There is something pitiful and desperate about, first, Osborne and Johnson, and then Cameron flying off to China to beg them on bended knee to come and invest in Britain with every incentive laid on and every regulation pushed sideways if it gets in the way. As a result the Chinese are now wheeled in to fund the new Hinkley Point C nuclear plant on very favourable terms alongside the French EDF. Then Osborne sets about luring Chinese banks into the City of London by allowing them to be regarded as branches, and hence unregulated, as opposed to subsidiaries which would be regulated. Then Cameron crows that his latest massive trade delegation to China has managed to sell British pig semen for £4.5m.
China has taken up, at best, 8% of British car exports particularly in the luxury range, but what else? And even there most of the components were imported from abroad, so the benefit to the UK balance of payments is small. One is reminded of cartoon which caught the flavour of this humiliation so well with Osborne’s invitation to lunch to the new Chinese PM: ‘Would you like a takeaway?’ to which his Chinese guest replies: ‘Yes, I’d like the UK’.
But what is so demeaning is all this kow-towing to the Chinese whilst disregarding home-grown British investors and the reasons why they’re so reluctant to invest in the current Tory Britain. It is really extraordinary that top British companies are still sitting on a cash stockpile of at least £650bn but declining (for very good reasons) to invest, and instead of trying to remove the obstacles that hold them back, Osborne turns to foreigners in the great British clear-out. The reasons for the investment phobia are obvious: there is no significant pick-up in demand either domestically or externally.
Domestic demand is squeezed because average wages have fallen at least 7% in real terms since before the 2008-9 crash and are still falling further this year, while the recent consumer borrowing mini-surge is already petering out since there is no foundation for steady wage growth. External demand is also quite flat partly because the Eurozone (including Germany) is likely to be in deficit this year to the tune of -0.4%, but mainly because the UK exchange rate is still significantly over-valued.
It will be said of course that sterling has already fallen compared to a basket of world currencies by some 25% since just before the crash, which is true, but still ignores the sheer extent of that over-valuation. That is demonstrated by the ONS figures showing a sharp and persisting deterioration in the UK’s balance of payments account for goods from -£48bn in 2003 to -£76bn in 2006 and thence to -£100bn in 2011. Careful analysis of comparative international costings of industrial production suggests that for the UK to be fully competitive with other advanced economies, sterling requires a further devaluation of around another 25%. This will no doubt be received with disbelief in some quarters, but the facts speak for themselves – such a dramatic and prolonged collapse in out imports-exports balance on such a scale cannot be corrected in any other way.
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