and producers will have to be ever more ingenious to stay ahead.

Experts on China assure me that their Five Year Plans are generally good advance indicators of what actually happens, so this new strategy matters to us as well as them. China is the world’s second largest importer, absorbed a 42% increase in imports from the UK last year (32% from the EU as a whole) and contributed 20% of global growth in 2010. If they succeed in stimulating more domestic demand in their economy we shall all benefit. If they succeed in curbing their extravagant use of energy and other raw materials the pressure of commodity prices on our economies might gradually ease. If they develop their role in global economic governance and their commitment to a rules-based multilateral trading system, the world economy will be safer and more balanced.

At a time when there are so many global challenges to our industry and our economy, I am hopeful that in time we shall be able to score China’s 12th Five Year Plan on the ‘good news’ side of the ledger.

http://www.thecityuk.com/